DOD 2.0: High Tech Is Eating the Pentagon

By Adam Jay Harrison

Andreessen’s conclusion can be interpreted to mean that the underlying networks and services (i.e., hardware) required to build and deploy transformative, software-based innovations have become commoditized. While predictable, incremental advances à la Moore’s Law (i.e., the doubling of computer process speed or power every two years) will continue to improve hardware performance, it is the software around which hardware resources are organized where opportunities for unexpected, explosive value creation exist. Agree or disagree, one thing is certain: the dynamics of rapid product innovation reflective of the software-defined world are having an unprecedented influence on civilian markets and to an increasing extent the defense-technology landscape.

The Silicon Valley Connection

No center of industry is more at the heart of this transformation than Silicon Valley. Once a hub of military high-tech R&D, the region has capitalized on a critical mass of education, world-class research, cultural conditions, geography, abundant capital, and industry partnerships to become the epicenter of the new innovation economy. Moreover, the complex and synergistic relationships among these resources have enabled the region to set the worldwide standard for sustainable technology innovation at scale for more than three decades. 5

Through the mid-1980s, the U.S. government accounted for over 50 cents of every R&D dollar spent worldwide. Today, combined federal spending accounts for approximately 10 cents of every dollar—even less, if one discounts management overhead and test and evaluation from the R&D spending totals. 6 Over the past three decades, Silicon Valley has leveraged the explosion of private investment to become the center of a civilian high-tech sector offering components and systems “more advanced in most areas critical to military capabilities” than the technologies produced by the traditional defense-industrial base. 7 Recent reports suggest that the gap between military and commercial R&D is only widening in areas where traditional defense applications converge with business and consumer demand. In the case of unmanned vehicles, a technology pioneered by the military, the civilian market is projected to grow four times faster than the military market, a trend that will all but ensure a proportional improvement in commercial drone capability and cost. 8

Collectively, the businesses and research institutions comprising the civilian high-tech community constitute a global technology commons outside the control of any one industry, military, or nation. The “unaligned” nature of that commons represents both opportunity and threat to the U.S. military. To manage this uncertainty, the DOD can employ three basic strategies.

The first is a traditional “brute force” approach, where the DOD attempts to organically develop qualitatively superior technologies in all areas relevant to military operations. This strategy is reminiscent of the massive R&D-centric “offset” campaigns pursued by the United States in the Cold War.9

The second is a “fast-follower” approach that acknowledges the practical limits of DOD research and development outputs. Fast-following is based on the idea of organizing the DOD acquisition enterprise to capitalize at least in part on state-of-the-art technologies developed outside the traditional defense-industrial base. 10

The third is a variation of fast-following that incorporates additional tools and incentives for preferentially “shaping” the civilian technology marketplace in collaboration with high-tech industry. It implies a proactive posture that seeks to align commercial research, development, and industrial capacity with the needs of the military.

As commercially derived technology opportunities and threats evolve at faster and faster rates, one of the most pressing strategic issues facing the United States is how to build and sustain a credible military-technology advantage. The unrelenting progress of commercial technology fueled by abundant private capital renders it unlikely that the DOD will recapture the technological high ground in all areas relevant to the military. At the same time, simply trailing the market leaders is unlikely to produce a differentiating competitive advantage.

Only by deliberately synchronizing the prerogatives of the civilian and military technology markets can the United States ensure preferential access to the most advanced products and capabilities in support of the nation’s defense objectives. Such an outcome rests on the ability of the DOD to articulate a new theory of civil-military technology innovation that recognizes the role of the Pentagon and the traditional defense-industrial base in the contemporary high-tech world.

