4 Capturing the Direct and the Serendipitous Spillovers:
4.2 The Saab Group Strategically Reorganizing
distinguished group. It is no wonder that a number of aspiring industrial economies see aircraft industry as a vehicle to reach that goal, and that the wealthy industrial economies see their military aircraft industry as the means to maintain their indus-trial supremacy. This competence (with Saab in Sweden) therefore spills goodwill value to the entire Swedish engineering industry. The development of a complete aircraft industry, including (see below) also a civilian aircraft industry, hence, has been a positive brand for the entire Swedish engineering industry.
4.2 The Saab Group Strategically Reorganizing
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1. Compared to the previous business situation with one public customer, the Swedish Government, with a long-term perspective on military procurement and development, Saab now faces many new customers, several private, with more immediate demands that are also less inclined to cover sophisticated R&D-intensive new product development.
2. While the previous defense policy was based on uniquely Swedish (and secret) defense solutions, Saab now has to deliver interoperable solutions, for instance flexible equipment and solutions that function in an international context, together with similar solutions of other countries.
3. Today, the previously dominant task of protecting national borders is only part of the Swedish military policy. Saab defense products, therefore, will increasingly have to cope with new, more complex, and unpredictable global threats and be capable of being part of international peace-keeping operations.
These new tasks define a new market environment for Saab as a military aircraft producer which is forcing the business units within the Saab Group to reorient and to reorganize for a different market life. Saab, hence, is a technology-intensive company in transition, but over the foreseeable future its business will be based on the Gripen aircraft and Gripen technology generation and the ambition is to remain in the complete military aircraft systems market. Focus has, however, been reset on (1) military products and systems but also, and in the long term on (2) civil security as a new civilian business leg. Companies with needed complementary technolo-gies have been acquired and nonmilitary/noncore businesses sold off. This defines a third (3) business task to be attended to by Saab Ventures, established in 2000 both to capture as much economic value as possible on the existing portfolio of noncore technologies and future spillover technologies and to “spin in” complemen-tary technologies that are needed to support Saab core technology development.
Celsius was acquired in 2000, South African Grintek in 2005, and Ericsson Microwave Systems6 in 2006 to complement the military core business. A number of unrelated businesses have been sold off in recent years (see below).
Finally, (4) Saab has entered the upper end of the potentially large market for engineering consultancy through its fully owned but independently managed Combitech AB consultancy arm. Through Combitech AB Saab can capture some of the rents from its spillovers through selling military aircraft engineering expertise in civilian markets. Combitech AB is also a vehicle for keeping specialized military engineer-ing capacity employed with civilian jobs within the Saab group (see Case 23).
4.2.1 A Business Organization in Constant Transition
Currently (October 2009) Saab is composed of 15 business units grouped under three business segments: Aeronautics (mostly Gripen), Defense and Security Solutions (DSS, including surveillance systems (Erieye, and since 2008 Civil Security) and Systems and Products, each one accounting for about one-third of total group sales of some 23 billion SEK 2007. Aeronautics is dominated by Gripen
military businesses but also includes Unmanned Aerial Vehicles (UAVs) and civil-ian operations associated with the Saab partners Airbus and Boeing, for which Saab develops and manufactures subsystems, notably based on light weight structural components.
From January 1, 2010 these three business segments will be reorganized into the five business areas:
1. Aeronautics, dominated by Gripen and Unmanned Aerial Systems, including civil aircraft systems and components covering 31% of sales in 2008.
2. Dynamics, including weapons, missiles, remotely operated vehicles, and signature management systems or today’s business units Saab Bofors Dynamics and Underwater Systems (18% ).
3. Electronic Defense Systems, including defense electronics and avionics, early warning and control sensors, radar systems, and electronic warfare systems (19%).
4. Security and Defense Solutions, including surveillance systems, civil security, training, and telecom technology in South Africa (22%).
5. Support and Services, for military and civilian products, logistics, etc. (14%).
The new security and defense business area (including the previous Saab Security unit) has moved up in priority in the new organization. It draws on several common technological platforms within Saab (to support for instance anti terrorist weap-onry) mostly within the command, control and communications area, including sensors and systems integration. It is considered strategic and ready to be geared up for future expansion. It will, and has to draw on other Saab business units for sophisticated technology.
As before Saab Ventures operates from the corporate level and Combitech AB is a separate joint stock company with a separate Board, albeit fully owned by Saab AB.
Saab is probably best known for its advanced military aircraft development and aircraft certainly is Saab’s largest business. However, high technology deliveries to army and naval forces and weapons together are almost as large. Civil security and other commercial products make up almost 20% of Saab group sales. Altogether almost 70% of sales went abroad in 2008.
4.2.2 Military Aircraft Technology is the Platform for Future Industrial Development of Saab
As before, military aircraft platform, weapons, and networking technology devel-opment not only will define the frontier technology for all five business areas. To develop a new military aircraft a large number of technologies have to be devel-oped or modified and integrated. The Gripen business project will therefore con-tinue to function as a broad-based technology driver and technical university, both for Saab itself and for the rest of Swedish industry, using already today the technologies of future engineering industry. This also means that it is difficult to group the business units of Saab along clear market or production technology
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lines. The Saab organization chart therefore is not only correspondingly complex but will continue to be in constant transition.
The reorientation of Saab and the need to focus has also meant an increased need to add new complementary technologies to its core businesses, both for the military product development and for the strategic expansion into new civil security markets.
In addition, Saab faces a need to earn, and to raise its return on the steady flow of technology spillovers that is generated as an “accidental” byproduct by its core operations. The policy is to incorporate and sell more new technology than before and for maximum price, rather than trying to operate new activities in new markets within the Saab group. Saab Ventures was established in 2000 to attend to these two tasks. Also in the new organization, Saab Ventures will operate from the corporate level across all five business areas. Saab Ventures will not only monitor the now rapidly evolving markets for strategic acquisitions to acquire complementary tech-nology, but also supply these markets with new and innovative Saab technology that has fallen outside Saab’s core businesses. The difficult management problem of nurs-ing new businesses for the market is for one thnurs-ing to identify winners, but also to prepare radically different and odd technological spillovers for full-scale industrial production and distribution. The crtitical business task then is to decide when the maximum price can be captured and remove the venture from under the parent’s man-agement umbrella. This is no easy task that Saab Ventures has been strategically placed to manage, but looking at Saab as a concept and solutions systems developer it is a competence that it has to develop profitably.