Innovation and the Defense Industrial Base

By Craig R. McKinley
Secretary of Defense Ash Carter generated quite a buzz during his recent trip to Silicon Valley, and for good reason. It has been a generation since former Secretary Bill Perry traveled to this recognized home of high-tech innovation.

When Perry made his trip in 1996, the information technology revolution had only just begun. A lot has changed since then, making Carter’s trip especially noteworthy. Today, our entire world has been transformed by advanced mobile communications and information technology.

From the vantage point of the president’s desk here at NDIA, together with Chairman Arnold Punaro, we commend the trip and the secretary’s interest in working on the department’s relationship with private industry, whether traditional defense suppliers or Silicon Valley.

As former NDIA Senior Fellow Brett Lambert explained to Congress last year, the defense industrial base is more financially complex, more global, and more commercial than ever before. In an earlier era, government agencies and labs made up the majority of global research-and-development spending, but today the situation is inverted, with global private investment distantly outpacing U.S. public sector R&D spending.

The Defense Advanced Research Projects Agency and the labs still do outstanding work investing in leap-ahead, next-generation weapon systems and defense-unique capabilities, such as rail guns and directed-energy weapons. But these efforts tend to specialize in items left aside by private commercial R&D investment. In other technology sectors, the defense sector companies leverage the tools and systems with defense applications that non-defense, commercial, high-tech innovators are busy developing.

We want what the secretary wants: the world’s most innovative and capable industry servicing the needs of U.S. war fighters. In fact, NDIA’s top mission is to advocate for cutting-edge technology and superior weapons, equipment, training and support for war fighters and first responders.

Unfortunately, some unhealthy rhetoric — not coming from Carter, the Pentagon, or from our industry — is that Silicon Valley is a vibrant source of technological innovation while the contemporary defense industry is not.

Nothing could be further from the truth. After serving as the under secretary of defense for acquisition, technology and logistics, and then as deputy secretary of defense, no one knows better than Carter that the traditional defense industry includes some of the most innovative companies in the world. It’s no accident that the globe’s two leading commercial aerospace companies also happen to be two of DoD’s largest suppliers.

The “traditional” defense industry has led the way in the worldwide development of powerful remotely controlled vehicles. When U.S. troops needed mine-resistant, ambush protected vehicles to shield them from blasts during the middle of the last war, the defense industry responded in record time. The defense industry defines the cutting edge in nearly every kind of sensor system. And even some of those Silicon Valley folks — SpaceX’s Elon Musk comes to mind — have fought hard to find a place in the defense industrial base.

But that last sentence signifies the problem. Why should an innovator like Musk have to fight his way into the Pentagon procurement system? Why can’t we welcome him, and innovators like him, into the supply chain with open arms?

In a recent commentary for Forbes, Lexington Institute Chief Operating Officer Loren Thompson hit on four good reasons. First, commercial companies may find defense profit margins to be unacceptably low. Second, the department’s treatment of intellectual property may be a non-starter. Third, many can’t — or won’t — deal with the regulations. And fourth, as Thompson put it, “bureaucrats don’t trust market forces” or, in other words, unless a company is willing to share its cost data with government regulators, in some cases the government will simply decline to do business.

All that said, let’s not be too critical of the government. Plenty of intelligent people work there and want access to the latest commercial innovations. But, like those in the private sector, they find themselves stymied at times by the extra strings that are — and in some cases should be — attached to committing taxpayer dollars. The question that the Pentagon and industry must answer is this: How much is enough when it comes to assurances and evidence that taxpayers are purchasing items at a fair and reasonable price?

That “price reasonableness” standard is not one that folks in Silicon Valley, or really anywhere in commercial industry, will embrace. Nor are they likely to embrace numerous required “minor modifications” of a product or service to customize and optimize it for defense applications rather than the commercial application for which it was developed.

This challenge is precisely the one that Carter has taken on by making his trip to Silicon Valley. He recognizes, as we do, that the traditional supplier base is amazingly innovative. He also recognizes, as we do, the need to integrate innovations into our base wherever we may find them — and particularly from companies and industries that specialize in information technologies. We need both sectors to do what they do best, and we offer any assistance to Carter that he might need in making the regulatory environment more pliable and open to his goals.

Those goals may mean a new perspective on acquisition and contracting. Silicon Valley simply will not embrace “low price, technically acceptable” or other low-bid models of pricing. They’re not going to open up their books or subject their business systems to cost accounting standards audits, nor accept intrusive examinations of their global supply chains.

But having this discussion will move the ball forward, not just for innovators in Silicon Valley, but for the innovators who already supply the Defense Department.

In the end, as Brett Lambert said, the traditional supplier base is becoming more and more like the commercial industry, not the other way around, and that evolution is one that the department must embrace now — for the war fighter’s sake.

Topics: Business Trends, Defense Department

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