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Sequestration Offers Opportunities for Industry

According to the most recent estimates provided by the Office of Management and Budget, after a 1 percent cut in defense spending in 2013, the budget is projected to grow each year through 2017, at rates ranging from 1.8 to 2.3 percent annually. And the budget will be larger than it was in the final years of the Bush administration.

And these projected increases do not include overseas contingency operations.

The president and defense secretary are writing efficiency and better buying practices into the government books as policy, and it means there is simply a new benchmark for all industry companies to meet and to compete against. The rules apply to everyone, and thus no one could be at any comparative disadvantage at all. In fact, it provides an opportunity for any company to jump out ahead of the pack, meet the “new demand” ahead of their peers, and claim previously unknown market share. This is opportunity unlike any industry has seen in years, and it will be fed by a budget that is staggeringly large, and growing.

And whether sequestration occurs or not (it won’t), the military’s higher performance and delivery standards will drive technological innovation, not stifle it. Corresponding efficiencies will be driven in both technology procurement and research and development, and business practices will meet an ever-evolving military customer with ever-changing operational needs. Because as technical solutions become increasingly sophisticated through innovation, derivative military needs will increase in number and kind. And value.

As the troops move home and as operational (not budgetary) needs require greater investment in cyber and surveillance technologies, the Defense Department will increasingly outsource technology development to industry. Airmen, Marines, sailors and soldiers will never be the ones creating the cutting edge technologies needed to execute operations in the 21st century and beyond. And companies will find themselves amidst incredible opportunity to meet the new demand.

Also part of this new acquisition reality are policy mandates requiring energy efficient solutions across the board in facilities, in fuels for planes, trains, and automobiles, in weapon systems and in subsystem parts. This is not speculation, this is happening now and it means an entirely new product line for industry to provide. Want contracts to upgrade entire fleets and wings? You’ll have them.

What we are looking at now is a new industry within the greater defense acquisition landscape. The move into the 21st century will increasingly leverage technological solutions, new ideas, smart people, new products, and greater value to the end-user community to meet consumer demand. Industry will have a whole lot of work ahead of it to learn how to even meet these needs, and that is exactly the best position they could possibly hope to be in.

The budgetary environment in which we find ourselves today could be the greatest opportunity for industry since World War II. The companies who understand best how to answer the military’s call for value and efficiency in their product offerings will be the biggest and earliest winners, and anyone fretting over the future will be quickly left behind. The race is already on, and the entire industry — military consumer included — will benefit.



In the article “Army Acquisition: Not Broken and Not Fixed,” (Dec. 2011, p.18) as always, Professor Sapolsky makes a number of good points. Unfortunately, he also falls victim to his own criticisms.

He says that it is not clear that Army acquisition is any worse off than the Navy or Air Force, but then goes on to cite the F/A 18 E/F, the Littoral Combat Ship, the F-22, the F-35, and the KC-46A tanker. Whatever problems these may have had, at least they are in service. Name a major Army system development program that has succeeded in fielding anything in the last 20 years. And not for want of trying; the list includes vehicles, helicopters, missiles, whatever. This is clearly worse.

Professor Sapolsky then goes on to say that Army acquisition is not fixed, but offers no suggestions as to how this might be accomplished; and he says that the Army is floundering because it has no clear vision for its future. While this is true, it is unlikely to change, so fixing Army acquisition requires this reality be dealt with.

So how do systems that anticipate rapid but unpredictable change deal with that? One way is through modular construction. The computer industry is a good example of that: advances in displays, CPUs, hard drives, and power supplies all have to be dealt with or the system will rapidly become obsolete. This is done through modularity and open interfaces: each  module interacts with other modules according to a prescribed set of rules that are  publicly available. This means that if I have a better idea how to build a hard drive, all I have to do is comply with the interface specifications and it will work in any computer.

The Army could do this in many areas, including non-traditional ones such as armored vehicles. Rather than designing a specific “point design” vehicle that may be obsolete or irrelevant before it is fielded, the design could focus on modules such as an automotive module and a mission module that could be changed out or upgraded as threats and technology evolve. For example, technology today may not support an effective hybrid-electric automotive module, but in 10 years it might be a clear winner. Modular design would allow all the mission modules (and the training that goes with them) to be retained while achieving the benefits of the new hybrid technology. Similarly, if a contractor came up with a new design for a mission module, it would not require an expensive and time-consuming integration by a vehicle prime contractor.

Point designs worked reasonably well for much of the 20th century, but are doomed to failure for systems that will likely be in the field for 50 years. Flexible approaches are required if we hope to defeat the enemies of 2061.
 


Russell Aldrich’s article in the January 2012 issue, “U.S. Should Invest in Truly Unconventional Forms of Warfare,” is an interesting read — except for the second paragraph.

He suggests that China could sell off its trillion dollar holdings of U.S. Treasuries to “devastate” the nation’s economy, but such an act would also devastate its own net worth. A massive sell-off would cause a massive decline in prices long before the sales were fully executed and China would be trillions of dollars poorer as a result. It would be impossible to find a sufficient amount of other high-quality securities of equal value to invest the proceeds of such a sell-off, and their prices would be driven sky high while this was happening.

Another possible place to invest such a huge sum might be oil and other commodity futures, but these would also react by huge price run-ups.  Other countries with dollar holdings would be greatly harmed by such a Chinese move, which would be recognized as an act of war against the world, not just the United States. The Chinese would then be politically and economically isolated, suffering far more harm than it caused. This is a fantasy scenario without the remotest possibility of ever coming to pass.

Topics: Procurement, Acquisition Reform, Defense Department