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Defense Industry Adjustment (DIA)

About Defense Industry Adjustment

The uniqueness of the defense industry can create obstacles for communities affected by defense downsizing. Because firms and workers develop specialized skills and competencies designed to serve government and military customers, they are challenged when trying to enter new markets and new sectors. Large scale adjustment to drawdowns or slowdowns in defense procurement last occurred in the 1990s and if there is one overarching lesson from that defense downsizing experience it is that defense transitions are tough. There is no silver bullet or single pathway to success. Communities and firms have pursued a variety of adjustment and recovery pathways. Some have succeeded; some have generated disappointing results. Some communities have been lucky as new economic engines emerged to replace lost defense jobs.

Beyond this caution against searching for an immediate solution, several other lessons are applicable. First, it pays to start early. Where possible, planning for industry transition should occur before a local facility or company shuts its doors. This early start may not be feasible in the case of private companies facing bankruptcy but, in the defense sector, most communities have a somewhat longer warning time. When closing military bases, this period may last several years. For defense firms losing contracts, the advance warning time is shorter but can still range from several months to a year.

The most effective community approaches are when local stakeholders work with firms in advance of factory shutdowns or major layoffs. Community economic development leaders should consistently monitor local contracting activity to better understand potential risks for contract reductions or cancellations. This early monitoring allows for quicker mobilization in the event of potential downsizing activities. The most effective way of monitoring is simply staying in touch with the appropriate Human Resource office at the local installation or in the case of defense manufacturing firms, State and local manufacturing councils. Resources such as the Federal Procurement Data System (www.fpds.gov) are also a no-cost way of gaining insight into local contracting activity.

Second, community leaders must plan for the long haul and assume that they will not immediately replace all of the lost defense jobs. Replacing those jobs, or adding new jobs in the community, is a long-term proposition, and it is unlikely that a single new employer will emerge as a new community savior. Instead, communities should “hit for singles, not home runs” by developing strategies that support multiple economic drivers to replace lost defense jobs.

Third, close partnerships with local defense employers are essential. Few defense businesses have succeeded in completely diversifying away from the defense industry. The rare success stories have resulted from a mix of clear management focus in support of diversification, smart strategies, strong community support, and luck. When faced with downsizing in the 1990s most large defense contractors opted to remain focused on defense and government business. Many observers expect that they are likely to maintain this focus today.

In contrast, many smaller firms and subcontractors may have interest in pursuing new markets or diversification opportunities. These firms may be appropriate targets for a regional dislocation aversion strategy that seeks to avoid layoffs or major firm cutbacks. In these cases, it makes sense to link these companies to resources focused on business development, such as the local Small Business Development Center, the Manufacturing Extension Partnership Center, export promotion programs, and the like. These experts can help local firms assess their competitive assets and challenges, and design appropriate strategies for new business development.

The 1990s defense downsizing experience also yields one final important lesson: local capacity and commitment to change are critical success ingredients. Successful community transitions occur in communities where key stakeholders already have strong partnerships and collaborations in place, and there is a shared commitment to promoting the region’s future economic prosperity. In most cases, these communities did not create new organizations or programs to deal with defense downsizing issues. They instead relied on existing capacities and partnerships which were reoriented, repurposed and/or reorganized to address the impacts of defense budget cuts.