Our nation’s defense base is changing. Defense industry consolidation,
for example, has affected our technology and innovation base. This
is perhaps a good example of the rule of unintended consequences.
One result has been a drastic reduction in research and development
(R&D) spending, which affects the innovation process.
Many U.S. firms have, in fact, given up. There is, consequently,
a concentration of firms in our industrial base. Half of the entire
industrial base of the United States is now represented by just
three firms and two-thirds of it is represented by five firms. That’s
Venture capitalists, meanwhile, will not fund defense companies
or defense industry startups. In the 1960s, the federal government,
mostly the Defense Department, funded about one-third of the nation’s
R&D. Today, it’s less than 5 percent. In biotechnology,
there is almost no participation by Pentagon research programs.
Many companies have exited defense work either by selling it, by
merging it into something else or by some other tactic.
The same thing has been going on in other places. The average reduction
in defense spending around the world from the 1980s to the 1990s
was about a third, or about 32 percent, with one exception, China.
China has increased its spending by more than 60 percent, although
from a small base at the starting point.
Few Large Companies
So, what is the overall effect? What we have in the industry is
a concentration of a few, very large companies.
Why should we care about this? We need to care. Having a knowledgeable
customer who has a knowledgeable set of partners who are sharing
the technology and the information, allows these points of innovation
to grow and prosper and lead to new technologies.
One of the things we talk about in the industry is COTS. Can we
use commercial off-the-shelf technology to substitute for some of
the defense innovation, the defense sponsored research? Obviously
we can. It’s one of the richest contributions of our industrial
system—to introduce commercial technology into our industrial
base and into defense.
But we also need to be aware that military needs are not necessarily
or always the same as commercial needs. And the problem is also,
that in many cases, the military market for technology is often
small, relative to other applications, such as commercial video
games. Entertainment is a much bigger percentage of the gross domestic
product than defense spending. And so, the development of commercial
technologies is often not aimed in the same direction or yields
the same things as we might need in our defense base.
Another issue is product cycles. Commercial technologies have short
product cycles. The attempt to sell more products often generates
cycles as short as 12 months or even shorter. That is not the case
in many defense and military applications. Some defense systems
have long gestation periods of as many as 20-30 years. Commercial
technologies that change in 12 months are not always well suited
to that match.
So what can be done? First of all, I believe we can segment the
work to allow many companies to participate.
Smaller systems, electronics, software, R&D can be produced
by smaller firms. Large platforms, weapons systems and heavy production
require large firms. Smaller firms do not necessarily mean set-asides.
You can’t build a nuclear submarine with 30 people. Smaller
systems though, can go to smaller companies, and these can nurture
the many, many thousands of points of innovation that we need.
When using a prime contractor, the Defense Department should break
out subsystems into separate contracts. This spreads technology
more widely. Acquisition processes should support larger numbers
of contracts and technical contacts.
These are the contact points between the partners in this industry—between
defense, the universities, the industry, the capital sources that
can allow multiple points of innovation to thrive, spreading the
R&D widely. In the venture capital industry, the rule of thumb
is that between one and six and one and 10 is all you need to succeed.
Venture capitalists look at lots and lots of plans. They throw out
most of them. They throw out probably 90 percent of them. But even
with the remaining 10 percent, there is far more than they can ever
And what happens is many will get funded with the expectation that
only one in 10 has to work, and that makes the whole system work.
On the surface, it looks wasteful, but in fact, it is based on the
premise that at least one company will rise up and thrive. Keeping
many points alive is the key.
Another thing we can do is use information technology to help the
flow of innovation. Free flow of knowledge is crucial to innovation.
Contracts should increase information flow, not decrease it. Some
prime contracts actually forbid contact between end customer and
Web systems can make management of multiple contracts and smaller
companies more efficient, and reduce load on contracting officers.
An example is the U.K. Apache [helicopter] program Web page. The
two participants that are being linked are Boeing and Evans &
Sutherland. The two companies and the U.K. Ministry of Defense are
using Web technology to create a site where all the information
relative to this program can be shared. Everybody involved—from
the user base, the contracting organization, the prime contractor,
the subcontractors—can exchange information and see where
things are at any given point.
Recognizing that technology is key to our defense will help to
improve our partnership with the diminished resources we have. A
healthy technology base requires many, many points of innovation.
And I believe we can manage the interrelationship at the place where
the proverbial rubber meets the road—at the contractual base—to
allow and use information technology to manage that interaction
between many people and enable us to propagate the technology and
innovation among all the partners.