New Study: Budget Cuts and Strategic Uncertainty Could Deplete the Defense Industrial Base

Shrinking Defense budgets and strategic uncertainty combine to risk depleting the national security industrial base to the point where key contractors might no longer be counted on as vital links in the Pentagon’s supply chain, says a coming study.

“Many national security people who’ve never worked as contractors are strongly inclined to assume the base will be there ready and willing whenever we need them,” said Barry Watts, a former Northrop Grumman executive, in a briefing with reporters about his new paper for the Center for Strategic and Budgetary Assessments. “That was a safe assumption since World War II. It’s not now clear, [if this] assumption will hold as we go forward.”

The paper, “Sustaining the U.S. Industrial Base as a Strategic Asset,” will be released Wednesday on Capitol Hill.

What is needed, Watts writes, is a clearer strategy from the Office of the Defense Secretary to simplify the “core competencies” expected from the shifting array of shareholder-owned companies that for decades have made up the industrial base. This would requires a “detailed mapping of the industrial base,” a task that the Pentagon OSD’s Manufacturing and Industrial Base Policy office embarked upon several years ago, but which has yet to bear fruit, in large part because “there’s no agreement across services,” Watts said.

Such mapping should include paying attention to industry design teams and the supply chains, he said.

The list “of what should be kept for the long run” should be short, Watts added. “If a company has 50-60 or 150 core competencies, you can’t focus, so it probably needs to be in the single digits,” Watts notes, taking the core competencies concept from an influential 1990 Harvard Business Review paper.

As the Defense department copes with shrinking budgets, its own core capabilities should include the “global non-nuclear precision strike; flexible, effective nuclear forces; projecting and sustaining forces sufficient to conduct combined-arms campaigns at the operational level of war; access to and freedom of action in the global commons, especially on the world’s oceans, in orbital space and across the electromagnetic spectrum (of which cyber is a part); the cryptologic enterprise; and realistic combat training.”

For the contacting industry, Watts would recommend focusing on the following:

• Precision weapons, including missiles for both strike and defense;
• Low-signature platforms such as stealthy air vehicles -- both manned and unmanned -- and nuclear submarines;
• Global intelligence, surveillance and reconaissance (including reconnaissance satellites, global positioning systems and unmanned aerial vehicles);
• Integrated battle networks that marry ISR with robust command, control and communications;
• Skills, procedures and tools for organizations for dominating the electromagnetic spectrum (including network attack, network defense and cryptologic skills); and
• Large-scale system and network architecture integration.

The absence of a strategy for maintaining the industrial base harmed the United Kingdom’s military in the late 1990s, Watts said, when it had to bring in the American company Electric Boat to catch up on building its Astute-class submarine, at a cost of $1.2 billion and a four-year delay.

“In the 1950s and 60s, we had a fairly large number of contractors in such areas as the advance fighter, and we would pour funds into the industry to preserve those capabilities,” Watts said. But in the current budget climate, “it will be very difficult not to cut contractors. Over the next five or 10 years, DoD will be losing critical capabilities.”

It is “difficult,” Watts added, “to imagine the government telling a company that’s trying to exit the business that they have to stay.”