Civil-Military Ebb and Flow

During the Cold War, U.S. military strategy was predicated on the development and application of advanced technology to offset Soviet military mass. The first generation of the offset strategy involved the development and deployment of a nuclear arsenal immediately following World War II. With the Soviet Union’s successful demonstration of the RDS-1 nuclear bomb on 29 August 1949, however, U.S. military strategists were forced to envision a new offset that was substantially independent of nuclear weapons. This imperative led to an emergent strategic response in which the United States sought competitive advantages through the development of qualitatively superior conventional weapon systems. In the 1970s, the “technocentric” force-development model converged on an explicit objective: hold Soviet second-echelon forces at risk to counter the possibility of a blitzkrieg victory in Western Europe. 11 The second offset strategy, which the Soviets referred to as the reconnaissance-strike complex, is most commonly associated with the advent of the global positioning system (GPS) and stealth technologies.

From a defense-industrial perspective, the advanced technology strategy employed by the United States in the Cold War created an insatiable demand for more exotic, specialized military capabilities, but this was not always the case. Through World War II, the United States relied on civilian industry to underwrite weapon-system development. 12 More than any other single factor, the close alignment of the civilian and military industrial bases allowed the United States to rapidly scale wartime production and, among other impressive achievements, build more than twice as many major naval vessels as all of the other combatants combined. 13

In addition to scalability, dual-use technologies underwritten by civilian science and industry in areas such as communications, aviation, and ground vehicles tended to develop more rapidly—a benefit that allowed the United States to gain both qualitative and quantitative technological leads in World War II, despite lagging military R&D investments through the interwar period (circa 1919–1938). 14 For example, while the United States passed on early opportunities to take a leadership role in the development of radar immediately following World War I, by 1942—due in large part to the contributions of American industry—the nation was in the forefront of radar innovation. 15 It is worth noting in this example that knowledge and technology substantially derived from civilian industry formed the basis for the American wartime radar program, a case of commercial technology “spinning-in” to the military.

As the core dual-use technologies on which the World War II–era, civil-military bargain matured, however, the gap between military-use and civilian-use technology gradually widened, exacerbated by America’s commitment to military-technology superiority over the Soviet Union. With predominantly commercial firms no longer able to leverage defense R&D investment for dual-use product development, industry leaders began to turn their backs on the defense sector. By 2006, many of the largest defense contractors by revenue in World War II had exited the military market altogether. 16

For nearly three decades following World War II, the civilian and military industrial bases pursued largely independent trajectories punctuated by a handful of notable dual-use successes. Jet propulsion, nuclear energy, semiconductors, the Internet, and global positioning are all examples where military funding underwrote early-phase development with commercial firms intervening to exploit the technologies’ full potential. In the case of GPS, with origins dating to the 1960s, not until commercial and consumer manufacturers embraced the technology could the military take advantage of the economies of scale required to deploy it for applications such as blue-force tracking. 17

Beginning in the 1980s, owing to the explosion of the commercial and consumer electronics industries and the associated growth in private-sector R&D spending, civilian industry began to re-insinuate itself into the defense-industrial complex. This time, however, the relationship would be on more equal terms with commercial industry leaders at times driving the technology-innovation agenda. Even at the height of Cold War R&D spending, the DOD looked to civilian industry in rapidly evolving technology areas like semiconductors to accommodate military demand. Founded in 1987, SEMATECH, a consortium of semiconductor manufacturers, was initially funded by the Defense Advanced Research Projects Agency (DARPA) to ensure a viable, U.S.-based military supply chain for advanced microchip manufacturing. In the mid-1990s, SEMATECH members voted to eschew additional funds from the federal government, relegating the DOD to the status of a traditional, albeit large, technology consumer. 18 The semiconductor industry and SEMATECH have proved to be yesterday’s exceptions that prove today’s rule.

