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Tuesday, 30 April, 2002, 07:04 GMT 08:04 UK
Qinetiq's new battle
Getting into Qinetiq's Farnborough headquarters isn't easy; bags are searched, credentials pored over, cameras and recording equipment painstakingly vetted.
Qinetiq is a silly name for a deeply serious company, one whose founding principle is nothing less weighty than the defence of the realm.
Until the middle of last year, Qinetiq was the main part of the Defence Evaluation and Research Agency (DERA), the British Government's secret military laboratories.
Now, Qinetiq - currently owned by the Ministry of Defence - is on course for privatisation, wooing venture capitalists with a view to a stock market listing.
But can secretive government scientists hope to thrive in the private sector?
DERA was a child of the Cold War, a means of channelling scientific expertise in the struggle with the Soviet Union.
Beginning in the 1950s with some of the pioneering work into chemical and biological warfare, the agency had reached a peak of sophistication by the end of the 1980s.
But then the sudden end of the Cold War eliminated DERA's raison d'etre at a stroke.
Margaret Thatcher, then prime minister, cut off funding for DERA and similar agencies.
"She wanted to find out what they were good for by making them go out and find customers for themselves," says Sir John Chisholm, Qinetiq 's chief executive.
At first, self-reliance did not come easy.
"Everything was upside down from the commercial point of view," says Sir John.
"Under the old regime, if you won any business from the outside world, that subtracted from the revenue coming in from the Treasury - so winning business was a bad thing."
New name, new business
A decade on, and the agency has found its commercial feet.
Last year, the bulk of DERA - excepting the super-secret Defence Science and Technology Laboratory - became a government-owned company, renamed itself Qinetiq, and began the slow process of piecemeal privatisation.
Qinetiq still earns some 80% of its £800m annual sales from winning Ministry of Defence tenders.
But it is the remaining 20% that is the firm's main growth area, what Sir John calls "managing the interface between ideas and business".
Qinetiq hopes to prosper by taking the ideas and technologies it learns from defence contracting, and seeking out ways to apply them to problems in the civilian field.
"A feature of warfare is solving problems at the frontier of knowledge," says Sir John.
"That gives us intellectual property that our business model allows us to spin off in different directions."
From bombs to babies
This has led to some unusual - at times endearing - applications of originally scary technology.
The list could go on: in all, Qinetiq has more than 5,000 granted and pending patents.
It is precisely this sort of - literally - rocket science that has got private sector investors excited.
Although the Ministry of Defence will keep a keen eye on Qinetiq's progress - the firm will still be forbidden, for example, from selling military technology to foreign powers - it intends to sell its entire stake in the firm.
Sir John is sanguine about the company's prospects, arguing that it operates as a de facto private company in any case.
The firm has experience of privatisation, having contracted out and subsequently spun off its entire administrative and support operation in 1997.
Better still, says Sir John, an injection of cash will improve Qinetiq's chances of winning the best scientific staff - always a crucial consideration in a business driven by ideas.
Looking forward, Qinetiq's close relationship with the Ministry of Defence gives it a powerful edge over private-sector rivals.
Not every firm can afford to develop a billion-pound jet fighter system in order to build a car accessory, for example.
But it still faces a number of significant challenges as it embraces the free market.
First, keeping strategy focused won't easy.
From being a straightforward defence contractor, Qineti1 has already become a defence contractor with sidelines in 11 other sectors, including rail, health, finance, telecoms and aviation.
As the company evolves, those business lines will multiply.
Sir John says that won't be a problem. All of Qinetiq's ventures are simply in the business of "getting value out of science", he argues.
But Qinetiq's ever-wider spread will inevitably put a strain on central resources, as well as bring the firm up against new kinds of previously unseen competitors.
Calling the shots
Second, new shareholders will have new demands.
In most firms with a scientific bent, there is a natural tension between the interests of short-term shareholder return, and those of longer-term research achievement.
In many cases, shareholders are willing to be patient, if they are convinced that long-term returns will materialise, but Qinetiq is also bound by its public-service commitment, relegating profits to a secondary concern.
Sir John argues that the two are not incompatible.
"The fact that we are in competition, and win those competitions, tells us that we are doing well. Profit is not in itself an objective, but it is a measure that you are really good at what you're doing."
True enough, but today's shareholders - wary of inflated promises from hi-tech firms with funny names - have a habit of marking down the shares of firms that don't put their interests first.
Beating swords into ploughshares is laudable and ingenious, but making it pay may not be easy.
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