Revolutionary Advances in AI Won’t Wait
The Pentagon has turned innovation into a buzzword, and everyone can agree on the need for faster innovation. It seems a new innovation office is created every week. Yet when it comes to AI, the DoD is still moving too slowly and hampered by a slow procurement process. How can it make innovation core to the organization and leverage the latest technological developments?
We have to first understand what type of innovation is needed. As Harvard Business School professor Clayton Christensen wrote, there are two types of innovation: sustaining and disruptive. Sustaining innovation makes existing products and services better. It’s associated with incremental improvements, like adding new features to a smartphone or boosting the performance of the engine on a car, in pursuit of better performance and higher profits.
Disruptive innovation occurs when a firm with fewer resources challenges one of the bigger incumbents, typically either with a lower-cost business model or by targeting a new customer segment. Disruptive firms can start with fewer resources because they have less overhead and fewer fixed costs, and they often leverage new technologies.
Initially, a disruptor goes unnoticed by an incumbent, who is focused on capturing more profitable customers through incremental improvements. Over time, though, the disruptor grows enough to capture large market share, threatening to replace the incumbent altogether.
Intel Illustrates Both Types of Innovation
Intel serves as an illustrative example of both types of innovation. It was the first company to manufacture DRAM memory chips, creating a whole new market. However, as it focused on sustaining innovation, it was disrupted by low-cost Japanese firms that were able to offer the same DRAM memory chips at a lower cost. Intel then pivoted to focus on microprocessors, disrupting the personal computer industry. However, more recently, Intel is at risk of being disrupted again, this time by lower-power microprocessors, like ARM, and application-specific processors, like Nvidia GPUs.
The DoD, like the large incumbent it is, has become good at sustaining innovation. Its acquisitions process first outlines the capabilities it needs, then sets budgets, and finally purchases what external partners provide. Each part of this – the culture, the procedures, the roles, the rules – have been optimized over time for sustaining innovation. This lengthy, three-part process has allowed the Pentagon to invest in steadily improving hardware, like submarines and airplanes, and the defense industrial base has followed suit, consolidating to just five major defense contractors that can provide the desired sustaining innovation.
The problem is that we are now in an era of disruptive innovation, and a focus on sustaining innovation doesn’t work for disruptive innovation. As a result of decreasing defense budgets in the 1990s and a parallel increase in funding in the private sector, companies now lead the way on innovation. With emerging technologies like drones, artificial intelligence, and quantum computing advancing every month by the private sector, a years-long process to outline capabilities and define budgets won’t work: by the time the requirements are defined and shared, the technology will have moved on, rendering the old requirements obsolete. To illustrate the speed of change, consider that the National Security Commission on Artificial Intelligence’s lengthy 2021 report on how the U.S. can win in the AI era failed to include any mention of generative AI or Large-Language Models, which have seen revolutionary advances in just the past few years. Innovation is happening faster than our ability to write reports or define capabilities.
The Small, Daring, and Nimble Prevail
So how does an organization respond to the threat of disruptive innovation? It must create an entirely new business unit to respond, with new people, processes, and culture. The existing organization has been optimized to the current threat in every way, so in many ways it has to start over while still leveraging the resources and knowledge it has accumulated.
Ford learned this lesson the hard way. After trying to intermix production of internal combustion cars and electric vehicles for years, Ford recently carved out the EV group into a separate business unit. The justification? The “two businesses required different skills and mind-sets that would clash and hinder each area if they remained parts of one organization”, reported the New York Times after speaking with Jim Farley, the CEO of Ford.
When the personal computer was first introduced by Apple, IBM took it seriously and recognized the threat to its mainframe business. Due to bureaucratic and internal controls, however, its product development process took four or five years. The industry was moving too quickly for that. To respond, the CEO created a secretive, independent team of just 40 people. The result? The IBM personal computer was ready to ship just one year later.
One of the most famous examples of creating a new business unit comes from the defense space: Skunkworks. Facing the threat of German aircraft in World War II, the Air Force asked Lockheed Martin to design them a plane that could fly at 600-mph, which was 200 mph faster than Lockheed’s current planes. And they wanted a working prototype in just 180 days. With the company already at capacity, a small group of engineers, calling themselves Skunkworks, set up shop in a different building with limited resources – and miraculously hit the goal ahead of schedule. Their speed was attributed to their ability to avoid Lockheed’s bureaucratic processes. Skunkworks would expand over the years and go on to build some of the most famous Air Force planes, including the U-2 and SR-71.
DoD’s Innovation Approach to Date
The DoD appears to be re-learning these lessons today. Its own innovation pipeline is clogged down by bureaucracy and internal controls. Faced with the threat of a Chinese military that is investing heavily into AI and moving towards AI-enabled warfare, the DoD has finally realized that it cannot rely on its sustaining innovation to win. It must reorganize itself to respond to the disruptive threat.
It has created a wave of new pathways to accelerate the adoption of emerging technologies. SBIR open topics, the Defense Innovation Unit, SOFWERX, the Office of Strategic Capital, and the National Security Innovation Capital program are all initiatives created in the spirit of Skunkworks or the “new business unit”. Major commands are doing it too, with the emergence of innovation units like Navy Task Force 59 in CENTCOM.
These initiatives are all attempts to respond to the disruption by opening up alternative pathways to fund and acquire technology. SBIR open topics, for example, have been found to be more effective than traditional approaches because they don’t require the DoD to list requirements up front, instead allowing it to quickly follow along with commercial and academic innovation.
Making the DoD More Agile
Some of these initiatives will work, others won’t. The advantage of DoD is that it has the resources and institutional heft to create multiple such “new business units” that try a variety of approaches, provided Congress continues to fund them.
From there, it must learn which approaches work best for accelerating the adoption of emerging technologies and pick a winner, scaling that approach to replace its core acquisitions process. These new pathways must be integrated into the main organization, otherwise they risk remaining fringe programs with scoped impact. The best contractors from these new pathways will also have to scale up, disrupting the defense industrial base. It is only with these new operating and business models – along with new funding policies and culture – can the DoD become proficient at acquiring the latest technologies. Scaling up the new business units is the only way to do so.
The path forward is clear. The hard work to reform the acquisitions process must begin by co-opting the strengths of these new innovation pathways. The good news is that the DoD, through its large and varied research programs, partnerships, and funding, has clear visibility into emerging and future technologies. Now it must figure out how to scale the new innovation programs or risk getting disrupted.