Page 77 - Five Forces of Americanisation Richard Hooke 04072025 final post SDR1

The UK Defence Industry in the 21 Century
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The Five Forces of Americanisation

“Many of the major projects that were tendered competitively during the late 1980s to mid 1990s were
subject to delays and cost overruns, and it is not clear how these extra costs were apportioned between the
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MoD and the companies, since contracts were renegotiated on a confidential basis.” (26 April, 2006)
“In many cases, savings were made simply through the reduction in quantities ordered and delays to in-
service dates, which could be attributed to the end of the Cold War and the general reduction in the numbers
of equipment deployed”.
(House of Commons; January/February, 2006)
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5. “Defence in the 21 Century: Thinking Global or Thinking American?”. PwC, 2005
https://www.pwc.pl/en/publikacje/defence_industry_ads.pdf
6. See Appendix 5 of this paper (“Leverage as competitive advantage: calculating the cost of capital”)
7. “Goal Congruence” is a common theme in organisational development. It has implications for objective
setting, for assessing individual, group or company performance and for problem-solving: root cause
analysis. From a board director’s perspective, it is a more outward-looking concept. Aligning legal,
regulatory and other specific requirements imposed externally together with those of investors,
employees, suppliers, partners, customers and the general public. This often requires directors to trade off
certain principles or objectives, prioritising some, possibly giving others less prominence as a result.
8. “Modern Portfolio Theory (“MPT”) is an investment theory (developed by 1990 Nobel Prize winner Harry
Markowitz in 1952) based on the idea that risk-averse investors can construct portfolios to optimize or
maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part
of higher reward….
“MPT assumes that investors are risk averse, meaning that given two portfolios that offer the same expected
return, investors will prefer the less risky one. Thus, an investor will take on increased risk only if
compensated by higher expected returns. Conversely, an investor who wants higher expected returns must
accept more risk…
“An investor can reduce portfolio risk simply by holding combinations of instruments that are not perfectly
positively correlated.”
(Ali Setayesh, University of California, Berkeley, March, 2022)
9. A merger of equals (“MOE”) describes the situation where two companies of similar size consolidate to form
a single new entity, aiming to enhance their market position, reduce competition, and achieve synergies.
Since the combination is, by its nature, supported by both companies, in many MOEs, neither party’s
shareholders receive a control premium or transfer control. Instead, control remains with the public
shareholders as a group. Whilst appearing to be an efficient way of delivering growth and efficiency, MOEs
are unsurprisingly difficult to negotiate and even harder to execute successfully.
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(Harvard Law School, 8 January, 2025)
10. The Competitive Advantage Period (“CAP”)
“share prices are not set by capitalizing accounting-based earnings, which are at best flawed and at worst
substantially misleading….The focus must be on the economic drivers of a business, which can be defined
as cash flow (cash-in versus cash-out), risk (and appropriate demanded return) and what we have dubbed
“competitive advantage period”— CAP— or how long returns above the cost of capital will be earned. CAP
is also known as “value growth duration” … in the economic literature. CAP is also similar in concept to
“fade rate.””
(“Competitive Advantage Period “CAP” The Neglected Value Driver” Michael Mauboussin & Paul Johnson;
Frontiers of Finance; Credit Suisse First Boston, January, 1997)

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