Industry consolidation.

• Author: Blanchette, Jr., Stephen
• Position: READERS' FORUM: VIEWS ... COMMENTS ... SUGGESTIONS - Letter to the editor

I was astounded to read in your December column, "Clouds of Uncertainty on the Horizon, But No Major Storm," that there is pressure on defense companies to head down the diversification path again. As you noted, we've been there and done that, and it wasn't pretty. I can vividly remember John McDonnell embracing diversification when he took the reigns of McDonnell Douglas in the late 80s. The result was that McDonnell Douglas became involved in such far flung enterprises as trucking, travel services, and real estate, only to do an abrupt about-face in the early 90s to concentrate on "core capabilities."

The diversification experiment led to divestiture of those non-core assets, layoffs in the core workforce, and, eventually, sale of McDonnell Douglas to Boeing.

There's a reason defense industry diversification went badly. The industry is unlike other industries. True, there are strong similarities in large-scale production and electronics development between defense and non-defense sectors. The difference in clientele, however, is stark. While the government may be a "difficult customer," it is also far more predictable than mercurial consumer markets. Defense managers, marketing departments, strategists, etc. are not necessarily adept at applying their skills to suit the volatility of commercial markets. In...