The Pentagon Is Focusing On The Wrong Aspect of Commercial Innovation

U.S. companies are the most innovative in the world. Indeed, the locus of technology innovation has moved from government, particularly the Pentagon, to the private sector. This is particularly the case for computers, electronics and IT which are the heart of the ongoing military-technical revolution. Even more important, modern commercial companies are able to translate the results of R&D into new products in time frames and for costs that cause defense acquisition officials to salivate.

The Department of Defense is in love with the idea of getting cutting edge commercial companies to become part of a new defense industrial base. The latest iteration of DoD’s acquisition reform initiative, Better Buying Power 3.0, stresses the need to leverage commercial technologies in pursuit of the goals of achieving dominant capabilities while controlling life-cycle costs.  Last month, Defense Secretary Ashton Carter made a pilgrimage to Silicon Valley where he gushed about the ability of the IT sector to achieve “boundless transformation, progress, opportunity and prosperity” while simultaneously producing goods that are “easier, cheaper and safer.” When he was Under Secretary for Acquisition, Technology and Logistics, Dr. Carter compared the ability of smartphone companies to produce new products rapidly and cheaply with the comparatively slow and expensive operations of traditional defense companies.

An outstanding response to this unrequited love affair defense officials have for commercial companies was provided by Wes Bush, President of Northrop Grumman, one of our leading defense companies. In a speech at the Center for Strategic and International Studies, Bush warned against becoming too enamored with the achievements of commercial companies. “I’ll submit to you that commercial solutions — while an important ingredient much of what gets done — in and of themselves are not the answer for our national security and our technological superiority and therefore should not be used as an excuse for further reductions in R&D.”  Bush went on to point out that because commercial technologies are available to all, including U.S. adversaries, they will not provide any unique advantages to the U.S. military. Military systems, regardless of the degree to which they rely on commercial technologies, address a unique class of requirements and demand the application of the special skills and knowledge resident in long-established defense companies.

The discussion regarding leveraging advances in the commercial sector to support DoD has so far focused almost exclusively on technologies and new capabilities. But as BBP 3.0 states, the fundamental acquisition challenges are to achieve dominant capabilities and control life-cycle costs. It is in the latter area, controlling costs, that commercial companies have the most to offer DoD. Frankly, the revolution in supply chain management, epitomized by the concept of just-in-time manufacturing and delivery, has been every bit as transformational globally as has the invention of the smartphone. Moreover, the Pentagon can avail itself of the advantages of importing best of breed commercial supply chain management and sustainment practices more readily than it can adapt commercial technologies to achieve dominant military capabilities.

The Pentagon spends some $200 billion annually on logistics and sustainment. If you add in those support and training functions such as military communications and pilot training that countries like the U.K. have privatized, the number could be as high as $300 billion or nearly three times the current procurement budget. If Dr. Carter wants real budget savings and improved warfighting outcomes, the Pentagon needs to adopt proven commercial-derived logistics and sustainment practices. Where it has done so, for example in the C-17 global sustainment program, DoD has seen costs go down and aircraft availability increase. Similarly, commercial logistics providers such as UPS have spent more than a decade providing affordable logistics support to U.S forces in Iraq and Afghanistan. Privatizing non-core military functions could save tens of billions of dollars and free up hundreds of thousands of uniformed personnel and government civilians for more important tasks.

Acquisition officials are trying to figure out ways of getting commercial companies to be part of the acquisition system, requiring that they behave like traditional defense firms. There are many reasons why this approach is unlikely to be successful. Wes Bush suggested that one way to fulfill this wish is to allow traditional defense companies like his to serve as middlemen between the commercial vendors and DoD, since they have all the right contracting, accounting and reporting systems in place. This might work for product development, but is likely to be ineffective in transforming DoD sustainment to reflect commercial best practices.

DoD is resistant to the widespread use of commercial best practices in logistics and sustainment because it means giving up some control over resources, people and even equipment. What Pentagon officials, particularly program managers, have to realize is that the key to successful cost reduction is giving up control over much of the process, relying instead on the incentives of a free market-oriented approach with properly written contracts to drive the desired behavior by the private sector.

Defense officials are obsessively focused on the acquisition of new things, products and systems, when the real key is to change processes. Perhaps instead of going to Silicon Valley, Dr. Carter should have made the pilgrimage to the Benton, Arkansas, headquarters of Walmart.