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#Disrupt the Pentagon

Can Ash Carter bring Silicon Valley's culture of innovation to a bloated Defense Department?

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Deputy Secretary of Defense Ashton B. Carter and former Secretary of Defense William Perry sit down for a meeting with members of the Bay Area women CEOs and business leaders at Stanford University to participate in a discussion about nuclear nonproliferation in Palo Alto, California, April 17, 2013. (DoD Photo By Glenn Fawcett) (Released)

There was a time, not that long ago, when the Pentagon’s budget for research and development drove technology investment in the United States. No longer. Today, the county’s cradle of innovation resides in Silicon Valley, and the Defense Department is struggling to keep up.

Peter Newell learned that truth a few years ago, when he was the director of an Army task force charged with getting new equipment to troops in Iraq and Afghanistan without going through the Pentagon’s normal bureaucracy. In 2012, Newell, then an Army colonel, was sitting with a Google executive in Mountain View, California, discussing an energy problem that Newell was desperately trying to solve.

“We had a great discussion, with great ideas, and eventually I said to him, ‘How much would it cost you to do X, Y, and Z?’” Newell said in a recent interview. “And the guy laughed.”

The Google exec drew a little dot on a dry-erase board and then drew a big circle around it.

He pointed to the dot, and said to Newell, “This is your budget. The big circle? It’s mine. I don’t want your money. I want your problem.”

This was an epiphany to Newell, who realized that many in Silicon Valley were attracted to the challenge of fixing a specific thorny problem — not just to the money they could earn doing so.

In Silicon Valley, Newell said, “problems are currency.” The challenge, he added, is that the Pentagon does a “crappy job” explaining those challenges to the bright minds likely to be most energized about trying to solve them.

With the Pentagon about to get a defense secretary with a proven interest in the intellectual energy of Silicon Valley, people like Newell are hoping that Ashton Carter can force the Defense Department to get better at identifying its problems and attracting the right people — inside and outside of the defense industry — to fix them. That will be a difficult shift for a Pentagon used to spending years designing and bidding out new weapons systems and decades actually building them, but it will have to happen if the military is going to keep its technological edge.

Carter, the former deputy secretary of defense, is also an academic with undergraduate degrees in physics and in medieval history from Yale University. He understands how broken the Pentagon’s acquisition system is but he’s also familiar with the ways and mores of Silicon Valley. He is an acolyte of William Perry, who served as defense secretary under President Bill Clinton and spent much of his career in Silicon Valley, working at high-tech companies and teaching at Stanford. While serving as deputy defense secretary, Carter traveled to Silicon Valley with Perry, and the two men met with CEOs and toured high-tech companies like Bloom Energy and Acuitus.

Those aren’t his only ties to Silicon Valley. Carter stepped down as deputy defense secretary in December 2013. During his year away from the Pentagon, he put down his own roots in the heart of California’s high-tech economy. He received $50,000 from Stanford University, where he was a visiting fellow and lecturer, according to financial disclosure forms provided to the Senate. He was also an advisor at the file-sharing firm Box Inc. and a member of the advisory council at the network-security firm Palo Alto Networks. As is customary, if Carter is confirmed by the Senate this week as expected, he will step down from these posts, but his engagements with the Valley will certainly shape his time as defense secretary.

A spokesman for Carter’s transition team declined to comment for the story.

Perry and Carter are “some of the few defense secretaries who actually understand the technology programs that they are making judgments about,” said Kori Schake, a research fellow at the Hoover Institution who’s worked on the National Security Council staff and at the Pentagon. Schake is also a contributor to Foreign Policy.

That’s vital for a Pentagon that’s trying to keep up with the rapid pace at which technology is changing and with competitors who have easy access to commercial technology. Finding the next-generation defense contractor who understands and can help defend against new threats will be imperative for Carter and his top aides.

His closest allies in that fight are likely to be Deputy Defense Secretary Bob Work and Pentagon acquisition chief Frank Kendall, both of whom are also committed to changing the way the Pentagon develops and buys technology.

