Where Do We Go from Here?

Introduction

Over the past nine months, The New American Defense Industrial Base essay series has brought together a wide range of participants to deliver a variety of views on persistent challenges to the U.S. defense industrial base (DIB) and explore opportunities to improve the ecosystem’s ability to deliver for the joint force. In addition to former government officials and think tank experts, the series sought to include perspectives that are so often left out of these conversations—the people who actually work in the DIB itself, both at new entrants and legacy companies. So, what have we learned?

Key Takeaways

• New sources of capital and new companies are increasing dynamism in the DIB, with a great deal of optimism and also some uncertainty over how these bets will play out over time.
• At the same time, evergreen concerns around manufacturing methods and supply chains remain persistent and demand increasingly creative problem-solving.
• All the players in this ecosystem will need to engage more frequently and more openly with each other to deliver what the warfighter needs.

The New Kids on the Block

Private funding is flowing to defense start-ups at record rates, upending the old model whereby the Department of Defense (DoD) announces that it wants a new capability and then uses taxpayer dollars to fund its development by a private company. Investors and start-ups are essentially betting that they can figure out what the department would buy if only it existed and are then funding the development of those things privately. This dynamic has the potential to speed the delivery of new capabilities to the warfighter while also reducing the burden on the taxpayer. However, this approach is not without risk, and making the transition from an interesting bit of technology in a lab to a capability fielded at scale remains devilishly difficult.

The Old Guard

The legacy DIB continues to produce the bulk of defense materiel, and while this system is not without its shortfalls, it does largely deliver what the department says it wants. It follows that part of the problem lies in the fact that the department either doesn’t know what it wants or is not very good at communicating that to industry with incentives that will move them to act. Legacy companies’ use of venture funding models and partnerships with new entrants seeks to address the first part of the equation (that the department may not know what it wants until it sees it). The framework agreements pursued by the current administration are one example of an attempt to address the second part; they seek to both clarify government demand signals and to make the DIB more responsive to them. However, stretched supply chains remain a significant limiting factor when it comes to industry’s ability to respond to these incentives, requiring some additional fresh thinking.

Teamwork Makes the Dream Work

For this ecosystem to deliver for the warfighter, this diverse cast of characters needs to work together—industry and government, legacy primes and new entrants. The old guard needs to be open to thinking differently and taking new approaches to solving old problems. The new kids on the block need to approach the scene with a bit of humility and understand that some of the rules will still apply. Government needs to engage with everyone, communicate clearly, and strike the right balance between agility and stability for the DIB.

Recommendations

Since most recommendations in this series have focused on what the government should do, I’ll leave you with two for the private sector:

• Investors and start-ups should remain enthusiastic but realistic about what it takes to do business in the defense sector. Government can and should continue to make it easier to do business with the DoD and other federal agencies, but security requirements, compliance issues, funding delays and other constraints will all remain challenges that new entrants will have to overcome to succeed.
• Legacy defense companies should understand that new sources of capital in the DIB mean the old model is changing. Private capital is increasingly funding research and development for new defense systems instead of taxpayer dollars. Failure to respond to new incentives and adapt to this evolving ecosystem would be bad for business, and for the joint force.

Conclusion

Most critically, all parties should focus less on budget wars, company valuations, and stock buybacks and more on delivering for the warfighter. I’m still looking for that excellent coffee in the good-enough cup.

About the Author

The Honorable Susanna V. Blume is a distinguished senior fellow with the Defense Program at the Center for a New American Security. She previously served as the Department of Defense’s director for cost assessment and program evaluation.

About the New American Defense Industrial Base Series

This essay series, The New American Defense Industrial Base, featured expert practitioners with experience in government, industry, and finance writing on the most pressing challenges in defense acquisition today. For more in this series, click here. The DIB series was made possible by general support to the CNAS Defense Program and corporate support for the series.

About the Center for a New American Security

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