How is Marketing in the Defense Industry? What Does the Planning Programming Budgeting and Implementation System (PPBUS) Do?

What is Marketing?

Marketing is the process of planning and implementing efforts to create, price, distribute and promote products, services and ideas in order to ensure the exchange of products, services and ideas in accordance with the objectives of individuals, businesses and organizations. Marketing, which is mostly fed by the communication skills of the sales force, is a strategic decision-making process carried out at the desk to identify consumer needs and wants, select target markets, and develop appropriate products, services and programs. Scientific studies have named the principles of marketing as the "7p", consisting of product, price, place, promotion, people, physical facilities and process. 

However, the execution of these activities is only possible with the production of sufficient knowledge by the business. Because strategy cannot be formulated unless customer and market knowledge can be developed or transferred from specialized companies. In one way or another, strategies formulated solely with personal vision cannot provide the desired benefit.

In the Defense Industry, Business Development is Preferred Instead of Marketing

In the defense industry, the customers are usually states. Therefore, states often conceal their preliminary preparations for their planning. In the case of security-related products, the technical requirements needed are often not known before the tender is issued. Worse still, the people who plan, approve, order, inspect and even use the materials can be very different. No matter how hard one tries, especially small businesses can never reach the desired depth of knowledge before the process. Unfortunately, the tactic of using sales personnel as an information gathering tool, which is often applied in normal market conditions, does not work either.

Perhaps this is why the concept of business development is preferred over marketing in the defense-related product sector. Because this concept, which essentially means the development or expansion of the elements expressed in the mission, defined as slogans or phrases that summarize the geographical markets in which the business operates, target customers, the work done (services provided or products produced), shared culture, mission, goals and values, in short, the reason for the current existence of the business, is closer to the formulation of top management strategy than to functional actions (1). 

Many business development experts in the defence industry track the year-on-year jumps in countries' modernization budgets in the SIPRI Military Expenditure Database. Thus, they try to sell defense-related products to countries where the political infrastructure is favorable. Most of the time, however, such an effort is nothing more than a blind fight. First of all, the desired capabilities and elements have already been decided upon; in some cases, contracts have already been finalized. Moreover, in some cases, what the target customer needs and what the business development specialist is trying to sell may not be the same.

Lobbying Companies in the Defense Industry

Another method used in international marketing in the defense industry is to work with lobbying companies. However, selling defense products in foreign countries through intermediaries is a very expensive activity. Especially in some Middle Eastern and African countries, a semi-official system called "wasta" can be used to conduct activities before governments in favor of businesses and products. This structure, which is summarized by Western experts with the maxim "it is not what you sell, but who you know", will have a relative chance of success (2). This system, which is widely used in the Middle East, is legally seen as a normal business and a part of daily life.

This is why, in the words of Loren Thompson, Chief Operating Officer (COO) of the Lexington Institute, many business development professionals resort to high-profile tactics such as advertising and public relations (3).

However, much of the information to be used in the marketing of these products used by governments can be generated within the defense planning process. The defense planning process is the activity of trying to match the defense capabilities required to eliminate the threats and risks faced by a state with the available budget resources. The process is often long, tedious and complex, requiring political, technical and military know-how. Therefore, in many states, defense planning activities are only partially carried out. 

Is Planning, Programming, Budgeting and Implementation System (PPBUS) a Need?

The most commonly performed part is the Planning, Programming, Budgeting and Execution System (PPBUS). The US Defense Acquisition University defines PPBUS as a formal, systematic and logical decision-making infrastructure for the development of the forces and capabilities required to carry out policy, strategy and expected missions (4). Since the classical, short-term, input- and unit-oriented budgeting systems did not allow for result-oriented resource planning, with the approval of Robert Strange Mc Namara, the 8th Secretary of Defense of the USA, the implementation principles were published to all institutions as the Planning, Programming, Budget System (PPBS) by the US Bureau of the Budget on October 12, 1965 with Communiqué No. 66-3.

