Out of the Stone Age: The Future Direction of the U.S. Defence Innovation Ecosystem

In response to Defene iQ's recent editorial on Developing a Blueprint for Success in the UK Defence Innovation Ecosystem, Tate Nurkin, founder of OTH Intelligence Group and a Non-Resident Senior Fellow with the Scowcroft Center for Strategy and Security at the Atlantic Council, shares his insights into the successes, weaknesses and future direction of the DoD's innovation efforts and the wider U.S. innovation ecosystem.

Around the most recent turn of the century, the energy industry considered the accumulating challenges to the long-standing hegemony of oil. A new idiom emerged to warn industry leaders of forthcoming disruption. As former Saudi Oil Minister Ahmed Zaki Yamani (among other attributed sources) pointed out, “the Stone Age didn’t end for a lack of stone, and the oil age will end long before the world runs out of oil.” New technologies, new ideas, new processes, new mindsets were busy shaping responses to a changing strategic environment long before the owners of old solutions had conditioned themselves to move on.  

The United States Department of Defense (DoD)—like most militaries throughout the world—sits at a similar moment of transition and forced adaptation. Legacy platforms, systems, concepts, and processes remain in abundant supply even as emerging technologies, novel business models, and new skillsets are most in demand—and most clearly tied to success in future military competitions.

This moment combined with growing concern that the US is losing its military-technological superiority has over the last half-decade galvanized an enterprise-wide fixation on the nebulous and sweeping concept of “Innovation”. These reform efforts have achieved laudable gains. However, they also have revealed enduring inefficiencies, bureaucratic constraints, and, most importantly, cultural challenges pertinent to any military that, like DoD, has one foot planted—perhaps understandably but still squarely—in a rapidly closing Stone Age.

New Organizations, Collaboration, and Focus

A core component of DoD’s innovation efforts has been the establishment of innovation hubs and new organizations designed to facilitate engagement with start-ups, high-tech behemoths, and gifted entrepreneurs. The Defense Innovation Unit (DIU) and Defense Innovation Board, founded in late 2015 and 2016 respectively, are the most well-known defence-wide entities dedicated to finding and attracting high-tech companies. The services, command components, and other national security community organizations have followed suit.

One late 2019 estimate found nearly 100 innovation facilitators operating across the US national security community. They generally have mission statements that combine the vague and compelling, the ambitious and anodyne. The Special Operations Command’s SOFWERX, for example, was established to “solve challenging Warfighter problems at scale through collaboration, ideation, events, and rapid prototyping.”

To be sure, these organizations are driving materially improved collaboration—and heightened trust—through industry pitch days, rapid prototyping events, technology sprints, and hackathons, not to mention through co-location with commercial technology accelerators as the Army Futures Command has done in Austin, Texas.

Collectively, engagement events form a process through which companies can prove themselves to DoD in a competitive environment so that the Pentagon can experience, test, and work with selected companies to refine a capability before buying it.

At a more strategic level, though, the number of facilitation organizations across DoD has created a complex and disconnected innovation landscape, one that acquisition expert Anne Laurent referred to as a “convoluted siloed maze.” Moreover, while the process is effective at engaging non-traditional defence suppliers, it is less well-suited to keeping many of them engaged. As Aviation Week’s Steve Trimble recently noted, Air Force Pitch Days “have led to hundreds of small contract awards but not obvious path to guide the aspiring defense contractors further into the byzantine military acquisition process.”

Becoming a Better and More Accessible Customer

As part of this outreach effort, DoD has also sought to become a better and more accessible customer by speeding up what General John Hyten, the Vice Chairman of the Joint Chiefs of Staff, referred to in January as being “very, very deliberate, very, very structured, very bureaucratic” acquisition process.

Specifically, Small Business Innovation Research (SBIR) contracts, which are bound by Federal Acquisition Regulation (FAR) rules, and Other Transactional Authorities (OTAs), which are not,  give DoD means of quickly securing funding for companies unfamiliar with and unprepared for DoD’s acquisition process.

