6 January 2017

Future Foundry


By Ben FitzGeraldAlexandra Sander, and Jacqueline Parziale

In June 2014, the Center for a New American Security released “Creative Disruption: Technology, Strategy and the Future of the Global Defense Industry.” The paper argued that the United States military risks losing its technological advantage if the Department of Defense and its industry partners do not adapt to widely recognized strategic, technological, and business trends. 

In the two years following that paper’s release, senior leaders in the DoD have sought to arrest the decline of U.S. technological superiority. Secretary of Defense Ash Carter has launched high-profile innovation efforts, reaching out to Silicon Valley and creating the Defense Innovation Unit Experimental (DIUx) and Defense Innovation Advisory Board. Deputy Secretary of Defense Robert Work has championed the Third Offset Strategy, which seeks to maintain the United States’ ability to project power against adversaries armed with significant precision munitions capabilities. It is apparent that senior leaders understand the challenges facing the DoD, but their efforts have yet to address the systemic issues outlined in “Creative Disruption.” Empowering new organizations such as the DIUx and the Strategic Capabilities Office (SCO) is a positive step, but it is ultimately insufficient for the DoD to innovate exclusively outside its core bureaucracy or attempt to force new technology efforts through an outdated system. 

The Department of Defense must recognize that its military-technical challenges are a matter of strategy – the fundamental approach the department takes to generating technological advantage – not simply of acquisition policy. The DoD’s acquisition system requires constant improvement but functions reasonably well for its intended purpose and has improved in recent years, as reported by Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall in October 2016.2 

Accordingly, the DoD must develop and implement a new strategic approach to generate and maintain technological superiority – one that fundamentally shifts the basis of the DoD’s advantage by creating an elegant alignment among the nation’s strategic needs, available technologies, and the various business models through which the DoD develops and fields military capabilities. The source of that future advantage cannot depend on DoD investments alone, but must encompass the United States’ total technological capability, including civilian talent and resources. 

The impending presidential transition offers the new secretary of defense a rare window to capitalize on opportunities created by current leaders in the Pentagon and Congress. A new strategic approach to military-technical advantage must be at the top of the next secretary’s agenda, and not simply as an end in itself or as a method to address rising costs and fragility in the defense industrial base. The next secretary must communicate a new vision within his or her first 100 days in office, and convince stakeholders from Congress, industry, and inside the DoD to take action in line with that strategic approach.

The DoD plays critical policy, intelligence, and trade roles across the government, but ultimately, it is the only department responsible for developing the military capability that underpins the nation’s foreign policy options. The erosion of U.S. military-technical advantages increases military risk, weakens the deterrent value of traditional capabilities, and undermines the DoD’s ability to generate nuanced military options to address the growing range of policy contingencies faced by the nation. The DoD must ensure it can support the widest possible range of policy choices for the commander in chief despite technological advances fielded by adversaries. 

The DoD therefore needs to: 
Articulate a new strategic approach to military-technical advantage – an optionality strategy – in which the goal is to expand the range of military and technical options available via a diverse portfolio of capabilities and concepts. 
Use this new strategic approach to drive institutional and policy reforms that ensure DoD component organizations are able to field the full range of technologies required for military advantage. 
Develop associated industry policy to align incentives and collaborate with a wider range of industry partners in a more nuanced manner that yields both military and business benefits. 

Under an optionality strategy, the DoD would build a diverse portfolio of capability options, with each investment designed to mitigate risks in other areas of the portfolio, and manage them dynamically to reflect changing threats and new technological opportunities. These technology investments would be matched by diverse concepts of operation (CONOPs). The resulting capabilities would leverage the diversity and flexibility of this portfolio to impose intelligence and innovation costs on the nation’s adversaries. The options provided in this portfolio would also allow the United States to rapidly respond to enemies’ and competitors’ adaptations. 

An optionality strategy would shift the basis of technological competition from the features of specific weapons systems to the military’s access to centers of industry and innovation and – more importantly – to the human capital of concept developers and military commanders. By widening the basis for technical competition and seeking to achieve advantage in aggregate, the DoD can exploit advantages, particularly human, in which the United States is expected to remain dominant for the foreseeable future. 

The DoD’s industry partners are integral to any new strategic approach to increase the department’s technological edge. To facilitate more effective collaboration with industry, the DoD needs to adopt nuanced policy that recognizes it does business with four distinct industry segments, which produce: 
Military unique systems with constrained competition – such as aircraft carriers, submarines, and nuclear weapons. 
Military unique systems with viable competition – such as combat aircraft, armored vehicles, military-unique unmanned systems, or command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems. 
Military adapted commercial technology – for which the DoD currently does not possess a dedicated policy or acquisition process. 
Purely commercial technology – such as software, mobile devices, or all-terrain vehicles (ATVs). 