The system soon spread to other allied countries and by 1970 it was being used by the United Kingdom, Canada, Sweden and France in addition to the United States. In the following years, PPBS was successfully implemented in many countries such as Belgium, Israel, Sweden, Norway, Canada, Italy, Germany and Malaysia. In 2003, the procurement dimension was added to the PPBS with the idea that only planning was not enough and that the necessary sensitivity should also be shown in its implementation, and the new structure was subsequently called the Planning, Programming, Budgeting, Implementation System (PPBUS) (5). Today, about 40 countries allied with the US, from Taiwan to India and Saudi Arabia, use this system or its key elements. In other words, as Mintzberg points out (6), a business development specialist who is familiar with the PPBUS process as one of the most fundamental strategic formulation techniques of states will be aware of the decision-making mechanisms of these countries.

In addition, among arms exporters, the United States achieved the highest sales volume in the world in 2020 with 9372 million dollars, followed by Russia, which ranked second, with 3203 million dollars, barely reaching a third of the transaction volume. It is considered that the regulations and practices that facilitate collaborations with companies in the determination of policies, criteria for determining the need for capabilities, and procurement stages of the US defense planning have a great impact on the achievement of this transaction volume. For this reason, this study briefly examines the information generated by the PPBUS process and the regulations and practices regarding the functioning of the defense industry ecosystem of some states, particularly the USA and Russia.

How Does PPBUS Work?

Today, there is no standard perspective among countries on the place of the PPBUS process in defense planning. While there are authors who consider the PPBUS process, which consists of planning, programming, budgeting and implementation stages in the procurement of defense-related products, as sufficient, there are also researchers who think that all management steps should be fully implemented. It is claimed that preliminary processes such as the determination of the national interests of countries; the creation of a national military strategy for the targets to be defended or developed with military power elements accordingly; the identification of mobilization needs accordingly; the determination of planning situations and the selection of the required capabilities should be included in the system. 

For example, the US Military Auditors Association, in a study conducted in 2008, stated that PPBUS is the system that best establishes the link between objectives and budget (7). This is because while traditional financial systems use short-term and per-unit budgeting, the PPBUS process enables long-term planning of resources and increases their utilization in line with goals and policies.

Nevertheless, researchers who perceive the PPBUS process as a mere resource allocation process, especially by arguing that the existing higher practices in defense planning before the PPBUS were not the subject of the financial system, are dominant in the literature and are strongly criticized by other authors for not giving importance to strategic planning (e.g. Falay (8)). Another major criticism is that operational capability projects are identified without adequate analysis. A project document should be shaped primarily by future political, technological, demographic and geographical projections that will affect the planning. This study will also determine the political balance, the parties, the intensity and the prevalence in the operational environment. Technological change during the realization period of capabilities will not only change the content of warfare, but will also make a difference in the ways of production. Therefore, even if the project document is prepared by an expert or group of experts equipped with military knowledge, they will never have sufficient knowledge of the future. Therefore, in many countries, project documents are prepared under uncertainty about the future (9).

Nevertheless, in many countries, the PPBUS process starts with the planning phase after the preparation of project documents. Topçu and Korkmaz (2021) state that the first half of the planning period is prepared for programming, but the second half is envisaged with a visionary thinking (10). While these capabilities, which are thought to be achieved in the long term, can be revised according to changing conditions, they provide the link between forward-looking goals and programming. Therefore, when determining the requirement, the requirement previously defined in the planning phase is also used for the project, instead of the system or weapon name. However, elements of the capability such as material, infrastructure, maintenance, sustainment, personnel and organization are planned separately. Many countries use this stage to ensure the political authority's control over military capabilities through the approval mechanism. In the United States, the Defense Planning Guidance (DPG) is published by the Department of Defense after this process (11).

