Revisiting the Hedge Strategy with Renewed Urgency
Deterring China in the Indo-Pacific requires a different set of U.S. capabilities than wars in the Middle East or Ukraine. The vast maritime expanse and China’s buildup across the South China Sea would make it difficult for U.S. forces to operate within the first and second island chains. Most of America’s major weapon systems are 30 years old and many of the new major systems for a high-end conflict won’t be operational until the 2030s.
Chinese leader Xi Jinping has tasked the Chinese military with modernizing by 2027 to be ready for military action and he has declared that he will reunify Taiwan with China by force if necessary. Many defense and intelligence officials including the chairman of the Joint Chiefs of Staff, a former Indo-Pacific commander, and the CIA director have all stressed the risks of invasion by 2027. We believe that the United States should act quickly to deter Chinese military action.
The United States should implement a hedge strategy across all domains. This strategy would require developing and purchasing small and low-cost, unmanned, many, and smarter weapons and designs to complement existing exquisite (costly, complex, massive, and few) weapon systems. The hedge strategy should leverage emerging technologies with an emphasis on adopting these technologies at scale within the next three years.
As a partner at Shield Capital, an investor in technology companies which sell to the Department of Defense, one of us has an interest in contracting outcomes. However, my experience as the former director of the Defense Innovation Unit and as a Presidential Innovation Fellow informed my perspectives about the best way forward for the United States. Because our proposed strategy is so different from the status quo, we believe that Congress should create a new undersecretary of defense for innovation and commercial technology to serve as the department’s chief innovation officer and lead this transformation. This new organization would consolidate the innovation organizations within the Office of the Secretary of Defense — like the Defense Innovation Unit and Strategic Capabilities Office — and coordinate with those within the services who are all aligned to modernize the department faster.
While we have called for this strategy for more than a year now, we note that deputy secretary of defense Kathleen Hicks recently introduced the Replicator initiative at the National Defense Industry Association conference. This includes the ideas of the hedge strategy but without any of the organizational changes or other recommendations we advocate to ensure its successful implementation. We argue that where the Defense Department is still the primary buyer in the market for new technologies, such as space infrastructure or small drones, it can ensure it develops a viable vendor base. Where the commercial market is leading technology development, such as in AI, cyber, or satellites in low-earth orbit, the Defense Department should adapt its procurement and budgeting process to buy more current technology and refresh this as soon as companies introduce new solutions.
Why Is a Hedge Strategy Urgent?
The war in Ukraine demonstrates the competitive advantage that a military can achieve by rapidly exploiting commercial technologies. Over the past half-century, Department of Defense procurement processes have ossified. These processes were optimized for procuring more of “what the U.S. military has” instead of “what the military needs” for the next conflict. As a result, the new companies that supply leading technologies struggle to get on a long-term procurement contract and, as a result, U.S. warfighters are not as prepared as they could be for conflict. In a conflict with the United States, China would likely enjoy advantages in surface warfare and deny the U.S. air superiority. Even if the United States decided to match China ship for ship or plane for plane, the United States does not have the industrial capacity to match China’s commercial and military production of ships and planes.
With a hedge strategy, the U.S. military would field many more assets. Chinese weapons designed to destroy a few high-value targets would now have to contend with tens of thousands of targets. Voluminous smaller targets — each with its own command and control capabilities —would potentially overwhelm China’s conventional weapons and fleets. China’s warfighting plans would now be immensely complicated in dealing with sensors and weapons in massive numbers. Their military leadership would no longer be able to conclude that a cross-strait invasion could succeed. The U.S. Navy has already pioneered a portion of this strategy with Task Force 59 by completing fleet exercises integrating autonomous systems with manned vessels. As its commander, Cdre. Michael Brasseur, shared with us, Task Force 59 proved its capability in 15 bilateral maritime exercises and 4 major international exercises, extending the visibility from a manned vessel hundreds of miles in each direction and operating safely for more than 35,000 hours.
