human resource management

7Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

BAE Systems is the 3rd largest defense company in the world, the largest outside of the US, and in 2016, they reached sales of £25 bn. Their vision is to be the premier international defense aerospace and security company in the world. This vision is vague and ‘premier’ can be interpreted in quite a few ways. They have mission and strategic objective statements that qualify how they are going to reach their vision. In this paper, the authors interpret what BAE Systems means when they state that they want to be the ‘premier’ defense company. The authors do this by examining the evidence supporting a strategy that aligns with financial dominance (focus on sales), product quality dominance (focus on R&D), or global dominance (focus on spread of operations). The authors achieve this by looking at the movement of people within the company, as well as qualifying those movements with financial expenditure. What the authors found is that from 2012 to 2016, BAE Systems increased their employee numbers in the UK and Saudi Arabia, but decreased in the US and Australia, and their employee numbers in other markets remained consistent (Australian Government, 2016). The changes of where revenues come from, alongside with the movement in employees, suggests that the company is centralizing R&D and production in the UK but is maintaining a consistent global sales effort. Within the UK, they have consistently recruited university graduates, and have surged the number of new apprenticeships, which supports the hypothesis that they are hiking production within the UK. In the US, they are one of the top recruiters of military veterans, which likely leads to better government relationships. Based on the global market trends, competitors’ composition, and how BAE Systems is constructed, the authors reason that BAE Systems’ top competitors are in a position of much higher financial risk. If the US decreases its relative military dominance over other countries, this could be beneficial for a company like BAE Systems, which has 59% of employees and 79% of its total sales located outside of the UK. In essence, BAE Systems is employing effective human resource strategies which align with their R&D and sales objectives. They are effectively recruiting new, young, and skilled STEM graduates to support their R&D initiatives, as well as apprentices to ramp up their domestic production. The recruitment of young persons demonstrates effective succession planning on behalf of the company. The distribution of employees globally means that the company is in a position of reduced financial risk, which might put them in an advantageous position in the future.

Nicholas Landry* and Carolan Mclarney**

* Faculty of Management, Dalhousie University, 6100 University Avenue, Halifax, Nova Scotia, Canada. E-mail: [email protected]

* * Faculty of Management, Dalhousie University, 6100 University Avenue, Halifax, Nova Scotia, Canada; and is the corresponding author. E-mail: [email protected]

© 2019 IUP. All Rights Reserved.

Introduction BAE Systems is the third largest global defense company in the world. In 2016, they achieved revenues of £25 bn, bested only by Boeing (£30 bn) and Lockheed Martin (£41 bn). They are by far the largest defense company in the UK and are more than twice as big as their next-

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biggest European competitor, Finmeccanica (Italy) (Dhiraj, 2015). BAE Systems has stated their ambition as being “The Premier International Aerospace and Defense Company in the World”. There are multiple stated strategic elements to accomplish this vision in their annual report (see Appendix).

BAE Systems does business in hundreds of markets globally. However, the US, the UK, Saudi Arabia, and Australia account for approximately 81% of their total revenues and according to their annual report appear to be the principal focus of their sales efforts (BAE Systems, 2016). Most of their employees are located within these countries, with some representation sporadically stationed across other countries. Though there are certainly good reasons for focusing on these specific countries, it seems at odds given their stated mission and vision that China, Russia, South Korea, France, Germany, and Japan all spend more money on defense than Australia (Stockholm International Peace Research Institute (SIPRI), 2016b). Moreover, Lockheed Martin, their main global competitor, is earning approximately 50% more sales on a per-employee basis. This suggests that Lockheed Martin is either better politically connected, has a better strategy, offers better products, or a combination of these factors.

Australia was included as one of BAE Systems’ international focus in the Annual Reports since at least 2012. The inclusion of Australia adds questions rather than answers. Australia accounts for only 3% of their total revenue source and 4% of their people. Has BAE Systems mentioned Australia in their annual report because they have representation, or because they want to increase representation? To answer this question, the authors look at trends in people and military spending from Australia in the past 5 years.