The second stage of the PPBUS process is programming. In fact, programming was designed by Mc Namara in order to overcome the disconnect between planned multi-year projects and annual budgets.10 In fact, in the system, planning and programming are complementary parts of an intertwined, sequential process. Projects are divided into sub-projects; sub-projects into activities (or projects); and activities into items. However, it is stated that only 35% of the projects that are unlimitedly included in planning can be included in programs (12). 

Budgeting is the planning of the collection and disbursement of the costs foreseen by national or alliance defense expenditure programs from the resources of public legal entities and semi-official organizations and communities in accordance with the estimated balance of income and expenditure in a certain period (one year) in accordance with financial, economic, formal, social, political and legal principles and authorizing the relevant persons to spend (13). Budgeting covers the process of preparing and approving the law, while implementation refers to the actual allocation and expenditure. In terms of defense planning, as in budgeting activities, procurement activities are carried out from two different sources: alliance (e.g. NATO) and national.

In the US, a period of about 18 months elapses between planning and the tendering process. It is very difficult for a company that does not have sufficient capability infrastructure to design and realize the desired material from scratch in such a period of time. In fact, the 2017 US Department of Defense (DoD) Marketing Guide clearly states that a company should be prepared to invest considerable time and resources in identifying potential opportunity areas, marketing to potential customers, preparing bids, complying with military regulations and fulfilling the contract. Failure to make these preparations at an adequate level of readiness is likely to have legal and economic consequences for some contractors. However, according to many researchers, PPBUS plays a critical role, especially in the procurement of defense products (e.g. FAST).

Strategic Approaches for Defense Industry

In terms of the defense industry, due to the major problems experienced at the end of the PPBUS process, the United States, the European Union and many other countries have put into practice two basic strategies; more unified strong defense industry companies instead of small companies, and the coordination of the defense industry and the armed forces in many stages of defense planning (14). For this reason, very important mechanisms have been developed to guide defense industry firms. Most of these mechanisms include infrastructures related to the PPBUS process and its predecessors.

For example, the RAND Corporation, which contributed greatly to the development of PPBUS, worked closely with the US Air Force when it was founded on May 14, 1948, after World War II. In fact, company personnel actually participated in the research teams of military personnel in many of the force's projects and even had direct access to technology, intelligence and operational plans (15). The US Air Force Command Strategy was developed by this private company in 1950. In the following years, RAND provided various supports to the institutions at every stage of defense planning and especially in the PPBUS process, such as the identification of capabilities and their evaluation with scientific infrastructures.

However, especially after the Vietnam War, the RAND Corporation realized that the desired success could not be achieved with technical infrastructures, and repositioned itself at the highest level of defense planning and thus the PPBUS process as the policy maker of the countries served (16). Within this framework, in 2018, the company initiated 685 new projects in 50 countries with 1950 personnel, 54% of whom have PhDs, and contributed to the international interests of the US state by publishing 500 different documents and 375 articles (17).

In many countries, the PPBUS process is spread over a very long vision of 10-15 and sometimes even 25 years, taking into account the development of capabilities and realization time as well as financial resources. For example, in India, this process was implemented for 5 years in the first planning periods, but later (1969-1974) it was realized that this period was not sufficient and it was decided that it would better ensure fiscal discipline, so long-term planning was reverted to (18). In fact, Stojkovic and Dahl state that this period should be longer than 10 years, while Tagarev states that it should be between 10 and 50 years (19) (20). In the USA, the DPG is published after the planning phase of the PPBUS in order to provide guidance to defense industry companies and to make efficient use of the intervening time (21). However, in many countries, this document is used to authorize the armed forces.

On the other hand, each defense-related capability has sub-components. For example, the Patriot Air Defense Missile System, which today is seen as a single capability, has four main operational components: communications, command and control, radar surveillance and missile guidance. The four functions are integrated to provide a coordinated, secure, integrated, mobile air defense system. For this reason, an ecosystem of small and medium-sized enterprises has been established in the United States for the realization of the sub-capabilities identified during the programming phase of PPBUS. In this regard, the Federal Acquisition Regulation (FAR) and the System for Award Management (SAM.gov) Database registration requirement were introduced. The Procurement Technical Assistance Program (PTAP) was launched in 1985 to provide training to these small and medium-sized enterprises, and local liaison offices and centers were opened. 