U.S. Indo-Pacific Command is already thinking about how to geographically distribute assets by moving them west of the international date line. However, the Defense Department is not moving rapidly enough to field “a large number of small things” such as dedicated synthetic aperture radar satellites in Taiwan’s latitude, swarming drones, smart mines (which can be turned on and off), and autonomous barges (which can be landing platforms or supply depots), to name just a few examples. A key lesson from Ukraine is speeding up the procurement of new vendors and concepts from tech firms such as SpaceX, Anduril, Hawkeye 360, and Vannevar Labs for capabilities such as commercial satellite data feeds, drones, loitering munitions, contested logistics, and software that fuses sensor information.
America’s post-Cold War defense strategy relies on traditional platforms (ships, tanks, planes) that take decades to develop and are fielded for many more decades, providing very stable targets for adversaries to understand, copy, and develop counter-strategies. In the context of a technology environment that is changing more rapidly than at any time in history and with technology spreading faster globally than ever before, the United States should explicitly address the fact that such rapid, distributed technological change presents an increasing opportunity for its adversaries to achieve devastating strategic surprise. In contrast, mastering new technologies provides the United States with both surprise and asymmetric advantage. It’s not that the Defense Department isn’t creating new concepts enabled by emerging technologies and developing special capabilities in classified programs — it certainly is. However, the limited scale of creating these concepts places them at the margin rather than in the mainstream. Scaling these capabilities systematically should be a part of the U.S. vision, concept of operations, and acquisition ecosystem moving forward. As the former heads of the department’s innovation unit and the Office of Naval Research, we believe the technology exists today for the hedge strategy and — with focused intent — the U.S. military can operationalize this strategy within the next four years. However, given the inertia in the world’s largest bureaucracy, the Defense Department will not achieve this without a major push from Congress.
The Four Elements of a Hedge Strategy
Primarily, the hedge strategy incorporates small and low cost, unmanned, many, and smarter designs. Small and low-cost ensures the fielding of many resilient, disposable systems with diverse capabilities at an affordable cost that can overwhelm and confuse adversaries. Unmanned extends the operational reach and efficacy of warfighters, which also mitigates the need for larger manned forces and potentially saves lives. Many matters because quantity is an important deterrent and provides a resilient, asymmetric advantage relative to exquisite platforms — especially in survivability. Smarter is better because software is the key to enhanced functionality of all hardware, can be updated in real time, and because AI, machine learning, and cyber can provide new capabilities as combinations of smaller systems. Such capabilities can be combined in new ways with agility in asset size, multi-domain movement, and mission capability that together offer a greater element of surprise. Such agility compares favorably to hardware platforms that remain largely unchanged for decades. Additionally, U.S. allies and partners would benefit from a more cost-effective strategy compared to buying more large U.S. weapons platforms. Not relying on the same vendors with years-long backlogs also means that allies and partners can begin fielding these commercial technologies today.
Second, the U.S. military should better leverage emerging technologies to adopt more alternative concepts and capabilities both faster and at scale to complement existing, exquisite (meaning costly, dominant, massive, and few) weapons system platforms. An outcome of this effort will also be increased competition in defense procurement and the introduction of more and new vendors to offset a consolidating vendor base. Use of commercial technologies is also an enabler for interoperability and joint operations with allies and partners since these technologies are available today and are not classified.
Third, adopting these commercial solutions with a sense of urgency enables fielding capabilities at scale within the next three years (not decades). In contrast, a recent U.S. Army program to provide small drones took almost a decade to field capability that is available to adversaries on the internet. Additionally, the Army placed special requirements on the vendor so that the resulting cost is 17 times the price the vendor offers on the internet. During this time, Chinese drone maker DJI, the global market leader, introduced six successive generations. Moving rapidly increases deterrence since unpredictability in what we field creates uncertainty for adversaries focused on the U.S. platforms in service for decades.