For the traditional defense industry, an optionality strategy would provide more opportunities to innovate and to focus on rapidly fielding new technologies, thereby increasing investment, competition, and industry vitality. In parallel, a new defense industry sub-segment would emerge, based on policies and processes that support the development of military adapted commercial technology. This sub-segment could see vigorous competition between traditional American defense industry, global defense industries, commercial businesses, and startups. Such businesses could bring new technologies to market, creating business value while, more importantly, generating technological advantages of the U.S. military. 

An optionality strategy need not increase the DoD’s top line budget if it is implemented effectively. Under such a strategy, the DoD could leverage the almost $2 trillion of global commercial research and development (R&D) more effectively, mitigate the risks of overruns and program cancellations (estimated from $58 to $116 billion between 1997 and 2015, not including classified programs), and better manage its operational and maintenance costs.3 Above all, this strategy will help the DoD avoid the incalculable costs of losing the nation’s military-technical advantage. 

The United States possesses intellectual, financial, and institutional advantages sufficient to maintain its military-technical superiority, even in a world of democratized technology and rising competitors. The ability of the DoD and its industry partners to adapt to change will be the difference between success and failure. Unfortunately, recent history suggests that such change is unlikely. In the absence of institutional adaptation, the United States’ historic military advantages will continue to decline, as will the industrial capability required to reverse such a trend. To allow such an outcome to occur due to a lack of leadership or failure to implement new ideas would be irresponsible. 

Theory of Change

Concerns over the United States’ military-technical superiority are not new, and criticisms of the Department of Defense’s acquisition system are long-standing. As Senator John McCain (R-AZ), Chairman of the Senate Armed Services Committee, has noted, “Acquisition reform has been a perennial topic in defense circles for years.”4 Despite near-annual attempts to address acquisition problems since the Packard Commission in 1986 – including recent reform efforts, such as the Better Buying Power initiatives launched by the Office of the Under Secretary of Defense for Acquisitions, Technology, and Logistics (USD (AT&L)) and major Congressional reforms through 2016 and 2017 National Defense Authorization Acts (NDAA) – there have been relatively few improvements to the system’s outcomes. Clearly, this failure to change is not due to a lack of proposed solutions but is the consequence of inadequate political will and ineffective execution. Given broad acceptance among acquisition and industry professionals that the current system is flawed, endless recommendations for reforms, persistent bureaucratic intransigence, and a lack of meaningful change, how can the Department of Defense establish a reliable approach to generating and maintaining technological superiority in the 21st century?

The DoD must view military-technical challenges as a strategic issue requiring fundamental change. Defining military-technical superiority in terms of acquisition reform, process, procedures, and organizational structure – even though those are critical elements for success – undersells the importance of the challenge and may fail to drive action at the highest decisionmaking levels. Moving forward will demand sustained attention from the most senior leaders in the department, Congress, and industry, who must push change down into the middle levels of their bureaucracies while also enabling innovation to advance from the bottom up.

Ideally, senior DoD leaders, to include the secretary and deputy secretary as well as the chairman and vice chairman of the Joint Chiefs of Staff, will create and implement an integrated strategy for technological superiority. Such an effort must encompass warfighting concepts, adversary adaptation in warfighting and acquisition, global business trends, the DoD’s investment strategy, and institutional reform. Senior leaders should use this strategic shift to justify and drive change within the Office of the Secretary of Defense (OSD), the military services, the acquisitions workforce, and the testing and evaluation community. In doing so, the DoD also must create the correct incentives to enable a range of partners – from traditional defense industry to commercial industry, startups, Federally Funded Research and Development Centers (FFRDCs), government labs, and universities – to collaborate, compete, and contribute new technology and ideas. 

To execute such an ambitious strategy, the DoD must foster a high level of cooperation among DoD components, Congress, and its partners. The department must take the lead in creating the vision, strategy, systems, and incentives necessary for change, but it will require external support to implement and fully realize the benefits of a new strategy. If the DoD works in concert with its colleagues on the Hill, Congress will be able to remove political, legislative, and budgetary roadblocks. A joint effort between the DoD and defense industry will strengthen that market sector, allowing companies to plan for their futures in a way that is financially viable, shape their long-term planning and investment strategies, and make the case for change to their shareholders. 

