Why The Pentagon Must Not Lose The Innovation Arms Race

The sight this year of an X-47B drone and a Navy F/A-18E operating in tandem aboard the USS Theodore Roosevelt was a jaw dropper. Pulling off one of the most difficult and carefully orchestrated moves in military aviation without a pilot onboard is a proud milestone years in the making. Once the applause dies down for the military’s latest melding of man and machine, however, it is time for some serious reflection on the defense industry’s next big thing.

The U.S. military’s future technological edge is predicated on far more than leap-ahead hardware it can make for itself, like the X-47B. The Defense Department and the companies that support it face competition for cutting-edge technologies originating in the civilian world unlike any they have faced before. Much of today’s defense architecture was built decades ago to thwart Moscow. Tomorrow’s defense innovators need to be able to rise to the level of Silicon Valley’s best to handle a spectrum of threats and challenges that defy status quo solutions.

Google and other deep-pocketed tech firms are buying the very innovations that should be at the top of the Pentagon’s wish lists. Pentagon and defense industry officials shouldn’t fear this. They should embrace it. Already, there are some examples where the Pentagon and industry are making headway. Lockheed Martin, heeding the Pentagon’s call, if only in its own interest, plans to boost its own research and development spending in a public commitment to being at the forefront of innovation. Meanwhile, Deputy Defense Secretary Bob Work champions a renewed technology “offset” strategy to help leverage American know-how.

It would be an overstatement to say the defense industry and Silicon Valley are adversaries but the two are in competition more than they realize, and there is a lot the defense industry can learn from the rivalry.

(Related: Defense Firms Could Be Skeptical of Investing in Research)

It’s no secret that civilian technology product cycles and commercial-market business models often would be better suited to the pace of 21^st Century conflicts than how government develops and buys technology. When a big tech company sees something it likes, it can be quick to draw its wallet. Late last year, Google added to its growing stable of robotics firms by acquiring Boston Dynamics. It takes just one look at a video of the Boston Dynamics Atlas robot humanoid to understand that the phrase “mechanized infantry” is going to take on a whole new meaning in the coming decades, even if Google indicated the company will not sign more work with the U.S. military. This year, Google also bought Skybox, maker of small imaging satellites. The buzz over that deal revealed a losing bidder whose growing strategic importance is seen in hotspots around the world: Facebook. For its part, the social networking site has snapped up Oculus VR, a virtual-reality specialist whose Rift product could redefine how the military prepares for and the civilian world understands conflict.

The major defense firms have billions of dollars in cash on hand, with some like General Dynamics sitting on more than $5 billion, according to their balance sheets, but their investors have designs on that money and it’s a fraction what Silicon Valley’s biggest names have in the bank. There are also, admittedly, limits to simply buying your way out of strategic problems, as history has shown in sectors from media to Wall Street to fast food. A less costly first step is for the defense industry to take the time to understand the traits of the tech firms who are leading the innovation arms race.

Building a Culture Of Now

The myriad of experimental planes on the ground at the Air Force museum in Dayton, Ohio can attest that a risk-taking “fly off” ethos helped launch modern military aircraft design. Each X-designation plane was a bet on dominating an adversary and winning over a customer. Today, each major acquisition by a Google or a Facebook is also a bet. Yet most of Silicon Valley’s investments are far smaller and made quite often in order to succeed without putting the entire company’s strategy on the line. Defense procurement is drawn-out and oriented toward risk avoidance from top to bottom, with proscribed financial prospects for federal contracts. There are, however, an increasing number of successful efforts to boost the metabolism of industry and government, particularly at DARPA’s XS-1 space plane program and with U.S. Special Operations Command’s rapid acquisition initiatives. Without an attendant change, however, in how Congress, corporate boards and the Defense Department treat failure, which is a requirement for any Silicon Valley business legend, risk aversion will continue to the detriment of America’s strategic edge. The answer is to try more often for smaller but still-significant stakes, giving success more chances to emerge.

The Army’s Special Forces say, “Your most powerful weapon is your mind.” That equally applies to the tech community where low-overhead software businesses can pop up overnight. Hours get invested first and eventually more money as ideas are validated. But not necessarily profits. The ability to invest solely on the basis of a software platform’s long-term potential, for example, is really buying into belief in a few individuals with a good idea. This requires iteratively testing and adapting a product with its users so that near real-time feedback speeds up the refinement. This process can even bring together individual engineers and customers, or a particular soldier in the case of the Defense Department, far earlier than is customary in government acquisition. The Defense Department can better identify, and reward with increasing responsibility, people who have the potential to grow small projects into meaningful programs. This means looking at industry and government alike to nurture and attract standout managers, engineers and advocates for innovation.

The intelligence and counterterrorism community understands the power of network analysis. Every good idea that became a multibillion dollar company did so with a coterie of people who were increasingly swept up by a growing wave of success. While the boards of directors of America’s largest defense companies have a roster of storied and accomplished individuals, Silicon Valley is not represented. It should be. The defense industry should open up its boards of directors to Silicon Valley executives, venture capitalists and lawyers who understand different kinds of opportunities and risks than a former combatant commander or a retail executive. Amazon’s board has alumni from MTV and Kleiner Perkins Caufield & Byers.

The stakes are only going to grow for the defense industry. While Google appears to be steering Boston Dynamics away from the military work that funded its rise, the tech sector can indeed sell to defense markets. Amazon.com sells cloud-computing services to the U.S. intelligence community. Palantir sells software to the military and to intelligence agencies. SpaceX is aggressively angling for sizable pieces of the military space-launch business, seeking to displace incumbents who expected to have a lock on years of contracts.

Each company will have to pick its own path but there are some sensible steps that most firms can take. The defense industry needs to adopt new internal approaches to rewarding innovation that respect a legacy of aerospace breakthroughs like the recent landing of the X-47B while shaking up old ways of thinking and doing business. New style teaming agreements between defense and tech firms have great potential for cultural and technological back-and-forth, particularly as a way to excite younger engineers and program managers who can work cross-company as peers. Boosting corporate R&D spending is also a sound investment for the industry, but only if that money is spent very wisely rather than moving numbers around to please management. It is also important to acknowledge and validate the sense of mission that is present in many defense firms, an altogether different purpose than growing a company solely for a “liquidity event” such as an IPO.

Trying to steer workers seeking their fortune in the Bay Area’s sun-filled but hyper-transactional boomtowns toward a cubicle in Crystal City is a tough sell, but working toward a public good can be a powerful recruiting tool if it is indeed sincere. The Defense Advanced Research Projects Agency, or DARPA, proves it and even could be a bigger beacon.

At the same time, the Defense Department needs to push harder at the highest levels and make organizational changes to bridge the gap between wanting innovative defense ideas and actually understanding how to buy them from industry. Giving companies control over their intellectual property will help incentivize internal investment. The Pentagon could also move money within the approximately $68 billion spent annually on overall research and development from the test and evaluation accounts into science R&D.

Going head to head with Google is tough for all kinds of companies, not just those in defense. This is especially true in the M&A marketplace, not least because Google has about $58 billion in cash, plus plenty of equity, for acquisitions. With the right steps though, industry and its main customers need not surrender the innovation arms race.