Throughout this paper, the authors have identified BAE Systems’ vision, mission, and strategies and evaluated how its human resources management systems align with and are used to accomplish these goals. The authors will thereafter qualify and assess the strategy and its execution by comparing BAE Systems’ revenues to those of their competitors by region. The purpose of the paper is to compare BAE Systems to some of its main competitors to understand which defense contractors have the highest sales, how they achieve these sales, and how BAE Systems might change their strategies to achieve these goals. Additionally, the authors want to look at and compare human resource factors between companies to see if there are certain items that relate with performance. The authors also look at percentage of workforce who are veterans, as well as tracking the changes and movement of personnel throughout the company over time.

Vision, Mission and Strategy BAE Systems’ vision, mission, strategy, and strategic objectives are clearly communicated on their website as well as in their annual report (BAE Systems, 2016, p. 16). This section will be used to expand and clarify what each term likely means, based on context and supporting information, and will be used as a starting point to introduce the market, how they approach sales, as well as how they approach people management across their company.

9Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

Vision Our vision is to be the premier international defense, aerospace and security company.

This stated vision in the annual report is vague and requires some clarification. What do they mean by “premier international … company”? Whether this vision was left intentionally vague might be by design, however, the authors will discuss the possible interpretations.

Quality: Some might interpret this vision as wanting to be the international defense, aerospace and security company that delivers the highest value products. In the defense industry, these can be either products with increased protection, greater precision, superior manoeuvrability or speed, range, firepower, or efficiency. There is evidence to support that high-quality, cutting- edge products are the principal aim of this company. Evidence for this is that the company spent £1.4 bn in Research and Development (R&D) in 2016. For example, they released in 2016 a nuclear submarine that is theoretically sustainable underwater for 25 years without the need to resurface. This is possible because its nuclear power design requires servicing every quarter-century, as well as its ability to produce water and breathable oxygen from the surrounding seawater (Waugh, 2014). In fact, when we look at R&D expenses over the years 2011 to 2016, we see that though it varies year over year, there is no upward trend in spending in R&D. In fact, when we look at Research and Development expenses over the years 2011 to 2016, we see that though it varies year over year, there is no upward trend in spending in R&D. In 2011, R&D spending was £1,149 mn and in 2016, there were £1,416 mn which is a 23% increase over that time (Figure 1). To control company growth or simply higher operating expenses, Figure 1 also shows R&D expenditure as a percentage of operating expenses. This also increased from 7% of operating expenses in 2011 to 8.7% of operating expenses in 2016. There is therefore validity to the argument that BAE Systems regards their vision of being

Figure 1: Research and Development Costs for BAE Systems for years 2011 to 2016

Research and Development Costs

1600

1400

1200

1000

800

600

400

200

0 2011 2012 2013 2014 2015 2016

R&D Costs £ in mn R&D% of Op Costs

10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

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the “premier international […] company” as a function of the quality of their products and how beneficial their products are for their customers.

Finance: There are also indications that by “premier international defense, aerospace and security company”, what they mean is the highest in key financial metrics, such as sales or revenues. This is evidenced in their annual report (p. 18), because they compare themselves to other global defense contractors. They are ranked 3rd among global defense contractors and are only surpassed by Boeing and Lockheed Martin (BAE Systems, 2016). Deloitte’s (2017) global aerospace and defense sector financial performance study ranks BAE Systems 8th overall in revenues. The discrepancy between Deloitte study ranks and the BAE Systems is caused by the fact that companies like Airbus, GE Aviation, United Technologies, etc. have nondefense products that they offer the market. The Deloitte study does not distinguish between industry sectors, which artificially makes Airbus look like a major defense contractor. It does not seem as though they are financially close to the top player: Lockheed Martin; however, Boeing, Raytheon and General Dynamics, and Northrop Grumman are all within the approximate size of BAE Systems. If we look at BAE Systems’ closest competitors from a financial risk perspective, it is apparent that BAE Systems is undertaking a different sales and revenue approach compared to the other players. All stated competitors are based in the US, and a high percent of their sales is in the US:

• Lockheed Martin, 71% of revenues in the US (2016 Annual Report).

