As the Pentagon shifts its focus to Silicon Valley and small firms that dream big but cost little, the conventional defense industry is taking notice.
If they don’t innovate now, experts say, they’ll be left behind.
This change in the Pentagon’s focus, coupled with the evolving nature of threats facing the country and rapid advancements in technology that make 20-year acquisition programs obsolete, mean the traditional defense base is facing a “perfect storm,” according to Jonathan Aberman, founder and managing director of Tandem National Security Innovation, which works to partner innovators with the federal government.
“If national security needs are changing, which they are, and if the threats are becoming more viral and rapid moving, which they are, then a government contracting community that focuses on a service-based model will have problems operating in this new world,” Aberman said. “The world is changing and its forcing them to change as well.”
While Defense Secretary Ash Carter, with a background in theoretical physics and former service as the Pentagon’s acquisition and technology chief, is uniquely poised to delve into these issues, Aberman argued that whoever is serving as defense secretary now will need to be looking at this new way of doing business.
Carter has made technology and innovation, as well as bringing non-traditional partners into the Defense Department, a key part of his tenure so far as the leader of the Pentagon. That has included several trips to innovation hubs like Silicon Valley, Austin and Boston, as well as creation of the Defense Innovation Unit Experimental in California to help foster better relationships between startups and the Defense Department.
He’s also promised to “do things differently” and change the bureaucracy that often blocks smaller businesses from working with the Pentagon.
Marc Numedahl, vice president of Capitol Strategies Partners lobbying firm, said this focus has created a “natural grumbling” among the traditional defense industry.
Part of the issue is that Carter’s focus on those companies outside the traditional defense base creates the false perception that there isn’t any innovation within the businesses that already work with the Pentagon.
“All of this outreach in terms of impact in some ways is impressing upon people that all innovation lies in Silicon Valley, Austin, Boston and that none lies within traditional base, which is factually not correct,” said Stan Soloway, who this year launched Celero Strategies, a consultancy.
He said it is “dangerous” to assume that large companies aren’t capable of being innovative, because while it’s possible some may fall by the wayside, “a bunch of them are going to surprise you.”
One of those that’s investing in innovation is Booz Allen, which has launched a series of innovation hubs around the country in D.C., Austin, San Francisco and Boston, where the new iHub just opened this month. These offices, including some based in working space shared with startups, allow direct engagement with nontraditional partners to focus on rapidly changing fields like cyber, digital and next generation analytics, said Susan Penfield, the leader of the strategic innovation group at Booz Allen.
“The market was changing, we were in a significant economic downturn … we wanted to look at where we would be in the future and wanted to invest through that downturn and really transform ourselves,” Penfield said of Booz Allen’s innovation initiative launched three years ago. “I think others have seen what we have been doing and I think have caught on to the wave on innovation and what it means for the future.”
For his part, Carter has stressed that partnerships with both traditional defense giants and more agile startups are needed to best position the department for future conflicts.
“We count on our very innovative defense companies, those who are already working with us,” Carter said at Capital Factory, a start-up incubator for tech companies in Austin, Texas, last month. “This isn’t a trade-off between one or the other, I’m trying to broaden the base of those who serve national defense.”
Sen. John McCain, R-Ariz., told the Washington Examiner that small businesses and traditional contractors perform different, but critical, functions for the Defense Department, and have minimal overlap.
“I think the kind of technology that Carter and the rest of us are looking for from Silicon Valley has got a lot to do with information technology, cyber, those kinds of things that are new challenges and much more oriented towards the kind of work that Silicon Valley does,” McCain said. “You could say that the big corporations are the hardware dealers, whereas the Silicon Valley people are much more engaged in information technology.”
Some analysts and lawmakers are worried about the threat to the D.C. region, where they say much innovation already occurs, if the secretary operates under the assumption that he must look elsewhere for new ideas.
“I welcome the department’s approach to modernization but you don’t have to leave the D.C. region to do that,” said Rep. Don Beyer, D-Va. “Northern Virginia is a hub of innovation, with a range of startups, public-private partnerships, and our larger federal contractors.”
Soloway said all of Carter’s efforts to reach companies in Silicon Valley and other innovative hotbeds will all be for naught if the Pentagon isn’t willing to make major changes to get at the “fundamental barriers” for all of the Defense Department’s business partners. That may include reforms to the many bureaucratic government requirements that make doing business with the government cumbersome if not impossible for companies with less overhead and staff not accustomed to jumping through the government’s hoops.
Even then, he said that startups will have to be “convinced” to partner with the Defense Department, which is seen as lacking the velocity and momentum that’s crucial for those smaller companies.
Gary Gysin, the president and CEO of Liquid Robotics, said the process of working with the Pentagon is “much harder than it should be.”
“If we had to rely just on DoD, we would have been dead as a company,” he said. “It took roughly a decade for us to get entrenched in the U.S. Navy and most companies just can’t afford to do that.”
Liquid Robotics creates autonomous ocean robots powered by waves and solar power that the military is beginning to use on anti-submarine missions.
Many analysts said that any rule changes to make the Pentagon acquisition process easier to navigate should apply to all companies, not just startups, to keep the playing field fair. But Gysin, who will speak at an Atlantic Council event Tuesday about the Defense Department’s search for innovation in Silicon Valley, said that “one size does not fit all.”
While the ultimate goal is to revamp the entire convoluted process, he said that the same acquisition process that works for an $80 billion bomber or the Ohio-class replacement submarines may not work for an autonomous robot or drone or surgical instrument.
Instead, Gysin envisioned a process by which startups could approach the Pentagon at its Silicon Valley DIUX outpost and pitch their ideas. Users in the military could then make a proposal for why they need that new technology and get new innovations operational quicker.
“If you’re a Silicon Valley startup, DoD and the Pentagon are pretty imposing and you have no idea how to get in,” he said. “If there was an outpost here, they could go in an unclassified setting and say here’s what we’re building.”
Ultimately, the changes needed to the acquisition system and the culture at the Defense Department will need to continue past Carter’s term to make a real difference, a fact of which Numedahl said he is skeptical.
“We have a SecDef with both the professional and education background who is uniquely suited and interested in the technical work that’s happening out there. I don’t think that’s a guarantee you’ll have with his successor,” he said. “I have some skepticism about how elevated it is on the next secretary’s priority list.”