While a reframing of strategy is the optimal solution, there is no recent historical evidence to suggest it is likely. In the absence of effective DoD leadership, Congress likely will continue to act as a change agent, attempting to force reform through legislation as seen in the 2016 and draft 2017 NDAA bills. Such efforts will be better than no change at all, but Congress could better facilitate progress by dictating the outcomes it desires, rather than assigning specific solutions. 

In the absence of effective change from either the executive or legislative branches of government, the defense industry must explore ways in which it can adapt independently. From new business models to mergers and acquisitions to production methods, industry arguably has more flexibility than the government to reshape itself rapidly. In recent years, the defense industry has adapted to the Budget Control Act and efficiency initiatives by reducing costs.5 However, contractors should innovate beyond such efforts to support their long-term viability, position themselves as partners to commercial industry and startups, and help the United States maintain its technological advantages in the face of bureaucratic barriers. 

Secretary of Defense Ash Carter speaks with Defense Innovation Unit Experimental employees.... Sr. Master Sgt. Adrian Cadiz

Without action from the DoD, Congress, or the defense industry, the United States either will see the continued erosion of its advantages or pay an unsustainably high price to stay ahead. Following World War II, the United States followed strategies in which countering U.S. technology cost more than that technology cost the United States. Today, the United States is often on the wrong side of such strategies. In the fight against the Islamic State in Iraq and Syria the United States used aircraft that “cost nearly $200 million apiece against pickup trucks costing virtually pennies in comparison.”6 

The change in the global technology landscape cannot be halted, so the question is whether the DoD will be able to adapt to capitalize on external factors, or if change will be forced on the department and its industry partners in catastrophic ways. History tells us the likelihood of change is remote, but recent efforts in the Pentagon and on the Hill have shown a common recognition that change is required – even desired – and created a window of opportunity for real progress. 

A New Technology Superiority Strategy

The United States’ ability to generate decisive military-technical advantages in the 20th century was a function of DoD strategies that elegantly aligned strategic needs with compelling capabilities, via business models that capitalized on, and contributed to, the nation’s unique natural strengths. 

During the Second World War, the United States built the arsenal of democracy on the basis of American industrial might, a feat of mobilization and mass. The early Cold War saw the nation shift to the New Look, or First Offset Strategy, which leveraged the country’s cutting-edge laboratories and technical talent (some of it of foreign origin) to limit Soviet ambitions through nuclear deterrence. Later in the Cold War, under the threat of mutually assured destruction and in support of the U.S. grand strategy of Soviet containment, the DoD developed the Second Offset Strategy, which strove to offset the greater mass of Warsaw Pact forces with qualitative military-technical advantages. The department achieved this objective by investing in information technologies such as the Global Positioning System (GPS), microprocessors, computer networking, software, and data compression, which in turn generated information-based force multipliers delivered through C4ISR networks and precision munitions. 

American businesses, uniquely qualified to build these new technologies, developed the key technologies for both Offsets with government funding. Exclusive access to key technologies allowed the DoD to develop new CONOPs, such as AirLand Battle, and to lock in its advantages with tight export controls. Many of the industrial partners that supported these developments were part of large conglomerates, operating simultaneously in defense, industrial, and commercial marketplaces, allowing for the controlled transfer of breakthrough technologies into the U.S. private sector. This approach generated positive externalities, positioning the United States and American businesses at the forefront of the information technology revolution and laying the groundwork for the future successes of Intel, Qualcomm, Hewlett Packard, Apple, Google, Facebook, and countless others. 

Boeing B-17Es under construction at one of the Seattle, Washington, Boeing plants circa 1942. Wikimedia Commons

The Current Strategic Challenge

Today, the DoD no longer can exploit such an elegant alignment of strategic need, available technology, and effective business models. The nation faces multiple divergent threats, each with differing strategies and methods. Their capabilities range from nuclear weapons to conventional military platforms, and include high-end and low-end asymmetric technologies such as anti-satellite weapons and improvised explosive devices, as well as cyber technologies and terrorism. Such diversity grants adversaries many opportunities to circumvent or attack the monoculture platforms of the DoD’s conventional warfighting regime. Adversaries’ variety challenges both the DoD’s capability planning efforts and ability to unify the executive and legislative branches of government in support of a new strategic approach. 