• Boeing, 63% of defense, space and security are in domestic market (2016 Annual Report, p. 7).

• Raytheon (2016), 67% of sales are from the US government (Annual Report, p. 12).

• General Dynamics, 60% of revenues are from the US government (Annual Report, p. 9).

• Northrop Grumman (2016), 84% of sales come from the US government (Annual Report, p. 5).

Global: Finally, there is the possibility that the vision can be interpreted as being a global company with an emphasis on ‘global’ and to develop a far-reaching sales force that accommodates growing military powers based on market fluctuations. However, this does not seem to be the case purely based on the fact that BAE Systems has not seriously expanded in other European markets such as Ireland, France, Germany, and Italy despite their being part of the European Union since 1973. It appears based on the figures provided in the Annual Report that they are happy focusing on strategically relevant countries such as the US, UK, and Saudi Arabia. Though compared to their main competitors whose sales are primarily out of the US, BAE Systems can claim to be ‘more global’.

Mission Our mission is to safeguard and enhance our customers’ vital interests and deliver

sustainable growth in shareholder value.

11Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

The stated company mission provides clearer insights into what their intended course of action might be, notably the mission aligns with the ‘Quality’ and the ‘Finance’ vision statements. Safeguarding customers’ vital interests appears to align with the ‘Quality’ vision statement—this mission direction would involve investing in R&D to maintain their competitive advantage. Offering products that enhance customers’ defense capabilities requires significant R&D. Technologies are always improving upon one another, and therefore it is important for customers (countries) to maintain strong and modern defense capabilities. The annual report had an entire section dedicated to shares, earnings, and performance— the authors believe it is safe to say that the ‘Finance’ part of the vision is also true.

Strategy Our Strategy

Maintain and grow our defense businesses

Continue to grow our business in adjacent markets

Develop and expand our international business

Inspire and develop a diverse workforce to drive success

Enhance overall financial performance and competitive positions

Based on the overall strategy and the strategic objective as shown above, it is clear that BAE Systems places high importance on expanding their sales and revenue numbers as well as investing significant funds in R&D and product design to create valuable products for their customers.

The following are their finance and sales objectives:

• Maintain and grow our defense business.

• Continue to grow our business in adjacent markets.

• Develop and expand our international business.

• Enhance overall financial performance and competitive positions.

• Accelerate the growth of our cyber, intelligence and security business.

• Continue to win new international orders.

• Continue to grow our electronic systems business.

This strategic goal is likely to be achieved by employing and training a sales and account maintenance force from diverse global markets. The responsibilities of these employees are to communicate and develop relationships with military and government leaders to grow BAE Systems’ sales globally. Each country/region has different norms, mores and societal and business customs that salespersons should understand prior to dealing with important decision makers. Generally, we would assume that these people are either former military or government personnel who have been employed by BAE Systems to lobby the government and to leverage

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their existing networks and connections. However, the authors could not find any article, passage or work of literature that confirms or contradicts this assumption.

The following are their R&D and design objectives:

• Continuously improve efficiency and competitiveness.

• Drive value and growth from our defense platforms and services.

• Leverage our technology and engineering capabilities.

These strategic objectives require BAE Systems to invest in research and design so that their products achieve higher value for the end user. Additionally, they are interested in reducing internal costs by improving efficiency and leveraging engineering capabilities to create and develop these products. The authors interpret that the key goals of these objectives are cost reduction (efficiency) and innovation creation.

It would be difficult to see how much R&D money goes into improving efficiencies and cost reductions when compared to new innovations. End-users only see how much the final product costs them. How much money went into reducing those costs is not often publicly shared.

Strategy and Human Resources The vision, mission and strategies have clear areas of interest for BAE Systems, which are to increase and improve sales globally, as well as in their key markets (the UK, the US, Australia, and Saudi Arabia). In addition, developing new products and reducing efficiency are also stated goals.

