First World Problems: Defense Acquisition and the Competition for Ideas

June 10, 2016

If you told Frank Cary – CEO of IBM in 1980 – that eventually his $26.2 billion revenue company with 341,000 employees would be overtaken by a 40-person upstart with less than $8 million in revenue, he’d have likely considered the notion ludicrous in the extreme. IBM’s decades-long technological dominance seemed unassailable. Yet by late 2014, Microsoft had eclipsed IBM’s revenues. Agile, innovative and more in tune with a rapidly changing environment, the once-tiny start-up surpassed the incumbent.

The IBM/Microsoft story is a parable of corporate hubris, and the story of an organization with a hide-bound structure designed to compete in an earlier era versus the forces of disruptive innovation. Its lessons can be applied in many circumstances – indeed, to Microsoft itself vis-à-vis competitors such as Google. But it also can serve as a powerful cautionary tale in defense acquisition policy: In the Department of Defense (DoD), technological dominance is often taken for granted despite the high-profile roll-out of a “third offset strategy.” Indeed, the argument of the day is over whether many of the organizational structures designed for a different age have outlived their usefulness. The IBM/Microsoft analogy works pretty well, except for an important distinction: The stakes are radically higher in defense acquisition reform.

Perhaps the poster child acquisition project to highlight the challenges faced by the Pentagon is the much-maligned F-35 program. Despite 15 years of development (seven years behind schedule) and more than $163 billion of cost overruns, full combat readiness of this 5th-generation aircraft was just postponed again to 2018. When the aircraft is finally declared fully combat ready, we may end up with a Frankenstein: an incredibly expensive jack of all trades that is the master of none. This of course has occurred in full view of America’s adversaries who have every intention of leapfrogging U.S. aircraft innovations.

Changing the way the Pentagon does business to compete in an increasingly complex, multi-threat environment has been intoned so often that it is widely regarded as a truism in defense circles. Yet, to what end? Acquisition reform remains stuck in neutral amidst competing narratives for the future. The emerging consensus on Capitol Hill is that the Department of Defense can and should broadly improve acquisition requirements and cost management, and at least as important, speed from concept to operational deployment. And while certain progress has been made over the past decade, the 2017 defense bill – especially, the version as proposed by the Senate Armed Services Committee (SASC) – may be the most dramatic set of proposals for acquisition reform in 30 years.

Today, acquisition and procurement responsibility for the Department of Defense is generally vested in an office created three decades ago by the far-reaching Goldwater-Nichols Act. At the time, budget battles driven by inter-service rivalry were responsible for a growing inefficiency in defense procurement. Goldwater-Nichols was a bold step forward in acquisition reform in its time. The office known today as the Under Secretary of Defense for Acquisitions, Technology, and Logistics (AT&L) grew directly out of those reforms. Defense procurement was largely centralized, providing a more efficient means of procurement for the Pentagon that better improved joint operational integration and effectiveness.

But the United States faced a substantially different threat environment at the time of Goldwater-Nichols. Sen. John McCain recently noted at a Brookings Institution speech

Instead of one great power rival, the United States now faces a series of trans-regional, cross-functional, multi-domain, and long-term strategic competitions that pose a significant challenge to the organization of the Pentagon and the military, which is often rigidly aligned around functional issues and regional geography.

The processes, authorities, and structures adopted due to Goldwater-Nichols have become an impediment rather than a facilitator of America’s military technological dominance. In recent years, Secretary of Defense Ash Carter, and Under Secretary of Defense for AT&L Frank Kendall, have pushed a series of improvements and reforms. Their reforms, while commendable, might be characterized as incremental and within the context of the existing policy structure. Likewise, the House Armed Services Committee version of the 2017 NDAA approaches the challenge in a more evolutionary as opposed to revolutionary way.

The Senate version, on the other hand, represents an undertaking in acquisition reform as consequential as the overhaul enacted by Goldwater-Nichols itself. As Andrew Hunter and Jesse Ellman noted on the Center for Strategic and International Studies blog, “the Senate proposal represents a near-complete overhaul of the Department of Defense (DoD) organizations that manage and oversee acquisition.” Yet it is important to note that these proposed changes are not significant because there is an organizational reshuffle on offer, but because of the singular focus on improving the technology edge of the U.S. military, centered on its ability to rapidly innovate in response to shifting global threats.

In the Senate version, substantial changes include a continuing devolution of procurement from the AT&L office to the services, the Defense Logistics Agency, the Defense Contract Management Agency, and others – with the idea being that the “end customer” is more accountable and more likely to provide the best “demand signal” for more accurate and more timely procurement. The 2016 NDAA started this devolution and the 2017 version would push it much further to the point of breaking AT&L in two or eliminating the office altogether.

Dividing the office would result in the resurrection of the Under Secretary of Defense for Research & Engineering office (which is essentially a roll-back of some of the Goldwater-Nichols reforms) when that office was called the Director of Defense Research and Engineering. This office would assume an innovation footing, a departure from the current office’s emphasis on compliance with the Federal Acquisition Regulations. As one military AT&L professional noted to us, “Who would you rather have in charge of evaluating, selecting, and buying the most innovative warfighting technologies for the coming decades: tech entrepreneur types or accountants?” Among others, the Pentagon’s Strategic Capabilities Office as well as the Defense Advanced Research Projects Agency (DARPA) would report to the new office.

As for the more day-in, day-out management of the procurement and sustainment processes remaining after AT&L is eliminated and most acquisition responsibilities are farmed out, these would end up with a new Under Secretary of Defense for Business Management & Support. This policy recommendation mirrors many private sector corporations who effectively divide the R&D function from the operations function, allowing the former to seek new technologies while not being artificially constrained by the latter.

Taken together, if the final version of the NDAA looks more like the current Senate version than any of the other proposals, the changes it represents would indeed signify the most substantial reforms to the acquisition process since Goldwater-Nichols itself. The Senate version is an attempt to maintain America’s technological dominance by better enabling agile, responsive, and rapid innovation, and it does so in large part by moving away from the Pentagon’s Cold War administrative footing. As Senator McCain also said at Brookings:

We recently had a hearing on the F-35. This aircraft has been in development for 15 years. I get a new smart phone every 18 months. We should be able to upgrade our weapons on a similarly rapid turn.

In the context of the third offset strategy – the most challenging transformation of the warfighting capabilities of the U.S. military yet, due in part to the exponential growth of advanced technologies across the globe – these proposed reforms represent a fundamental change in acquisition philosophy.

In the private sector, companies that opt for incremental versus radical reform often end up being overtaken by a challenger. In the matter of national defense, such an outcome would have catastrophic consequences.


Stephen Rodriguez is a Partner at SineWave Ventures and founder of One Defense. He is also a Term Member at the Council on Foreign Relations and President of the Foreign Policy Initiative’s Leadership Council

Don Mathis has 15+ years of experience in start-up technology ventures as an entrepreneur, angel investor and corporate director. He focuses on ventures applying machine learning at scale, cognitive computing, and cyber security. Don has also served with the Navy on both active and reserve duty, including time in the acquisition / contracting field and with the Defense Logistics Agency.

Image: U.S. Navy Petty Officer 2nd Class Sean Hurt