“If you dislike change, you’re going to dislike irrelevance even more.” —Gen. Eric Shinseki, Chief of Staff, U.S. Army.

“If you dislike change, you’re going to dislike irrelevance even more.”

—Gen. Eric Shinseki, Chief of Staff, U.S. Army.[1]

 

The Department of Defense (DOD) must take a hard look in the mirror if it hopes to regain influence in new, cutting-edge technology markets. DOD’s sponsoring of new technology development has declined dramatically since the 1950s. Out-invested more than fourfold by private industry and comprising a small fraction of the leading technology companies’ annual sales, DOD is a minority shareholder in U.S. technology markets. It also remains a difficult and expensive customer—suggesting that DOD is ignorant to its own circumstances.

Still, there are pockets of innovation emerging, providing some hope that change is on the horizon.

 

“You’re Livin’ in the Past, Man! You’re Hung Up on Some Clown from the Sixties, Man!”

—Eric the Clown, Seinfeld[2]

 

When it comes to cutting-edge technology development, DOD has a long and storied history:

 

DOD’s funding has led to technological advances that enable the development of military products as well as commercial products. For example, the Defense Advanced Research Projects Agency supported the development of a communications network in the 1970s to facilitate information sharing. This network is considered the foundation of the modern internet. In the 1950s, the Air Force and the Defense Advanced Research Projects Agency funded research on speech recognition and artificial intelligence that enabled the development of the Cognitive Assistant that Learns and Organizes. In the 1990s and 2000s, commercial companies started leveraging this research to develop commercial technologies like Siri, the iPhone assistant. The Army has funded research that led to the development of powerful, lightweight lithium batteries, which are used in a variety of military products, such as night vision equipment.[3]

 

This history, however, should not distract from facts about the current environment. Today’s DOD acquisition system is too complex, bureaucratic, and slow to field new technologies at the speed of relevance. As the Section 809 Panel on Streamlining and Codifying Acquisition stated in its January 2019 report, “DOD must acknowledge its acquisition system suffers from processes and procedures that are obsolete, redundant, or unnecessary and work to move quickly enough to keep pace with private-sector innovation.”[4]

Cutting-edge technology companies have less incentive today to engage with DOD than ever before. Over the past three decades, commercial industry has increased its technological R&D spending by 200%; DOD’s has grown only 10%.[5]

Today, defense spending dominates fewer U.S. industries than ever. In 1965, DOD accounted for over 75% of all U.S. semiconductor purchases; by 2012, it represented less than 2%.[6] In 2016, DOD accounted for less than 1% of top innovative companies’ sales.[7]

As DOD becomes a less important customer, an increasing number of companies are diversifying their revenue streams. In short, DOD doesn’t drive the focus or direction of technology development as it did in the past.

 

“Facts Do Not Cease to Exist Because They Are Ignored.”

—Aldous Huxley[8]

 

Even as DOD’s influence wanes, DOD-unique laws, regulations, and policies continue to proliferate, including a host of changes tied to so-called “acquisition reform.” A recent Congressional Research Service report found that in fiscal years 2016–2018, National Defense Authorization Act (NDAA) titles related to acquisition reform contained an average of 82 provisions, compared to an average of 47 such provisions in the NDAAs for the preceding 10 fiscal years.[9] This increasing complexity actively deters new entrants to the defense market. As the Section 809 Panel recognized:

 

Challenges persist, in part, because decades of legislation and policy initiatives that governed, and often attempted to reform, the acquisition system continue to rely on unique terms, conditions, and processes better suited to the industrial age, not the information age, much less the rapidly approaching artificial intelligence age. These industrial-age artifacts are not agile, do not value time, and serve as barriers to small and nontraditional businesses.[10]

 

In addition, these unique regulations and policies have significant effects on the cost of selling to DOD. Studies have found that DOD’s processes and procedures add 18% to 25% to the standard cost of commercial transactions.[11] A nontraditional firm participating in the Government Accountability Office’s 2017 analysis reported that complying with DOD’s cybersecurity regulations and similar unique requirements contributed to a 12% to 14% price differential between its DOD and commercial product lines.[12] These cost impacts predate  potentially bigger ones related to certification under the Cybersecurity Maturity Model Certification (CMMC) Program and compliance with the 2019 NDAA’s Section 889 ban on some Chinese technology.

 

“No Matter How Far Down the Wrong Road You’ve Gone, Turn Back.”

—Turkish Proverb[13]

 

To regain relevance in new technology markets, DOD must honestly assess its current position and focus its buying power on specific technology areas. This means shifting from managing requirements across all defense-related technology sectors to focusing strategic investment in a limited number of key areas.

