Bill Toti on Cubic’s Defense Business Reorg and Int’l Sales Prospects

Bill Toti shifted into a new role at Cubic earlier this year as president of the San Diego-based contractor’s global defense segment, which formed through a consolidation initiative.

Cubic combined its defense systems business with the mission support services unit, which Toti previously led as president since he joined the company in July 2014.

In this conversation with ExecutiveBiz, Toti outlines Cubic’s strategy behind the defense business realignment and the company’s outlook for international sales. He also offers an outlook for the defense sector’s evolution in 2015.

ExecutiveBiz: What market trends and indicators led Cubic to undertake this initiative with the defense business?

Bill Toti: Traditionally, United States defense procurement money was completely segregated from operations and maintenance money. However, it is increasingly important for our defense customers to benefit from integrated product and service offerings. Many of our customers do put out single procurements that include products and services.

While Cubic has responded to this kind of procurement request in the past, since the product and services offerings came from two different companies, that provided a structural obstacle to submitting integrated products and services proposals. By combining the two companies, we removed those obstacles and made it easier for us to provide integrated offerings to our customers.

Furthermore, most of our international customers have already broken down the barriers between services and products and are more likely to request integrated offerings. It is also advantageous to integrate the defense product and service companies to better respond to our international customers, which accounts for about half of our defense systems business revenue.

ExecutiveBiz: Which areas of the business in Cubic have you focused the most attention on lately?

Bill Toti: Since I began my work at Cubic as president of the service company –Mission Support Services — my attention has been on the service side of the marketplace, where much of our work is in delivering live, virtual, constructive training services to our customers. We have world-leading capabilities on the service and product sides of delivering live, virtual, constructive training.

Now as president of the integrated company — Cubic Global Defense — my scope has broadened to the technology world as well. But the mission remains the same: provide integrated solutions for our customers.

ExecutiveBiz: How do international markets factor into Cubic’s strategy?

Bill Toti: We are already very broadly distributed in the international marketplace. We service 130 locations in approximately 20 nations, and most of that work is what we refer to as “direct commercial sales,” which means we mostly contract with the foreign customers directly rather than through the U.S. Defense Department’s Foreign Military Sales program.

Integrating the service and the product companies will allow us to further expand our work in the international community. Because we deal directly with foreign governments, this puts us in a very strong position because we do not necessarily have to rely upon FMS pipeline to provide opportunities to approach international customers. We are able to work with them them directly through our field representatives in those countries.

ExecutiveBiz: What kind of demand are you seeing in the military training market?

Bill Toti: We believe the demand for military training will remain strong. When deployments decline in duration and frequency, the need to train actually increases because more fighting forces lose their edge since they are no longer operating at the pointy end of the spear. The nature of the training may change over time. But the downward pressures on budget will lead to an increasingly demand for training innovation.

To respond, we have capabilities like ARGON, an augmented reality solution that increases the realism and fidelity of battle-full effects for more effective training. Another capability is NeuroBridge which applies neuroscience initiatives to evaluate brain functions real-time and improve situational awareness of the instructors so that we can determine the effectivity of the training.

However, we feel the pace of training demand will continue to be high and the nature of that training will continue to push the edge of technology in improving the delivery of advanced training methods.

ExecutiveBiz: How do you see the defense sector evolving in 2015?

Bill Toti: As deployments continue to decline, there will be a refocusing on force-on-force training at the expeditionary level for the Marine Corps and classic land battle for the Army. Those warfare areas that were maintained in the post 9/11 period would have to take a backseat to the real world missions that the Army and Marine Corps were engaged in Iraq and Afghanistan.

The demand for those kinds of training missions will continue to increase in places like Joint Readiness Training Center at Fort Polk, where we run the mission support contract for the Army, and the Marine training that we do via the MAGTF Training Service Support contract.

As market leaders for live, virtual and constructive training methods, we execute LVC training out of the Korea Battle Simulation Center for the biggest exercises in the world such as Ulchi-Freedom Guardian exercises or Talisman Saber with Australia. Even though the nature of deployments and therefore the nature of the training will change, we believe those changes will increase the demand signal for these kind of LVC events.