The quest for added value

July 1, 1999
McLEAN, Va. — Beneath the surface of the controversial issues concerning the use of commercial off-the-shelf (COTS) tech- nology is an underlying issue which will determine survival in the military electronics industry: value added. Some of these issues came to light in May at the COTScon East `99 conference.

by John Rhea

McLEAN, Va. — Beneath the surface of the controversial issues concerning the use of commercial off-the-shelf (COTS) tech- nology is an underlying issue which will determine survival in the military electronics industry: value added. Some of these issues came to light in May at the COTScon East `99 conference.

Up and down the manufacturing chain of the defense and aerospace electronics industry — from the component vendors to the board and subsystem makers to the system integrators — all the participants feel compelled to add value before shipping product to the end user.

After all, standard products are just that — standard products. Yet adding value, particularly when this process begins with commercial off-the-shelf (COTS) equipment, increases profits for the suppliers and gives competitive advantages to the buyers. Assembling readily available parts or boxes doesn`t add much value. Optimizing them for their intended tasks does.

The value isn`t in the hardware or even in the stubbornly expensive accompanying software. The purpose of the Defense Department`s COTS initiative was to transform hardware and software, as much as possible, into commodity items. Instead, the real value is in the intellectual property rights that are properly proprietary to each company along the manufacturing chain.

New COTS chapter

The notion of value added represents a new chapter in the COTS story. It means that military users have a new freedom to shop around for the best deal, and the companies with the best mousetraps are likely to have the mice beating a path to their doors (unless the mice buy up the patent rights to keep the mousetraps off the market).

After nearly five years at center stage, the very term COTS is becoming shopworn. An experienced industry consultant recently asked me why we write so much about COTS and why we sponsor meetings about it. The consultant, John Hartman, the former Analog Devices executive and now a consultant in Eaton Center, N.H., brought home a good point. The missionary work of COTS, he contends, has been done and COTS is now part of normal day-to-day business practices.

John Hartman is right. Yet his point doesn`t diminish the significance of COTS — or the need to continue the missionary work. COTS remains an important tool in all the suppliers` toolboxes. But there are other tools, and together they contribute to added value. Even in today`s COTS environment there are functions of sufficient complexity or insufficient volume to justify custom designs.

I remember some of the previous burning issues in this industry, such as Zero Defects during the heady days of the Apollo moon landing program and later that old favorite, Total Quality Management, or TQM. Since I earn my living by being suspicious, I once asked the TQM expert at the Litton Guidance & Controls Division in Woodland Hills, Calif., just what is this TQM that everybody is talking about? Her answer, which came as a revelation to me at the time, is equally applicable today. "It`s simple," she said. "Everybody has a customer. Everybody is a customer." Along those lines, I recently saw a bumper sticker, probably put out by an environmental group, which reads, "Everybody lives downstream."

Business rules

Everybody lives downstream in this business, too, and it`s a good idea to know where the stream is going, how fast it`s flowing, and where the rocks are. The ground rules have changed somewhat in the COTS era, but the basic purpose of running a business hasn`t changed much since Adam Smith more or less invented capitalism in that seminal year of 1776. Here`s another inspirational message, courtesy of the Shenandoah Telephone Co. in Edinburg, Va.: "We must serve well to prosper. We must prosper to serve well."

It amazes me that there are still differences of opinion in defining COTS. The term seems to define itself. If a product is commercially available from somebody`s shelves to anybody who wants to buy it, it ought to be COTS. There`s a great deal of variety in automobiles on the market for different tastes and different pocketbooks, but we don`t have them built one at a time. They`re COTS, too.

The business environment has changed substantially over the years, for the better in my view, since the days of the vertically integrated giants that could keep all the work in-house. This fattened the profits of those companies that could dominate their industries — IBM and AT&T come to mind — but it didn`t help the end users much. In the absence of competition, not only did most of them have to pay artificially higher prices, but they also had to wait for new technologies until the giants were ready to release them.

The days when the industry giants ruled didn`t cause sleepless nights at the Pentagon, where money wasn`t much of a concern in those days. Yet it wasn`t a healthy situation and predictably it didn`t survive a transformation of the international climate. The seeds of change had already been sown before former Defense Secretary William Perry issued his now-famous COTS directive in 1994. COTS did not spring full grown from his brow like Athena from Zeus. A previous deputy secretary of defense, David Packard (of Hewlett-Packard fame), in his famous Packard Commission, had set the stage for moving from unnecessary military specifications to more sensible commercial practices in various support systems.

That process continues unabated. Open-system architectures and the practice of folding the non-recurring developmental costs into the final price of the product to the next buyer along the food chain are creating a healthy climate. It would seem illogical to return to the days when competition in the defense industry was a joke and prime contractors could buy their way into programs safe in the knowledge that there would be few constraints on the final costs of the hardware.

But it also would also seem illogical to rule out custom designs and proprietary architectures if they add value for the users as well as the producers. The message I got out of COTScon this year was simple: use all the tools in the toolbox, but use them only for their intended purpose.

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