The DoD must allocate its investment over a much larger array of advantage-generating technologies. In addition to the stated “building blocks” of the Third Offset Strategy – autonomous deep learning systems, human-machine collaboration, assisted human operations, human-machine combat teaming, and network-enabled semi-autonomous weapons hardened to operate in an electronic warfare and cyber environment7 – the DoD also might benefit from advances in directed energy, advanced manufacturing, quantum computing, material science, and biotechnology. This diversity further complicates the DoD’s decision calculus and investment methodology, especially in a forecasted era of tight budgets and an oncoming bow wave of modernization bills for nuclear and conventional deterrent capabilities.8 



Source: “2016 Global R&D Funding Forecast” Industrial Research Institute

Moreover, the DoD no longer can direct nongovernment R&D and its ability even to influence it is declining. Most of the new technologies the DoD seeks to exploit are developed outside its direct control, unlike computers in the 1950s or GPS in the 1980s. The proliferation of technology – notably information technology, which previously was a U.S. advantage – means not only that the United States does not have exclusive access to many capabilities, but also that its purchasing power in the global technology economy has diminished, together with the DoD’s influence in R&D spending. 

The DoD’s research development test and evaluation (RDT&E) budget has increased from $37 billion to $66 billion (Fiscal Year 2015 dollars), or roughly 175 percent, in the past four decades, but global R&D spending has increased more than ten times faster – over 1,875 percent – during a similar period.9 In such a global environment, both militaries and businesses must differentiate themselves through the innovative use of technology rather than pursuing unique access to it. At the same time, the traditional defense industry is under increasing pressure to develop military systems more quickly, more cheaply, or with greater complexity than ever before in a defense market in which the number of major defense acquisition programs (MDAPs) is decreasing, all while pleasing their shareholders.10

Maintaining Advantage Through an Optionality Strategy

Rather than pursuing a singular approach, or a classical strategy of defining end states then managing toward them, the DoD should embrace a strategy of options and diversity.11 In this approach, the DoD would create more capability options across a wider, more diverse portfolio. These options should naturally address the range of military operations but also develop a true high-low mix of capabilities. This capability mix must encompass “exquisite” systems, such as stealthy, penetrating, unmanned strike aircraft, and lower-cost systems that can be deployed in mass, such as drone swarms. This approach would resemble the DoD’s technological development of and doctrinal development for submarines, aircraft carriers, and combat aircraft during the interwar period and World War II.12 For example, between 1950 and 1960 the U.S. Air Force employed 14 different fighter jets, three times as many as today.13 The logic of an optionality strategy is best seen in this passage from Colonel John Warden: 

We have just over 60 F-117s, but the world must react to those F-117s just as if we had many hundreds … Our problem, though, is the F-117s operate in a fairly constrained, well known altitude and speed block … Our answer must be an F-118 and an F-119. Maybe a little more stealthy, but more importantly, something that operates in a significantly different speed and altitude regime; in a regime where the defenses developed against today's F-117s are unlikely to be effective. How many F-118s, F-119s, F-120s do we need? Not many; probably just a squadron or two … How many different types should we have in the inventory? A lot, and all radically different. Maybe ten to fifteen substantially different air, space, information, kinds of platforms, each occupying a unique niche. Imagine trying to defend against this kind of a force.14

An optionality strategy also would allow the DoD to segment its technology needs and optimize its acquisition approaches and policy accordingly. The differences in markets, capital requirements, and development timelines for nuclear submarines and micro UAVs are painfully obvious, but the DoD pursues the same technology strategy for both. Instead, the department must recognize that it requires four different approaches: one for military unique capability development where competition is constrained, a second for military unique capability development where competition is viable, a third for military adapted commercial technology, and a fourth for purely commercial technology. 

Within these segments, the DoD should maintain current classical strategies where appropriate – for example, for capabilities such as nuclear weapons and large platforms that are capital intensive and demand long-term investments. But for newer systems, especially those reliant on commercial technologies, the department should pursue adaptive strategies, vary its approaches and investments, and select the most successful options to deploy in greater quantities when required.15 Additionally, the DoD should pursue opportunities to apply at scale the type of recombinant innovation16 currently being championed by the SCO, turning existing airframes into arsenal planes17 and modifying Tomahawk missiles to increase their range and scope of use.1

A U.S. Air Force B-52 Stratofortress leads a formation of aircraft including two Polish air force F-16 Fighting Falcons, four U.S. Air Force F-16 Fighting Falcons, two German Eurofighter Typhoons, and four Swedish Gripens over the Baltic Sea, June 9, 2016.... U.S. Air Force

The Joint Staff and services then will be able to integrate these diverse capabilities through new and varied CONOPs. A more diverse portfolio with greater options will allow operational planners and commanders to develop unique, optimized force packages for specific operations, taking into account cost and political considerations and the enemies’ sophistication. This diversity will exploit and empower the creativity and talent of U.S. military personnel, rather than relying on technical advantages in a few platforms. This approach will impose a significant intelligence burden on competitors and adversaries, as well as an innovation burden. 

