Lockheed Martin and Northrop Grumman are both making a push into the commercial market, but history isn't in their favor. What might make things different this time around?
In 1996, when I started my career with Washington Technology, the dotcom bubble was just starting to inflate.
Over the next couple years, I watched as several government contractors tried their hand at cracking commercial markets. They saw greener pastures in the commercial sector, which was growing rapidly, and had healthier margins compared to the slow and steady government market.
But many of the efforts, including a residential cable TV venture, didn't make much sense.
As then Lockheed Martin Chairman and CEO Norm Augustine warned, the track record of government contractors moving into the commercial markets is “unblemished by success.”
Today, we are seeing history repeat itself, but with a twist. And that twist might spell the difference between success and failure.
Today, companies talk about adjacent markets, and for companies like Lockheed Martin and Northrop Grumman, that means markets such as utilities, health care and financial services.
These markets share attributes that make them government-like: heavily regulated, high level security concerns and lots of interconnections with the government. That's a big difference compared to the late 1990s rush to greener pastures.
Recently, I spoke with executives from Lockheed and Northrop, and they described how they see cybersecurity as an important entrée to these new markets.
Lockheed, for example, has commercialized an offering it first used internally. Emails are a major threat to any organization, so Lockheed created an awareness campaign to teach employees about security risks. The iCampaign, as the company calls it, includes briefings, videos and even a gaming aspect to quiz people.
“But we said if we go through all this, how are we going to know if we are successful in moving the needle on employee awareness,” said Sondra Barbour, executive vice president of Lockheed’s Information Systems & Global Solutions group.
Lockheed’s answer – which it now sells to other companies – was to send spoof emails with varying levels of sophistication and see if people will click on them. This not only measured effectiveness of the awareness campaign, but also identified employees who needed more training.
One result was a 10-fold increase in the number of emails reported as possible cyber risks, she said.
An area where Lockheed and Northrop are likely to go head to head is the energy market, where both companies see cybersecurity opportunities.
Northrop formed a partnership last year with Areva to bring cybersolutions to the nuclear power industry. Areva is established in the market, and provides solutions to help companies meet regulatory obligations. Northrop brings the cyber expertise.
The Nuclear Regulatory Commission is requiring commercial nuclear facilities to develop and implement cybersecurity plans.
“We see that as a big potential market,” said Michael Papay, vice president and chief information security officer for Northrop Grumman Information Systems.
The broader commercial market will grow as an opportunity, as awareness continues to grow about cyber threats, he said.
Another trend that I’m seeing that should create realistic opportunities for government contractors to win over commercial clients is the increasing use of commercial off-the-shelf technology in the government.
Government contractors increasingly are leading experts on a whole host of commercial products. When you think of the places and situations in which government contractors are implementing commercial technologies, I can’t help but think that will be an impressive selling point in certain commercial markets.
Time will tell of course, but maybe Norm Augustine will be proved wrong after 20 years.
NEXT STORY: Cloud alters operating models