The budget crisis should usher in a new era of innovation in defense


Incoming Secretary of Defense Leon Panetta will take over an organization facing budget cuts and an outdated military procurement process in need of innovation. (Bill O'Leary/WASHINGTON POST)
June 8, 2011

Mark W. Johnson is cofounder and chairman of Innosight, an innovation strategy firm, and the author of Seizing the White Space: Business Model Innovation for Growth and Renewal (Harvard Business Press, 2010). He served as a nuclear power–trained surface warfare officer in the U. S. Navy and currently serves on the board of the U.S. Naval Institute.

The Pentagon revealed last month that it would cost taxpayers more than $1 trillion to buy and maintain a fleet of F-35 joint-strike fighter jets over the long term. Even defense hawk Sen. John McCain called the number “jaw dropping.” Building enormously complex and expensive weapons systems not only busts the budget but requires years, even decades, to complete – the F-35 program is already a decade old. Meanwhile, we increasingly face mobile, adaptable enemies who are good at attacking our weaknesses with deadly innovation on the cheap.

Outgoing Secretary of Defense Robert Gates acknowledged those realties when he cut 20 big-ticket weapons last year to save $330 billion in future spending. Leon Panetta, who is expected to take over next month after confirmation hearings on Thursday, is likely to continue the Gates budget strategy: Spend less preparing for a theoretical threat against a conventional large Chinese army and focus instead on the more amorphous threats posed by stateless enemies, terrorists and unpredictable revolutions in the Middle East and failed states like the Sudan and Congo. 

For the U.S. military to succeed and prevail, and to equip America’s men and women who risk their lives fighting unconventional warfare, the Pentagon has no choice – no more blank checks from the American taxpayer. The Department of Defense must innovate. 

As we learned the hard way in Iraq and Afghanistan, our soldiers need mobile body armor, better protected vehicles, ubiquitous two-way communications, and highly portable surveillance and reconnaissance devices. If you ask soldiers on the ground in Anbar province, not one of them will demand an advanced nuclear submarine or a hundred-million dollar fighter aircraft.

And innovation isn’t just about technology. Innovation means adopting a completely different business model, one designed to confront an enemy that morphs and evolves in months, sometimes weeks. This new business model innovation will utterly transform the Pentagon’s glacial procurement cycle and low-volume production of expensive state-of-the-art weaponry. 

For a new kind of war, a new kind of business model

Innovation and business models are inextricably linked. Without the right business model, innovations will stall, waste billions and never stop the enemy – and worst of all, they’ll fail to produce what our soldiers need when they need it most.

The business model we have today – a military procurement  process for maintaining our core, large-scale capabilities – evolved during the Cold War. The U.S. military invested in expensive and complex weaponry that could deter the Soviet Union with the threat of massive destruction. To provide those weapons, defense contractors evolved into “solution shops”  that custom produce expensive, one-of-a kind technologies (like aircraft carriers, nuclear submarines and bleeding edge fighter jets) at relatively low volume and high margin. The research, design and manufacturing processes for these weapons are so complex and so intricate that their costs can only be estimated on a time and materials basis.

This fifty year Cold War habit must be broken and replaced with a business model designed to equip a mobile, fast, decentralized military. It must respond to changing conditions on the ground, anticipating what the enemy is doing before he does it. This business model is precisely what most consumer -driven, industrial manufacturing companies use. They continually seek to understand the needs of their market and then produce high volumes of standardized products that they can deliver at lower cost through economies of scale.

Defense contractors and companies that provide equipment and technology for defense will need to shift a portion of their businesses from solution shops to models capable of providing what soldiers need now, and what they need in great volume. That’s a tall order because they will have to develop expertise in things like market research, unit pricing, scale efficiencies and replication. For the Defense Department, this is anathema.

Understanding the needs on the ground

The legendary Harvard Business School professor Theodore Levitt memorably observed that customers don’t go to the hardware store to buy a ¼-inch drill, they go to buy a ¼-inch hole. The drill is just the product they ’hire’ to do that job. In the same vein, it’s not enough to ask American warfighters, “What do you need?” We need to start asking them, “What are you trying to get done?” That’s the real question.

Yet identifying the answer in today’s more ambiguous and unfamiliar combat won’t be easy. After ten years of war, at much too high a cost in lives and treasure, we have learned the hard way what’s really needed – detection of explosive devices and similar threats, security among a civilian population that has hidden enemies, and the critical ability for instant communication among everyone in all units. But to develop precisely the right innovations, the Pentagon needs to conduct “consumer” market research among our warfighters, just as the leading innovative companies in the commercial world do among their customers.

In Afghanistan, for example, perhaps the most obvious job to be done is to destroy enemy forces at will, even in hard-to-pinpoint and hard-to-reach locations. The correct business model would align the resources, processes and technologies that are needed to produce a small, relatively inexpensive unmanned aerial vehicle capable of reconnaissance and attack, which soldiers can load into their backpacks – next year. Not ten years from now. Some or all of this could be knit together using inexpensive existing  technologies, including commercial off-the-shelf solutions.

This is not pie-in-the-sky speculation. The U.S. Army’s Rapid Equipping Force already outfits operational commanders with commercial and government off-the-shelf solutions that increase effectiveness and reduces risk to their lives. They have more than 500 innovations, including personnel-scanning systems, surveillance systems and digital translators. What’s more, Army reports show that the Rapid Fielding Initiative worked best when the focus shifted from units to roles – that is, when it considered each soldier's function when equipping him or her for deployment.

These are promising developments, but the pace of these innovations must be faster, the understanding of on-the-ground jobs  deeper and the economies of scale much larger. 

What we need is a‘lightening’ development and procurement process that fits 21st century warfare. One that makes best use of what the Pentagon’s and defense contractors’ experience and expertise has to offer – both to soldiers and to the citizens of America. 

The defense community needs to create and continually refine this alternative business model in an era of stretched resources and of warfare against enemies who adapt rapidly, using cell phones to detonate roadside bombs and the Internet to communicate. If we can do this, the budget crisis will become an opportunity to usher in a new era of innovation in defense, and will provide us an unprecedented ability to help our soldiers and our country.

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