In addition, since the amount of consumption in defense industry products is limited and research costs are high, technology maturity curves need to be kept at a continuous growth level with scientific innovations. For example, in the USA, the need for an Air Defense Missile System was included in a series of surface-to-air missile programs in the 1970s (22). Prior to the Patriot Air Defense Missile System, Raytheon was also involved in a number of surface-to-air missile programs, including the FABMDS Field Army Ballistic Missile Defense System, the AADS-70 Army Air Defense System (1970) and the SAM-D (Surface-to-Field) (23). In contrast, the MIM-104 Patriot system, the best known representative of this capability, was initially developed by the company as an anti-aircraft concept only. Its development as we understand it today began in 1976.

This is why the Stevenson-Wydler Technology Innovation Act of 1980 and the Federal Technology Transfer Act of 1986 enabled companies in the US to enter into Cooperative Research & Development Agreements (CRADA). The state, through its institutions and laboratories, puts personnel, services, facilities, equipment, intellectual property or other resources at the disposal of the private sector. The aim is to rapidly turn the knowledge accumulated or generated in the state, universities and research laboratories into tools and accelerate the commercialization of new technology. 

In the case of Russia, the world's second largest arms exporter, the state both gathers the companies producing defense-related goods under a large umbrella and controls more than fifty percent of this structure. After its establishment at the end of 2007, Rostek (Russian Technologies) has gathered more than 700 organizations, including 14 holdings, to prepare, produce and export high-tech industrial products for civilian and military use (24).

Ukraine, which today receives military aid from the world to fight Russia, created Ukroboronprom (UOP) in 2010 for similar purposes. The organization, which initially consisted of only seven large state-owned companies, rose 14 places from 91st to 77th on the SIPRI World Arms Producers List between 2014 and 2017. It also acquired 123 public institutions and 9 joint stock companies during the same period (25).

However, as stated in the Strategy and Business Plans of the Swiss Defense and Security Industry Association (SOFF), the profit margin for a defense industry that serves only its own country may not be sufficient depending on the transaction volume. In fact, the financial return on R&D activities may be realized very late. In global markets, this sector is often politicized, complex and highly uncertain. Therefore, target markets need to be developed to include all allied countries. At this point, the support of state institutions and especially foreign mission chiefs to the defense industry is of critical importance.

Conclusion 

The defense industry is the guarantee of a country's independence. However, the development of products used in defense requires a long and costly process. Due to their characteristics, they are not highly consumed products. Therefore, the fixed costs spent for their development have a very high impact on product pricing per unit. This cost is reflected in the budgets of countries with the same weight. 

In addition, in order for countries to maintain a continuous strategic advantage in defense-related products, innovation and economies of scale in the defense industry are essential. Production in large quantities is possible through a supply chain between allies. However, marketing defense-related products to these countries requires intensive knowledge of the market and the target customer. Although companies employ retired personnel as field experts to fill this gap, the results obtained are not as effective as desired. Therefore, in markets where the customer is the state, defense industry companies cannot have much chance on their own in product development, pricing, procurement inspection, etc. processes, purchasing authorities and promotion activities.

However, much political, military, technological and strategic information, including predictions of future planning environments, is generated during the defense planning process. Therefore, if states enter into a more intricate and close relationship with the defense industry, this information will be used more effectively by companies. Considering the impact of defense-related products on the security of the state, different control mechanisms are already in place. Therefore, all kinds of measures are taken regarding the reliability of companies. For this reason, states should support the defense industry with various mechanisms for the development and marketing of new products. The form and nature of this relationship may vary depending on the traditions of the countries.

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