The silver lining here is that DOD has never been better positioned for a pivot. Organizations such as the Defense Innovation Unit[14] and AFWERX[15] have moved past initial growing pains and have established a presence in these emerging technology markets. Programs such as the Air Force’s Small Business Innovation Research (SBIR) Open Topic[16] and the Army’s Innovation Combine[17] are continuing to broaden their outreach capabilities. Groups such as Air Force Ventures[18] are moving toward a model that views DOD technology modernization through an investment rather than an acquisition lens, recognizing that DOD must leverage private investment and dual-use technologies to keep pace in emerging technology markets.

To see these successes scale, DOD must go all in: Shift funds from stale research programs to initiatives that demonstrate success, shed standard acquisition processes and contracting tools, and leverage all the streamlined authorities available. To expand industry buy-in for its outreach efforts, DOD must work aggressively to eliminate DOD-unique processes, terms, and systems and dramatically reduce the cost burden on suppliers. DOD’s efforts through DIU, AFWERX, etc. are a start, but they must continue to evolve and adopt truly commercial practices. For DOD, regaining relevance in new technology markets will require a fundamental change in approach—even from the reform efforts of the past five years, which have focused on making it easier for nontraditional companies to play in the DOD world.

Today, the question is: “Can DOD learn to play in technology markets where it is the nontraditional participant?” CM

 

Benjamin McMartin, Esq., CPCM, Fellow

  • Managing Partner, Public Spend Forum.
  • Previously served as Chief of the Acquisition Management Office for the U.S. Army Combat Capabilities Development Command – Ground Vehicle Systems Center, and prior to that, as a Procuring Contracting and Agreements Officer for the U.S. Army Contracting Command – Warren.

 

Endnotes


[1] As quoted in Mackubin Thomas Owens, “Marines Turned Soldiers,” National Review Online (December 10, 2001).

[2] Seinfeld Season 5, Episode 19, “The Fire.”

[3] Government Accountability Office (GAO) Report 17-644: “Military Acquisitions—DOD Is Taking Steps to Address Challenges Faced by Certain Companies,” (July 2017): 8–9 (hereinafter “GAO 17-644”).

[4] Section 809 Panel, Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations, Volume 3 (January 2019), EX-4 (hereinafter “Section 809 Report”).

[5] GAO 17-644, op. cit., at 6 (see Figure 2: “DOD and Private Sector Research and Development Spending”).

[6] Committee on Armed Services House of Representatives, HASC 113-66, “Twenty-Five Years of Acquisition Reform: Where Do We Go From Here?” (October 29, 2013): 100.

[7] GAO Report 17-644, see note 3, at 9.

[9] Congressional Research Service, “Acquisition Reform in the FY2016–FY2018 National Defense Authorization Acts (NDAAs),” R45068 (January 19, 2018): 1–2.

[10] Section 809 Report, see note 4, at 20–21.

[11] Coopers & Lybrand/TASC Study, The DOD Regulatory Cost Premium: A Quantitative Assessment (December 1994), prepared for OUSD(AT&L), chart 12a.

[12] GAO Report 17-644, see note 3, at 17.

[13] Wit and Wisdom of the United Nations: Proverbs and Apothegms on Diplomacy, ed. Victor S.M. De Guinzbourg (New York: United Nations Publications, 1961): 186.

[14] The Defense Innovation Unit is a DOD organization established to break with past paradigms of military-technical advantage to become fast adapters—as opposed to sole developers—of technology, integrating the advanced commercial capabilities necessary for strategic advantage. See https://www.diu.mil/ for more information.

[15] AFWERX is a community of Air Force innovators that reports to the Air Force’s Vice Chief of Staff. AFWERX was established in 2017 by the Secretary of the Air Force to solve problems and enhance the effectiveness of the Air Force by enabling thoughtful, deliberate, ground-up innovation. See https://www.afwerx.af.mil/ for more information.

[16] AFWERX, in partnership with Air Force Research Lab (AFRL) and the National Security Innovation Network (NSIN), developed the SBIR Open Topics to increase the efficiency, effectiveness, and transition rate of the SBIR program. See https://www.afwerx.af.mil/sbir.html for more information.

[17] The purpose of the Innovation Combine is to deliver an innovative approach to compete for an award in the accelerating military technology ecosystem. See https://www.arl.army.mil/xtechsearch/competitions/innovation-combine.html for more information.

[18] AFVentures is a collaboration between Air Force Acquisition, AFWERX, and AF SBIR/STTR that serves as an easy open door for commercial innovators and private capital investment to help the Department of the Air Force solve problems and deliver better capability to the warfighter. See https://af-ventures.com/ for more information.