Fourth, capabilities should be widely dispersed given the vast distances of the Indo-Pacific and the need for resilience and reconstitution of forces. Given China’s focus for decades on countering U.S. power projection in and around the South China Sea, the United States should now counter the Chinese military with the surprise of a much larger quantity of dispersed assets that are less expensive, more resilient, and difficult to eliminate with conventional missile defenses. Dispersing assets is easier with smaller, autonomous, and disposable assets (rather than large weapons platforms) whose value increases when networked together to provide increased situational awareness and maneuverability over a broad area. The United States learned this lesson the hard way in 1941 at Pearl Harbor. This principle of dispersed capability is already being applied by the U.S. Marine Corps in their Force Design 2030 plan and by the U.S. Army of the Pacific under the direction of Gen. Charles Flynn, who recognizes the benefit of distributing U.S. and allied assets across the first island chain.
How Is the United States Positioned to Implement?
The short answer is not well because the defense procurement system was designed 60 years ago at the height of the Cold War when the United States was the unquestioned technology leader globally and the U.S. military — as the key developer of technologies it needed — comprised 36 percent of global research and development. Today, the U.S. military comprises only 3 percent of global research and development and commercial companies are developing 80 percent of the technology it needs. The current lengthy and linear system of developing plans, setting requirements, acquiring, and budgeting was better matched to an era when the United States was the dominant military superpower and technology leader than to the present when the commercial technology industry is both software-led and experiences rapid product cycles. Buying more of “what the U.S. military has” will likely be inadequate in the next conflict, which may include swarms of drones executing autonomous missions powered by AI algorithms and informed by near real-time sensor imagery from space.
Because the budgeting process begins three years before dollars are appropriated and there is little discretionary spending beyond what’s in the budget, current incentives are aligned to perpetuate the status quo — which, unfortunately, may be the equivalent of buying many more battleships on the eve of Pearl Harbor. Those incentives will continue to commit trillions of dollars to more tanks, ships, planes, and nuclear weapons at the expense of fielding alternative capabilities and investing more in new domains like space and cyber, or investing to support a new industrial base in small drones or commercial satellites. To be clear, a hedge strategy is not an argument against exquisite platforms but is an argument for a more balanced mix of existing platforms and new capabilities that create uncertainty for adversaries and more military options. As the New York Times observed in May 2023, the Department of Defense is failing today at ingesting, fielding, and leveraging these new commercial technologies whose utility is being proven in Ukraine. As a result, new companies supplying this technology are navigating a valley of death.
Five Recommendations for Implementing the Hedge Strategy
First, Congress should create a new undersecretary of defense for innovation and commercial technology as the Defense Department’s chief innovation officer to advance new capabilities from rapid prototypes to fielded capabilities at scale (meaning in warfighters’ hands in under three years instead of decades). These capabilities should support combatant commanders who do not have procurement authority and budget (except for their operations and maintenance appropriation). The key metric for this role is how many new capabilities are validated by combatant commands and fielded in the next three years.
Creating a new undersecretary role is necessary because the current undersecretary of defense for research and engineering should focus on the unique military technology that will not be available unless the department develops the requirements and funds the research and development. Today, this role is focused on delivering hypersonic weapons and directed-energy (such as laser) weapons in working with the existing defense primes. In fact, this current role specifies 14 technologies critical to national security but 11 of those are being developed by the commercial sector rather than the defense primes. If the president appoints a senior defense official to oversee three (20 percent) of those technologies, there should be an equivalent role to oversee the successful integration of 11 (80 percent) of those technologies.
This new undersecretary should have responsibility for the Defense Innovation Unit, the Strategic Capabilities Office, the newly-created Office of Strategic Capital, and the Chief Digital and Artificial Intelligence Office so that these organizations are all focused on speed and aligned in mission. This new defense official should also have a dotted-line relationship with the service innovation organizations such as AFWERX, SpaceWerx, NavalX, Marine Innovation Unit, and Army Applications Lab to achieve greater unity of purpose and avoid duplication across these organizations. This new undersecretary should oversee a budget that allows for scaling of successful prototypes from any of the innovation organizations (as the Accelerated Production and Fielding of Innovative Technologies program does today on a smaller scale) as an incentive to work together and avoid duplication of effort. This new role should also ensure that the Defense Department provides the appropriate signaling to private sources of capital (venture capitalists and private equity) as to the department’s technology needs to better leverage the $350 billion invested each year by venture capitalists and $1 trillion invested each year by private equity. The Defense Department should be actively influencing this funding for national security purposes since it is 13 times the amount of the record Fiscal Year 2023 defense research and development budget.
