Kelleigh Bilms
Kelleigh is a Washington DC-based principal in Oliver Wyman’s Aerospace and Defense practice.
The US Defense Department has struggled for decades to ensure the most advanced technology gets into the hands of warfighters as early as possible — a daunting task given the accelerating pace of tech development in the commercial market. How can we do it faster, at scale, and cost efficiently?
Three recommendations for unleashing the power of US commercial innovation on behalf of national security are rising to the top in discussions across the defense industry, private capital investors, and government. They leverage three uniquely American assets — vast private capital markets, a cohort of large, well-funded defense producers, and an extensive, well-educated DoD workforce.
First and foremost, an advantage the US clearly has over rivals on the world stage is access to domestic capital markets with $50 trillion-plus sloshing around that could be leveraged by Defense to fund technological advances for the military. While the private capital is there to fuel the defense tech race, this treasure trove remains underutilized by DoD.
The need for public-private partnerships
One way for Defense to integrate private capital markets to speed up the transition of tech from commercial uses to military is through public-private partnerships. This is not a new idea, but to date DoD efforts have been too timid. It needs to create more partnerships that are bigger and more collaborative if it is to improve its ability to nurture tech innovation and adoption.
To illustrate what’s possible, one need only look at models established by other US government agencies. Two examples are the US Agency for International Development’s INVEST program, which mobilizes private capital to support growth in developing countries, and venture capital partnerships to combat future pandemics created by the Department of Health and Human Services. The Departments of Energy and Commerce also use loan guarantees to support the private sector.
While DoD has historically focused on providing non-dilutive, research and development (R&D) funding to companies through mechanisms like Small Business Innovative Research Grants and the Rapid Innovation Fund, it has started exploring a broader set of public-private partnership tools. At the end of last year, the Secretary of Defense established the Office of Strategic Capital. This new unit will collaborate with private capital to support technologies key to national security, such as advanced materials and semiconductors.
But finding solutions through these kinds of partnerships should become the rule not the exception for Defense, as they are today. They must be expanded to support the range of technologies needed to drive and sustain the US military’s competitive advantage.
Work with the biggest
The second step would be incentivizing the biggest manufacturers of defense systems to do the heavy lifting on pulling through dual-use and disruptive tech innovation. This connects with a change of heart among many defense stakeholders who now believe DoD should do less investing in early-stage R&D that overlaps with commercial innovation. Instead, DoD should preserve investment for defense-specific science and technology and later-stage R&D and procurement that customizes and adopts technology for DoD-specific missions and use cases.
Where many over the past decade had pushed DoD to harvest tech by going straight to commercial firms and startups, there is now growing recognition that major defense contractors are better positioned to act as conduits. These defense giants already own the vast majority of large-scaled “programs of record” — those which center on hardware-enabled systems like aircraft, missiles, and satellites — and thus understand how to navigate the DoD acquisition community. To facilitate smoother tech transitions from commercial to military, prime integrators like these must be seen as key channels to market — especially when bringing on disruptive tech defense platforms and systems.
To encourage this, primary defense system manufacturers need incentives, such as tax breaks for supporting startups or making investment in startups an allowable expense on government contracts. Another option to consider is evolving evaluation criteria on requests for proposals to allow defense contractors to cite the percentage of proposed commercial startup content on new weapons systems.
A tech-savvy DoD and the way forward
Finally, the DoD workforce is another important asset, but it needs to increase its tech and finance literacy. To help achieve that, the military is investing in tech competencies needed to understand the art of the plausible when it comes to writing requirements, structuring and evaluating proposals, and integrating software. They are also working to upskill users so they can employ new tech and provide a continuous feedback loop that maximizes the impact of tech development and acquisition efforts.
Additionally, DoD is increasingly investing in its workforce financial literacy and relationships with the investment community through programs like Shift Defense Ventures that embeds DoD employees in venture and private capital firms.
Defense still has many steps to take to become a better buyer of dual use and disruptive technology. But the discussions currently going on in the industry and at DoD are starting to identify the US assets that can push our national security well ahead of rivals, if used to their full potential. When it comes to innovation, the DoD has a vast arsenal upon which it can rely. We just need to learn how to deploy it better.
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