Contractors advised to focus less on stock prices, more on customers.

• Author: Erwin, Sandra I.
• Position: Defense Watch

Produce things faster. Lower the weight of weapon systems. Increase fuel efficiency. Stay on schedule. Cut your costs. That sort of sums up the Pentagon's marching orders to its contractors.

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So, what else is new?

Apparently, quite a bit, according to the latest chatter in corporate boardrooms. While the military's budget is so far being spared from the big knives, it is becoming more evident that Pentagon contractors will have to think differently about their business if they want to maintain or improve the financial performance they have enjoyed over the past decade, insiders say.

Company executives, for instance, may have to reconsider how much time they dedicate to efforts that boost their stock value, compared to what they spend taking care of their customers, says Steve Grundman, vice president of aerospace and defense at Charles River Associates, a Boston-based consulting firm.

During the Cold War, contractors talked obsessively about "the customer." When the budget plunged in the early 1990s, companies still thrived by acquiring or merging with competitors. The shareholder became king. Now the pendulum may be swinging back to the middle, Grundman tells executives at a conference in Washington, D.C., hosted by Aviation Week.

"The Defense Department wants solutions to problems" and the Pentagon's leadership does not see much help coming from the industry right now, Grundman says. The mantra of Defense Acquisition Chief Ashton Carter is to do "more without more." Translation: He wants the cost curves that consumers enjoy at Best Buy. Besides cost, the other big problem that Defense wants solved has to do with innovation, but not in the traditional sense, Grundman says. It's no longer about designing the shiniest or the sexiest widget. Military commanders worry about things like the weight of armor, the efficiency of batteries and how unbearably long it takes to analyze video streams from overhead drones.

Nothing on this wish list qualifies under what industry considers traditional products, says Stanley R. Szemborski, vice president of corporate strategy at Northrop Grumman Corp.

"Our customer has different needs. Industry has to change," he tells the conference.

It used to be that unless a company scored a big manufacturing contract for new hardware, it was doomed. That is no longer the case, Szemborski said. In the past, contractors that got awarded "the big one" had a future, he said. The losers did not. Based...