Under an optionality strategy, the DoD’s ultimate objective will be to maintain advantage in aggregate based on the diversity, adaptability, and strength of the entire technological portfolio. At present, the United States retains the ability to build superior technology on a system-to-system basis better than any other nation on earth. While there is no need to cede ground in any individual technological contest, this competition cannot ensure affordable, strategic military-technical advantage in an era of democratized technology. This is especially true at a time in which the U.S. military will likely be simultaneously engaged with irregular non-state actors, near-peer competitors, state-sponsored proxy forces, cyber-enabled adversaries, or terrorists. The pursuit of technological advantage via exquisite weapons systems introduces unacceptable risks of affordability, asymmetric responses, and business model viability.

A sailor uses a 3D printer on board the aircraft carrier USS Harry S. Truman. U.S. Navy

Enabling Technologies

An optionality strategy is an intentional departure from previous approaches that were premised on the development of game-changing or ‘leap ahead’19capabilities to establish generational technical advantages.20 It is certainly possible that such game changers could emerge from an optionality strategy, and in that case the United States should capitalize on them to the fullest extent. These rare achievements should not be a prerequisite for the nation’s military success, however. The costs, risk, and hubris associated with such an approach are unacceptable. Further, the diversity of future threats, combined with finite resources, means that the DoD cannot safely bet on a handful of technologies or optimize its technologies for a singular form of warfare.

Under the precept of advantage in aggregate, the DoD could use an optionality strategy to consciously assemble and manage the military equivalent of a software stack – a group of programs that work together to perform desired functions. Such a construct would provide the basis for generating and managing more and better military options, while providing the foundation for modernizing long-standing capabilities and exploring promising technologies iteratively. 

The department’s challenge is not in identifying new technologies, but in bringing them to maturity, integrating them into the force, and converting them into military advantage. There is a set of technologies and technology approaches that will prove critical to enabling an optionality strategy and military-technical superiority. System-of-system engineering principles, open system architectures, modern software design based on decoupling, software stacks and cloud architectures, and open source software will make the difference between an adaptive and interoperable force and a fractured set of advanced technologies. Advanced computer-aided design and engineering, 3D printing, robotic assembly, and other emerging manufacturing capabilities offer suppliers the opportunity to dramatically alter the cost profile of manufacturing complex systems, to prototype rapidly and more effectively than ever before, and bring manufacturing back or close to the continental United States.

Cold War–era military-technical competition relied on technological breakthroughs, from new high performance materials and long-range sensors to information-based force multipliers. Because of the democratization of technology and the speed of change, future competitions will be characterized by militaries’ ability to identify, integrate, and deploy available technologies at scale in advantageous ways. Sophisticated software and new manufacturing methods are differentiators in such an environment. Both technology areas were pioneered by the United States and are currently used within the DoD, but they have not yet been deployed to their full potential as contributors to the United States’ military-technical advantage.

Strategic Alignment

An optionality strategy would better align the department’s technology strategy with its projection of a future operating environment that comprises well-understood trends, rapid change, and strategic uncertainty. Moreover, it will shift the department’s approach to generating military-technical advantage away from Cold War–era precepts as these are invalidated by trends in technology, economics, and warfighting. 

A new strategic approach would allow the department to leverage not only its existing, sophisticated systems but also the talent and innovation of its military and civilian workforce and current industry partners, while attracting new partners from other industry sectors domestically and abroad. A segmented, strategic approach to industry collaboration will allow the department to remove bureaucratic inhibitors and capitalize on its natural advantages as an early adopter of technologies with downstream commercial applications. In this way, the department will be able to ride the wave of commercially funded R&D, while developing unique military advantage through integration and the work of its traditional industry partners. 

Proposing a new strategic approach of options and diversity is most ambitious. Such an approach is open to critiques that the DoD will be incapable of managing or paying for more projects and programs, that it will be unable to work with new partners while supporting traditional defense industry, that new business models are difficult to establish, and that data, software, and architecture integration on such a scale is unfeasible. These are all valid concerns; but it is worth keeping in mind that earlier military-technical strategies required, in one case, the mobilization of the entire U.S. industrial base to creating the first nuclear weapon, and in another, the invention of GPS and the internet. 

The United States is the only nation with the wealth, technical capability, capital, industry, and innovation base to support an optionality strategy. The Department of Defense is the only organization with the size, scope, funding, and management potential to implement such a strategy. And the U.S. military is the only force with the scale, sophistication, and human capital to take full advantage of the military opportunities that an optionality strategy provides. Pursuing this strategic approach will not only establish a military-technical advantage for the United States, but also provide a method by which to address endemic bureaucratic challenges within the Department of Defense. 

The full report is available online.

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