If these are to be aligned with human resource strategies, we should expect BAE Systems to increase spending on their R&D teams. This means hiring, attracting, and training expert engineers and designers into their main facilities in the UK, USA, Australia, and Saudi Arabia. It also means in-housing former end-users of products—some of these might have been former military engineers who have insights about some of the pains and potential gains for the next iteration of the products. For R&D personnel, we should expect them to be hired in their main office locations, where a large team of engineers and researchers are likely to already reside. In their 2016 Annual Report, BAE Systems made a statement that leads the authors to believe that they compensate their key staff sufficiently so that they keep a high turnover:

The Group is committed to the protection of its assets, which include human resources, intellectual and physical property, and financial resources, through an effective risk management process, underpinned where appropriate by insurance.

–BAE Annual Report (2016), p. 60

The strategy also aligns with an increase in sales and account management personnel from other countries. BAE Systems needs to be aware of new and upcoming government

13Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

tenders, this means they have to hire people to develop relationships with high-ranking military personnel or high-ranking government decision makers. Often, these people will be people who were formerly working inside the system at a high level. Either previous military or government personnel who understand how to accelerate the sales and procurement processes—or somebody who knows whose ear they need to complete a sale. These people are likely to be hired and reside in their non-core markets.

Personnel Trends

Geographic Movement Based on the statistical figures from Table 1, it is clear that the focus on Australia diminished significantly between the years 2012 and 2016. The number of BAE Systems employees closely reflects the relative sales by this country (Table 2). In 2012, Australia accounted for 7% of BAE System’s sales and 6% of BAE System’s workforce; both these statistics progressively decreased over the following four years, and in 2016, Australia accounted for 4% of its workforce and only 3% of its sales. This decrease appears contrary to BAE Systems’ strategic

Table 2: Proportion of BAE Systems Sales by Country

Country 2012 2013 2014 2015 2016

Australia 7 5 4 3 3

Saudi Arabia 13 20 20 21 21

United Kingdom 33 26 22 23 21

United States 39 37 36 36 36

Other 8 12 18 17 19

(in %)

Source: BAE Annual Report, 2016

Table 1: BAE Systems Personnel by Country for Years 2012 to 2016

Country 2012 2013 2014 2015 2016

Australia 5,500 No Data 3,500 3,100

Saudi Arabia 5,900 No Data 5,700 6,200

United Kingdom 32,800 33,300 No Data 33,800 34,600

United States 34,500 31,500 No Data 29,600 29,500

India 200 No Data

Other 9,300 19,800 No Data 9,900 9,700

Total 88,200 84,600 83,400 82,500 83,100

Source: BAE Annual Report, 2016

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goals and objectives as stated in their Annual Reports. And when we look at Australia’s historical spending on their defense, we notice that in the years 2012 to 2016, their defense budget increased annually (Table 3) (SIPRI, 2016a). This tells us that BAE Systems either had less success than their competitors when selling products in Australia, or that Australia shifted its defense budget on items that BAE Systems did not produce or sell. However, based on the Australia Defense Integrated Investment Program 2016 document, it appears that the country intends on spending in sectors that are well within BAE Systems’ competencies, such as Cyber, Maritime, Air, etc.

Other notable trends in the personnel changes are that despite the overall shrinking of the company by approximately 5,000 over this duration, notably in Australia and the US— we see an increase in the UK and in Saudi Arabia. These trends likely mean that BAE Systems is centralizing their R&D teams in the UK and developing a workforce in other markets to focus on production and sales of products.

One of the notable successes for BAE Systems has been the increase in sales from ‘Other’ markets to from only 8% of total sales in 2012 to more than 19% of total sales in 2016. Their number of employees in these other markets remained relatively the same and increased only by 400. This seems to indicate that they have started focusing on sales personnel in international markets, and production to be completed in the UK (which accounts for the increase of 2,000 employees in the UK). Despite the increase in UK-based personnel, BAE Systems witnessed a decrease in its UK sales from 33% of total sales in 2012 to 21% of total sales in 2016. This change might be alarming for company executives; however, this change can be explained by the large cuts in military spending by the UK between 2012 and 2016. Military spending decreased from 2.2% of GDP to 1.9% of GDP, from approximately $58.9 bn to $48.9 bn, according to SIPRI data.