Today, with civilian industry assuming the lead-innovator role in key areas of military relevance such as computation, robotics, advanced manufacturing, energy, and others, the U.S. military is increasingly reliant on technologies developed for markets largely independent of DOD influence. 19 A strong argument can be made that the civilian marketplace is already meeting or exceeding the performance expectations of military users in fields ranging from software-enabled networks to unmanned systems. Alarmingly, many commercial high-tech firms are proving reluctant to engage the DOD due to what industry perceives as the high regulatory burden and limited potential of the defense market. In one telling example, Schaft, a small Japan-based robotics start-up that took top honors at the 2013 DARPA Robotics Challenge, was sequestered from future involvement with the DOD shortly after being acquired by Google. 20

‘Risk Falling Hopelessly Behind’

The rapid, inexorable migration of the technological state-of-the-art to the civilian marketplace requires the DOD to fundamentally rethink its relationship with industry or risk falling hopelessly behind adversaries better prepared to accommodate the new military-technology landscape. Successfully aligning the DOD with the imperatives of the modern high-tech marketplace means engaging industry on industry’s terms—a radical departure from the traditional monopsony around which Pentagon acquisition practices have evolved. Recent developments suggest that DOD leadership understands this point. On 15 November 2014, then-Secretary of Defense Chuck Hagel in a keynote speech at the Reagan National Defense Forum announced a Defense Innovation Initiative (DII) that will rely in part on proposals from “firms and academic institutions outside of DOD’s traditional orbit” to “change the way we innovate, operate, and do business.” 21

Secretary Hagel’s announcement was followed in April 2015 by the introduction of two pilot projects. First, the Defense Innovation Unit Experimental, a DOD “outreach presence” in Silicon Valley, “will focus on scouting emerging and breakthrough technologies and building direct relationships with DOD.” Second, the Pentagon in partnership with the Central Intelligence Agency’s venture outfit, In-Q-Tel, will make equity investments in start-ups developing technologies relevant to the military. 22 These initiatives join a portfolio of recent DOD efforts predating the DII, including Technology Domain Awareness and Better Buying Power 3.0 that seek to furnish expanded access to the civilian high-tech marketplace. 23

At the same time, many DOD organizations are pursuing expanded use of what are known as Section 845 “Other Transactions” (OT)—special contracts that can be used by DOD for the acquisition of prototype technologies, where a substantial portion of the effort is executed by a commercial firm, academic institution, or other “non-traditional” contractor that does not ordinarily transact business with the DOD. To the extent that OTs have the flexibility to operate like commercial-style contracts and avoid provisions of the Federal Acquisition Regulations that are incompatible with commercial business practices, these vehicles have become an important tool in the push for broader engagement with the high-tech sector.

As the Pentagon looks to industry for answers to the widening technology-innovation gap, however, development of an appropriate strategic context for such engagement is essential to optimize ongoing and future defense-innovation efforts.

Toward a New Theory of Innovation

The technology world has evolved to the point where the kind of self-contained, organic military-technology superiority the United States enjoyed in the Cold War is virtually unthinkable. The free flow of capital, knowledge, and talent underwriting the contemporary high-tech marketplace means that no organization, no matter how well funded, can reliably count on “out-inventing” the competition. By the same token, organizations responsible for developing “game-changing” technologies cannot assume that they will be the sole or even primary beneficiaries of these technologies. This idea has manifested throughout the history of warfare in examples ranging from the tank to the torpedo and the armored cruiser. Current business theory argues that there may in fact be a significant “second-mover” advantage when it comes to technology competition. 24 As L. D. DeSimone, former president and CEO of the 3M Company, observed over a decade ago: “Not so very long ago, a technological breakthrough could generate margins of leadership that would last for years. Today, the grace period of market dominance for new products and technologies is short—and getting shorter.” 25

The high financial risk of R&D, along with the diminishing time-value of technology as a result of rapidly changing operational (i.e., market) conditions and the free flow of information through legal and illicit means, bestows certain tangible benefits to those organizations employing a second-mover approach to technology innovation. Leveraging such a strategy, organizations can in theory quickly internalize exogenous technology without expending the organizational and political capital of technology pioneers. In practice, the all-too-familiar design characteristics of China’s new Shenyang J-31 fighter may speak directly to this phenomenon. 26

The factors that contribute to second-mover advantage are fundamentally antithetical to the idea of building and sustaining an organic, qualitative military-technology edge in substantially all areas relevant to military operations. Moreover, high-tech turnover, where the market produces multiple generations of products and substitutes in rapid succession has led to a kind of technology commoditization, where disparate technologies (and combinations of technologies) can be applied in different ways to yield comparable results.