Research from Govini shows that $34.5 billion was spent through these vehicles from fiscal years 2015 to 2019, including $9.6 billion in 2019. OTA’s have become particularly popular over the last two fiscal years. In 2018 and 2019, $11.4 billion was spent through OTAs, over twice as much as was spent on SBIRs during that time. It was also more than twice the $4.9 billion in OTA contracts awarded from 2015- 2017.  

A more thorough assessment of this expenditure, though, exposes a disconnect in program objectives and the acquisition incentives and metrics driving DoD behaviours.

According to Stephen Rodriguez, Founder of One Defense, a firm specializing in helping high-tech companies develop and implement strategies to enter the defence and security markets, “government stakeholders view money on contract as a metric of success rather than evaluating how many start-ups actually moved to [a] program of record.” As a result, “more often than not, [OTAs] are used by DIU and major consortium owners to justify moving money to traditional contractors more quickly, effectively hurdling FAR Part 13 via prototypes and demonstrations.” 

Govini’s data offers useful detail. United Launch Alliance, Lockheed Martin, Northrop Grumman, and Boeing rank fourth, sixth, eighth, and tenth on the list of recipients of this contracting mechanism designed primarily to engage small and non-traditional defence suppliers.

Defence primes are, of course, essential to sustainable DoD innovation. Using OTAs to speed up prototyping on large and high-value procurements—such as with the Army’s Future Attack Reconnaissance Aircraft program—is a valuable role for this tool. However, systematically employing OTAs to bypass the traditional acquisition process at the expense of using limited resources to expand DoD’s innovation base attenuates the program’s impact and complicates assessments of its overall effectiveness in deepening and broadening the defence innovation ecosystem.  

A Venture Capital Mindset

DoD innovation has also been characterised by a growing embrace of venture capital approaches. These practices enable defence buyers to defray risk by maintaining expansive portfolios of small to medium sized technology bets while filtering out solutions that do not meet requirements over successive stages of funding.

The DoD’s Joint Artificial Intelligence Center (JAIC) is now implementing a staged-investment venture capital system to develop innovative software solutions. JAIC’s Chief Technology Officer Nand Mulchandani sees this approach as critical to getting away from the DoD’s long-standing “Well, this was a great idea; lets stick a couple million bucks on it, see what happens” acquisition mentality.

Similarly, the US Air Force has established Air Force Ventures. With hundreds of small technology bets on the table simultaneously, the organization is taking on a portfolio—rather than program—management approach, placing a premium on collaboration with industry and academia in adjacent areas such as career path development and talent recruitment and cultivation. For example, the Air Force will send personnel in 2021 to a six-month course at Stanford University to learn how to manage investment portfolios.

As part of its incorporation of venture capital approaches into innovation efforts, DoD is also engaging “trusted capital” to help transition winning and military and commercially strategically important dual use capabilities and technologies from the defence market to the larger, but less stable, commercial space. DoD-led efforts to build sustainable domestic commercial industries in commercial drones or unmanned vertical take-off and landing (VTOL) transport have been recently announced.

Innovation, Culture, and More to Do

Roughly half-a-decade into DoD efforts to better meet the dual challenges of intensifying geopolitical competition and accelerating technological advancement, Pentagon innovation has been both celebrated and maligned.

DoD should be credited for successfully identifying the need for and in many cases pathways to engagement with new suppliers long either unknown or unfriendly to the US Defence Community. It is also successfully implementing new processes and ways of managing investments that are injecting a heightened degree of agility while also managing technological risk. Most notably, at a conceptual level DoD has, through enormous institutional effort, turned its tanker and is now at the very least pointed in the direction of the on-coming Bronze Age.  

But for defence communities seeking to draw lessons from DoD’s experiences, exuberance should be tempered. There remains within the US Defence and National Security Community a nagging sense that more needs to be done; that absent a fundamental cultural change, enduring bureaucratic instincts are likely to make innovation more difficult to achieve the longer DoD tries to achieve it; that the outcomes of DoD innovation are being dampened or distorted by the inherent and lingering sluggishness of Stone Age thinking and behaviours.