Competition As for competition, Lockheed Martin also decreased their total workforce from approximately 120,000 employees in 2012 to 97,000 in 2016 (SIPRI, 2016b). According to the Annual Report, approximately 92% (or 89,300) of their employees are based out of the US, which accounts for 71% of their total sales (BAE Systems, 2016). As previously stated, this business strategy is much higher risk, because if there is a decrease in US military spending, Lockheed Martin is much less equipped to mitigate this type of downturn. This company is effective in

Table 3: Comparison of Australia’s Annual Defence (SIPRI, 2016b), and BAE Systems Sales in Australia

Year 2012 2013 2014 2015 2016

BAE Systems Australia 1.246 0.909 0.666 0.537 0.571

Australia Defence Budget 20.275 20.099 21.814 24.040 24.371

Source: BAE Annual Report, 2016

15Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

lobbying the US government, however, as they have spread out their company to many US congressional districts. Not giving Lockheed Martin military contracts would pose a risk for the Congress in severe job loss across the US. An article by Politico in 2015 stated that due to Lockheed Martin’s size, spread, and political networks, it may be “Too Big to Fail” in the US (Munsil and Wright, 2015).

BAE Systems is not nearly as large in the US, and according to their website, has only 17 locations in 12 states. They are therefore unlikely to have the same level of political pull as a company like Lockheed Martin.

Talent Acquisition Youth Intake: The authors tried to find out whether it was possible to identify what types of roles and careers BAE Systems has based on country, but could not confirm whether they started hiring more sales persons in adjacent markets. However, looking at their websites in the UK, USA, and in Australia, it is evident that BAE Systems relies heavily on recruiting from universities’ graduate programs to find the top, young, new engineering and STEM talent. They encourage young people to consider careers in STEM fields due to the shortages in qualified engineering and technology skills. BAE Systems has extensive apprenticeship and graduate programs; approximately 6% of the workforce are apprentices in training (Figure 2). In 2016, they recruited 289 new graduates in the UK, and often attempted to hire STEM-related graduates. Their graduate recruitment remained relatively stable over the past five years, and they had recruited between 312 and 247 graduates each year since 2012. Their apprenticeship recruitment has greatly increased in the UK—which seems to confirm the earlier postulation that more production is done in the UK. Additionally, it appears that BAE Systems is getting younger because of the influx of more apprentices and new graduates initiatives (Table 4). Based on the table, BAE Systems has increased the percent of its workforce that is under the age of 35 by 3%. This is an indication of good human resource practices, notably regarding succession and long-term planning.

Figure 2: New Apprentices Hired in the UK by Year (BAE Systems Annual Reports, 2012-2016)

New Apprentices Hired in the UK

2016 2015 2014 2013 2012 2011

0 100 200 300 400 500 600 700 800

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Veterans: Another hiring initiative that BAE Systems is implementing (specifically in their US branch) is increasing the number of veterans as part of their workforce. According to Hess (2017), BAE Systems ranks 8th on this list. 21% of BAE Systems’ 2017 hires were veterans, and 16.5% of their workforce are veterans. According to this same paper, BAE aims to hire 100 veterans a month, with emphasis on female veteran hiring. Their Warrior Integration Program focuses on integrating combat-wounded veterans into the workforce through on-boarding, mentoring, and career development. The CEO of BAE Systems recognizes 5,000 veteran employees a year for their accomplishments and contributions to the company.

At the same time, Lockheed Martin has also shown an initiative in hiring veterans. For Lockheed Martin, 28% of their 2017 hires are veterans, and 23% of their company comprises veterans. This emphasis on hiring veterans might have played a part in Lockheed Martin’s success in the American market, as a majority of their sales are from the US. In 2016, 71% of Lockheed Martin’s sales were from the US, according to its Annual Report.