In this context, the advantage favors those militaries with the ability to rapidly identify and capitalize on value-generating applications of available technology ahead of the competition. All told, the emerging forces of technology diffusion (i.e., development) and convergence (i.e., application) challenge the traditional defense R&D paradigm reflected in programs like the DOD’s Long Range Research and Development Planning Program—an activity that seeks to predict “projections of technology-enabled concepts that could provide significant military advantage to the United States and its partners and allies in the 2030 time frame.” 27

Discounting the sustainability of the “brute force” approach to military-technology competitiveness, the question remains whether and how DOD can collaborate with industry on equal terms to shape the civilian-technology marketplace in a manner that creates an enduring competitive advantage for the U.S. military. Fundamentally, the key to unlocking a fulsome military-industry relationship that broadly incorporates the civilian high-tech sector is to establish conditions of mutual benefit. To the extent that profit margins in the defense market are much lower than the returns generally attractive to commercial and consumer-facing firms, alternate incentives must be developed and marketed.

‘Dual-Use Technologies’

Such incentives could include financial co-investment, where the DOD assumes some of the risk associated with the development of dual-use technologies; expansion of shared infrastructure investment opportunities similar to the Office of the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy’s Manufacturing Technology Program, where the Pentagon offsets the fixed infrastructure costs associated with the manufacture of advanced, military-relevant products; enhanced evaluation of developmental commercial items leading to a DOD “seal of approval” that businesses can leverage in the marketplace; and the deliberate creation of early markets for dual-use products, where military demand precedes the emergence of corresponding civilian markets. 28

At the same time, the DOD must act to mitigate the barriers that constrain the ability of commercial firms to engage military consumers. The threat, whether real or perceived, that military interest in a product will precipitate export restrictions; high regulatory overhead associated with defense cost-accounting, security, and contract management requirements; ambiguous public data rights and intellectual property ownership; market opacity and limited military end-user access; and protracted sales (i.e., acquisition) cycles combine to have a chilling effect on relations between the DOD and the high-tech sector.

A shaping strategy must address these and other factors through a combination of policies and programs that empower DOD decision makers to identify and capitalize on opportunities to partner with civilian industry in a manner that supports the equities of all parties. Local and department-wide resources enabling defense-innovation stakeholders to connect and prototype novel solutions in a highly distributed fashion must be developed and synchronized but not rigidly constrained or centrally managed. Such resources include training and education, information products, investment capital, collaborative infrastructure, and related services. Most important, leadership must commit to overcoming bureaucratic inertia in order to promote and scale the most promising innovations and industry partnerships—even at the expense of disrupting the status quo.

Technology has been and continues to be central to the execution of American military strategy. For the first time since World War II, the technology supremacy of the U.S. military is threatened—not so much by peer competitors (at least not yet) as by the civilian marketplace. Attempts to reverse this trend solely through organic investments in DOD research and development are impractical, given the dynamism and sheer size of the global high-tech sector. At the same time, trailing the market leaders is not likely to produce the kind of competitive technology advantage necessary to ensure that the U.S. military “never enters a fair fight.” 29 Only by harnessing commercial market forces can the DOD establish preferential access to the most advanced products and capabilities. Such an outcome depends on the Pentagon’s ability to redefine its relationship with industry through policies and programs that reflect the equities of the high-tech sector and engage this community as a full partner in the nation’s security.

1. Marcus Weisgerber and Patrick Tucker, “New Pentagon Chief Carter to Court Silicon Valley,” Defense One , 15 April 2015, .

2. ADM James A. “Sandy” Winnefeld Jr., USN, remarks at the Reagan Defense Forum, Simi Valley, CA, 15 November 2014, .

3. Adam Jay Harrison, “Offset 3.0, or: How I Learned to Stop Worrying and Love Commercial Technology,” War on the Rocks , 17 November 2014, .