The new organization should collaborate with the services and the Joint Staff to rapidly explore new fighting concepts that would be possible with a foundation of small, unmanned, many, and resilient designs.
Where the Defense Department can be the largest customer of a technology and lead in establishing new commercial markets, it can leverage its purchasing power to shape an industrial base for dual-use technologies. Examples are rocket launch capability, small satellites, space infrastructure, air taxis, new battery chemistries, small drones, advanced communications (6G), a pandemic warning system of sequencing pathogens, new sources of energetics, and hypersonic air travel. The Defense Department can ensure the United States is a first mover in these technologies by investing in these markets, creating programs that set industry standards, and developing suppliers capable of scaling in the United States.
Where the Defense Department is not a first mover or major customer of the technology, the department should implement a fast follower strategy whereby it can rapidly access and field commercial technology. Examples of these technologies include AI and cyber software, commercial satellite data, electric vehicles, autonomously controlled tactical aircraft, surface ships, and undersea vehicles. A fast follower strategy requires the department to change its current practices for adopting commercial technology. The first practice to change is replacing or significantly streamlining the requirements process for commercial solutions, since it’s not necessary to specify to commercial suppliers what to build in a market that already exists outside defense. Instead, the department should institute a rapid experimentation and assessment process demonstrating a capability need or problem to solve.
Second, the department should name organizational homes for these commercial technologies to focus building centers of expertise for assessing these technologies, assign an ongoing budget, better signal demand to private industry, and avoid duplication across the department. If the department does not establish the responsible organization to procure these commercial technologies, then there is no clarity as to who should budget for the capability — and history has shown that this means that requirements will be splintered across the services, making it more difficult to establish a cost-effective supplier base or leverage buying power.
Third, the department should embody a commercially oriented acquisition process that maximizes competition and operates at commercial speed and with commercial terms (especially for intellectual property). These best practices would include more widespread use of other transaction authority through implementing the Defense Innovation Unit’s Commercial Solutions Opening, or commercial selection process. Crucially, this process has warfighters assessing and prototyping commercial solutions facilitating rapid iterations to better meet their needs.
Finally, the department should ensure a sustained budget for these commercial capabilities in a “capability of record” (rather than an episodic program of record) to keep current with commercial product cycles. A capability of record recognizes the ongoing need to procure a capability (such as small drones or commercial satellite imagery data-as-a-service) but does not tie appropriations to a single vendor’s specifications for years, enabling the department to upgrade to new technology from the best vendor.
Conclusion
As the United States confronts a more dangerous world at any time since the Cold War, the country’s national security requires decisive action to realize newer, faster, and more cost-effective ways to dominate the battle space. Such decisive action includes a strategy to leverage new technologies, organizational and budget changes that reinforce the importance and urgency of this transformation, as well as an unwavering commitment to get the job done. The United States is not on the wrong end of another Pearl Harbor-style attack — yet. However, without timely structural changes and critical process improvements, it could be. By enacting a hedge strategy, the United States can significantly improve the capability of the U.S. Joint Force within the next four years and within the existing budget.
Michael Brown is a partner at Shield Capital and a visiting scholar at the Hoover Institution at Stanford University. He was the director of the Defense Innovation Unit between 2018 and 2022. He previously served as the CEO of two public tech companies in Silicon Valley: cybersecurity firm Symantec Corporation (2014–2016) and computer hardware maker Quantum Corporation (1995–2001).
Rear Adm. Lorin Selby served as the Chief of Naval Research from May 2020 until his retirement in June 2023. He previously served as the Navy’s chief engineer and the Naval Sea Systems Command deputy commander for ship design, integration, and naval engineering (2016–2020), and prior to that commanded the Naval Surface Warfare Centers (2014–2016).