Global Markets To better understand how BAE Systems is aligning its strategy to its vision, examining the global market trends is an important factor to consider, because many of the stated strategies surrounded revenue generation and increasing sales. In this section, the authors dissect the global defense market by real sizes as well as growth over time. Growth rates might be an indication of markets of interest for the future. The authors also qualify these global markets by identifying if a competitor is located within the market; having a domestic competitor can create significant barriers for global companies to enter the markets.

Globally, the biggest spender in the defense market is the US. According to SIPRI, US defense spending in 2016 was $611 bn, and China was second at $215 bn. These figures mean that the US market is approximately 37% of the global market, and China at 13% of the total market (Jiangtao and Xin, 2018). Of the top 100 largest defense contractors in the world, the US hosts 44 of them, the largest of which has already been discussed in this paper. The next largest markets are, in order, Russia, Saudi Arabia, France, India, UK, Japan, Germany, and South Korea, Australia and Brazil.

In their 2016 Annual Report, BAE Systems noted that China and Russia are “not accessible” markets; this is mostly because the Governments of Russia and China have

Table 4: BAE Systems’ Employees by Age Category Over Time

<25 26-35 36-49 50-59 60<

2012 6 18 33 32 11

2013 7 19 33 32 9

2015 7 19 33 32 9

2016 7 20 33 30 11

(in %)

Source: BAE Annual Report, 2016

17Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

traditionally confined military research, development, and procurement to companies that are essentially crown corporations within their country. China imports approximately $7 bn in arms, which is only a tiny fraction of their overall expenditure. Of the $7 bn in imports, Russian imports account for 53%, and Ukrainian imports are a further 16%. Russia, despite being the 3rd largest defense spender in the world, does not feature in the top 20 arms importers. 86% of Russian imports are from Ukraine, which indicates that they are not a country that is open to trading with Western European or American companies.

BAE Systems has done well to focus on Saudi Arabia as a key focus of their efforts. However, there are numerous opportunities in doing business with other Middle-East and North African countries, such as the UAE, Egypt, Turkey, Algeria, and Israel, who are all large importers. Furthermore, there are opportunities in Indo-Pacific area, as Indonesia, Singapore, Vietnam, Taiwan, South Korea, and India are featured in the largest arms importers.

Of these countries, only South Korea, Japan, and Israel appear to have major defense contractors headquartered within their borders. The remaining mostly import or rely on FDI to build up their defense capabilities.

The changes to BAE Systems’ strategic direction, for example, dropping India as a ‘Key Market’ in their 2013 Annual Report, seem counter to their strategic objectives and focus. There might, however, be good reasons for doing this. An example would be that BAE Systems wants to focus on R&D, which means better and more expensive products for their customers. If this is the case, and India is unwilling to pay a ‘premium’ price for the best products, then there could exist a disconnect between the company and this customer. The fact that India is the world’s largest importer implies that there is insufficient expertise inside the country to manufacture defense products. According to SIPRI data, only 4 of the top 100 largest defense contractors are of Indian origin.

Trends in defense spending typically follows GDP. Economies that have grown significantly have shown an equal proportion of defense spending. China, South Korea, India, etc. have shown a significant increase in defense spending in terms of capital expenditure; however, China has spent 1.9% of its GDP on defense every year since 2010, South Korea spent 2.6% of its GDP every year except 2016 (2.7%), and India spent 2.5% of its GDP since 2012. It may be better to track the economic growth of the countries rather than military spending.

Opportunities Future opportunities in the defense market are likely to be related to changes in economic growth, global conflicts, or policy changes. Identified below are some of the notable ones.

There are a few minor conflicts that have surfaced over the past few years. For example, the countries surrounding the trade routes in the South China Sea have expanded their military and have done some aggressive manoeuvres such as the land-grab of the Spratly Islands (BBC News, 2016), North Korea’s launching Intercontinental Ballistic Missiles, and the wars in the Middle-East.

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Economic growth of China, India and the surrounding countries has created opportunities for businesses to sell arms to the countries. There is a gap between intra-country expertise, and global standards for quality of defense products. Middle Eastern countries have also seen similar trends in economic development.

