Like King Canute ordering the tides to recede, the Department of Defense (DoD) has ordered its contractors to provide more innovation. Last weekend, Secretary of Defense Chuck Hagel announced the Defense Innovation Initiative, described as an ambitious, department-wide effort to identify and invest in innovative ways to sustain and advance America’s military dominance for the 21st Century. In part, the Initiative will focus on identifying areas for investment.
Does anyone else find it odd that the Pentagon, once known for sponsoring a breathtaking array of innovations including rocket ships, nuclear reactors, satellites, the Internet and stealth now needs an Innovation Initiative? As part of the new Initiative, the Department says it will “invite some of the brightest minds from inside and outside government to … assess the technologies and systems DoD [should] develop over the next three to five years and beyond.” What exactly has the office of the Under Secretary for Acquisition, Technology and Logistics been doing if not that? Is this not also the job of the Defense Advanced Research Projects Agency (DARPA), the Defense Science Board and its equivalents in each of the Services? Haven’t the dozens of defense laboratories and all the federally funded R&D centers been focused on providing innovative solutions to defense challenges? They certainly spend enough.
Unfortunately, the Pentagon is likely to be even less successful than was the old king whom, after all, was only contending with the laws of nature. Nothing reflects the fundamental problem with the department’s approach to management than how it intends to guide the new Initiative. Secretary Hagel announced the creation of the Advanced Capability and Deterrence Panel to oversee the proposed effort. As he described it, “the panel will integrate DoD’s senior leadership across the entire enterprise — its policy and intelligence communities, the armed services, the Joint Chiefs of Staff, and research, development and acquisition authorities.” That’s the solution; create more bureaucracy, add another layer to the already overly complex and time consuming acquisition decision making process and allow every special interest a seat at the table.
DoD not only does not understand the incentives that motivate private companies to innovate, but it puts obstacles in the way of many who try. One such obstacle is the need for a validated requirement before a program can be started. How many hundreds of innovative technologies and systems were developed by DARPA only to flounder because the Services didn’t have a validated requirement for them? Using its own money and talent, in two years Sikorsky produced a revolutionary light attack/reconnaissance helicopter, the S-97 Raider, intended initially to serve as the replacement for the Army’s obsolescent Kiowa Warriors. Textron’s Cessna unit together with AirLand Enterprises took even less time to come up with the Scorpion, a twin-engine light attack/ISR aircraft that is cheap to build, maintain, convert and upgrade. But without a requirement, these innovative platforms are not likely to go far in today’s Pentagon.
DoD is pursuing a number of acquisition policies that have made it more difficult for contractors to develop a reasonable business plan, stifle innovation and deter non-traditional defense companies from entering the sector. One is its mania for competition which has resulted in shorter contract periods that reduce the ability of companies to recoup expenses or figure out how to provide innovative solutions. Another is the increased use of the standard for awarding contracts called Lowest Price Technically Acceptable (LPTA). Criteria such as past performance or innovative solutions count for nothing in an LPTA-based competition. A third policy with negative effects is the demand for certified cost and pricing data on commercial items. Since virtually no private companies keep track of such information this, along with unique and expensive accounting standards and reporting requirements, is a major barrier to entry into the defense marketplace. Similarly, recent demand by DoD for expanded access to proprietary technical data of any kind if such intellectual property is utilized in the performance of a contract is the kiss of death to any effort to get private companies to invest their own resources in new ideas. Finally, why would a commercial company that is allowed to charge what the market will bear for its innovative products and services contract with the Pentagon when that department is conducting a war on profits?
Over the past five or six years the Pentagon has turned up its collective noses at approaches that have demonstrated success in promoting continuing innovation. One of the foremost of these is Performance-Based Logistics (PBL) which makes private companies responsible for a defined level of performance (e.g., on-wing time for an aircraft engine) at a specified price. Since the company can generate greater profits by improving the performance of the engine, it has the incentive to continually innovate. PBL-based sustainment contracts are common in the commercial world and have demonstrated that they save money and improve outcomes where they have been applied to Pentagon contracting.
King Canute went down to the shore to demonstrate to his courtiers the limits of his powers. Unfortunately, it appears that the senior leadership of the Pentagon is under the illusion that it can acquire innovative solutions simply by commanding industry to do as it is told. Fat chance.
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