4. Marc Andreessen, “Why Software is Eating the World,” Wall Street Journal , 20 August 2011, .

5. Deborah J. Jackson, “What is an Innovation Ecosystem?” .

6. National Science Foundation, Science and Engineering Indicators 2014: Chapter 4, Staff Report, February 2014, .

7. “Guiding Principles to Optimize DOD Science and Technology Investments,” last modified 23 October 2014, .

8. Marcelo Balve, “The Drones Report: Market Forecasts, Regulatory Barriers, Top Vendors, and Leading Commercial Applications,” Business Insider , 11 March 2015, , .

9. Robert Martinage, “Toward a New Offset Strategy: Exploiting U.S. Long-Term Advantages to Restore U.S. Global Power Projection Capability,” (Washington, DC: Center for Strategic and Budgetary Assessments, 2014), .

10. David Pearson, “The Fast Follower: Coming Up Behind Development Leaders,” Defense AT&L , 21 April 2015, .

11. Harold Brown, Star Spangled Security: Applying Lessons Learned Over Six Decades Safeguarding America (Washington, DC: Brookings Institution Press, 2012).

12. Vernon W. Ruttan, Is War Necessary for Economic Growth? (New York: Oxford University Press, 2006), 43.

13. Mark Harrison, The Economics of World War II: Six Great Powers in International Comparison (New York: Cambridge University Press, 1998).

14. Allan R. Millet, “Patterns of Military Innovation in the Interwar Period,” in Military Innovation in the Interwar Period , Williamson Murray et al., eds. (New York: Cambridge University Press, 1996), 342.

15. Alan Beyerchen, “From Radio to Radar: Interwar Military Adaptation to Technological Change in Germany, the United Kingdom, and the United States,” in Military Innovation in the Interwar Period , Williamson Murray, et al. eds. (New York: Cambridge University Press, 1996), 281–288.

16. Jacques Gansler, Democracy’s Arsenal: Creating a Twenty-First Century Defense Industry (Cambridge, MA: MIT Press, 2013), 12.

17. “GPS History, Chronology, and Budgets,” Carnegie Mellon University, .

18. Robert D. Hof, “Lessons from SEMATECH,” MIT Technology Review , 25 July 2011. .

19. U.S. Senate, Permanent Subcommittee on Investigations, “Defense Acquisition Reform: Where Do We Go From Here?” Staff Report, 2 October 2014, 21, .

20. James Temple, “Google Standing Down in DARPA Robotics Challenge,” Re/Code , 26 June 2014, .

21. Cheryl Pellerin, “Hagel Announces New Defense Innovation, Reform Efforts,” DOD News , 15 November 2014, .

22. Patrick Tucker, “Pentagon Sets Up a Silicon Valley Outpost,” Defense One , 23 April 2015, .

23. Adam Jay Harrison et al., “Innovation Warfare: Technology Domain Awareness and America’s Military Edge,” War on the Rocks , 29 October 2014, .

24. Gregory Carpenter and Venkatesh Shankar, “The Second-Mover Advantage,” KellogInsight , 4 November 2013, .

25. Bob Spreng, “How Much R&D Is Not Available?” (paper presented at the American Bar Association, 16 April 2002), .

26. Dave Majmudar, “U.S. Pilots Say New Chinese Stealth Fighter Could Become Equal of F-22, F-35,” USNI News, 5 November 2014, .

27. Cheryl Pellerin, “DoD Seeks Novel Ideas to Shape Its Technological Future,” DOD News , 24 February 2015, .

28. “Defense Manufacturing Innovation Institutes,” Department of Defense, .

29. Brett Lambert, “Case Studies in DOD Acquisition: Finding What Works,” National Defense Industrial Association, 24 June 2014, .

Mr. Harrison is the former director of the U.S. Army Technical Operations Support Activity and founder of Mav6, LLC, an Inc. 500 aerospace and defense-technology company. He is an Ernst and Young Entrepreneur of the Year award winner and currently serves as National Security research fellow at New York University.




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