Regarding the political landscape, there are interesting developments that might affect how defense companies, especially BAE Systems, operate. For example, under NATO agreement, each member country must pay at least 2% of GDP towards defense. Only five member-countries are currently complying with those agreements: the US, Greece, Estonia, the UK and Poland. The remaining 24 countries are not, which includes France, Germany, Turkey and Italy (Kottasova, 2017). President Trump has accused and pressured NATO allies to increase their defense spending. If the allies choose to increase spending, that might have the effect of increasing the sales of defense equipment in Western European countries and could possibly decrease defense spending in the US.

The negotiations that are currently being undertaken for Brexit could also affect how BAE Systems operates. Given the number of defense companies that operate within the European Union (Thales, Airbus, Finmeccanica, Saab), there could either be a boycott of UK companies, or an import tax that would affect the price of the imported products.

According to an article in Business Insider, China has also hinted that they would be open to more foreign investments, notably to augment their defense capabilities. This could have a positive effect on a global company like BAE Systems (Duchael, 2018).

Conclusion BAE Systems’ vision, mission and strategies are somewhat vague. Whether it was left vague on purpose or by accident is unclear. What is clear is that it can be interpreted in many ways, which provides the company added flexibility when making strategic decisions. In this paper, the authors argued and provided evidence that BAE Systems’ vision views it as as a company that produces quality. The evidence for this is laid throughout the paper; they have increased their number of staff based out of the UK which allows them to centralize their R&D; they have increased R&D spending as a percentage of operating costs; they have removed India as one of their key target countries in the 2013 Annual Report; and they have put in place systems to retain their key staff. Their graduate program assures an effective succession plan and their age diversity means the next generation of engineers at this company start at a young age, and they can be properly trained and groomed. Integrating veterans as part of their workforce also appears to be beneficial, however it is difficult to quantify their value.

BAE Systems’ current position globally is 3rd in terms of revenues. Substantial revenue streams from the UK, the US, and Saudi Arabia will allow them to continue to pursue the strategy of building the best products and selling to the highest bidders. This strategy has been working effectively for them. The slow economic growth of western countries and the rapid growths in others (Middle-East, Asia-Pacific) will likely mean that some of these will modernize and technologically join the first world within the next few years. If this happens,

19Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

it means BAE Systems’ market cap will increase. There is evidence that this has already occurred based on the fact that BAE Systems’ revenues from adjacent markets have increased from 8% to 19% of the total revenues. Recent developments such as the US President pressuring NATO allies to increased spending and the opening of Chinese defense market for FDI are potentially beneficial developments for BAE Systems.

The company is arguably the best global defense company in the world, with more than 79% of sales occurring outside of the UK and 59% of employees being domiciled outside of the headquartered country. It stands to reason that companies that rely too much on the US for revenues are eliciting financial risk. If the US decreases its spending, or if the rest of the world increases its defense spending relative to the US (i.e., the US represents less than 37% of the world’s defense spending), then the top US-based companies would not be in the best positions globally.

In essence, BAE Systems has applied effective human resource systems based on the fact that they have gotten younger and appear to have successfully employed a succession plan. Additionally, they have increased their R&D spending, while avoiding incurring supplemental operational costs. Though their business units in the US and Australia have decreased in number, their global sales have increased substantially. They have put themselves in a position of less global risk than their American counterparts. Depending on global trends, BAE Systems may surpass their competitors. However, their financial goals can only be achieved if they leverage their global knowledge and assets effectively at opportune moments. In the authors’ opinion, the companies that most effectively develop long-term agreements and relationships with China and India will emerge as the most powerful companies globally, once these economies become mature. 

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21Using Human Resource Management to Drive Business Strategy: The Case of BAE Systems

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The IUP Journal of Business Strategy, Vol. XVI, No. 4, 201922

Reference # 33J-2019-12-01-01

Appendix

BAE Systems’ Vision, Mission and Strategic Objectives (BAE Systems, 2016)

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