Paired with this troika is new leadership in Congress, where Rep. Mac Thornberry, the new Republican chairman of the House Armed Services Committee, and Sen. John McCain, the Republican chairman of the Senate Armed Services Committee, say they too want to improve how the Pentagon does business.

At Carter’s confirmation hearing last week, McCain decried how resources had been wasted at the Pentagon over the years, citing the Army’s Future Combat Systems, which Defense Secretary Robert Gates canceled in 2009 after $20 billion was spent, and the F-35 Joint Strike Fighter, whose cost to research, engineer, and build has jumped from around $220 billion for 2,800 planes to $330 billion to buy 400 fewer planes.

With Carter, Work, and Kendall at the Pentagon’s helm and with receptive leaders on Capitol Hill, the final years of the Obama presidency could see a potentially long-lasting change in how the Pentagon develops, builds and buys weapons in an era of shrinking defense budgets.

Carter told the Senate Armed Services Committee last week that this is a top priority for him. Before becoming deputy defense secretary, Carter served as the Defense Department’s chief weapons buyer, and it was a job that frequently left him frustrated.

“The experience that I had all too often in trying to support Iraq and Afghanistan as the acquisition executive was that when the troops said they needed something, the response of the bureaucracy tended to be, ‘Oh, we’re making one of those, or, we have one, it will be finished in 10 years,” Carter told the panel during his confirmation hearing.

This mindset is a relic of the Cold War, when speed was not important, Carter said. Today, that pace is not going to cut it, especially as foreign countries can tap the global technology base to advance their own militaries, he said.

“We’ve got to turn faster as a military,” Carter said during a hearing marked by so much bipartisan praise that he’s guaranteed an easy path through the Senate.

And who turns faster than Silicon Valley?

When William Lynn was deputy defense secretary, he noted that the Pentagon took 81 months to field a new computer system, while it took Apple 24 months to develop the iPhone. And each year, the company brings out an updated version with additional capabilities and better hardware — usually at the same price or even lower.

Lynn is now CEO of DRS Technologies, Inc., a traditional defense contractor, but he continues to worry about the U.S. military losing its technological edge unless it harnesses the innovation of Silicon Valley.

In a November essay in Foreign Affairs titled “The End of the Military-Industrial Complex,” Lynn described how Silicon Valley doesn’t need the Pentagon’s money, the lesson Peter Newell learned sitting in his meeting with Google.

Lynn noted that Google’s nearly $400 billion market value is more than double that of General Dynamics, Northrop Grumman, Lockheed Martin, and Raytheon combined. “Google may not need defense contracts, but the Pentagon needs more and better relationships with companies like Google. Only the private sector can provide the kind of cutting-edge technology that has given U.S. troops a distinct advantage for the past 70 years.”

Enlisting Silicon Valley to help fight the wars of the future won’t be easy, in part because of a regulatory climate that scares off new companies and a cost-cutting culture inside the Pentagon that’s led to officers not being allowed to travel across the country to meet the people inventing the new technologies.

“There is a theoretical opportunity for West Coast start-ups to help the Defense Department with its innovation challenges and DOD would love that, except there are very few incentives for those start-ups to get involved,” said Ben FitzGerald, director of the Technology and National Security Program at the Center for a New American Security.

FitzGerald noted that the process the Pentagon uses to develop new technology is “very measured and controlled over a long period of time, with risk mitigation being a top priority,” FitzGerald said. Start-ups, and the venture capitalists behind them, by contrast, “assume huge amounts of risk” and investors who back high-tech firms know that they might fail multiple times before hitting it big.

“The Department of Defense is never going to be able to say to the taxpayer, ‘Of our R&D budget of $60 billion, $50 billion didn’t work out, but the $10 billion is really good,’” FitzGerald said.

In addition to that cultural divide, Silicon Valley start-ups do not have the same laws and regulations governing to whom they can sell and how they manage their intellectual property as traditional defense contractors.

“If you’re working on robotics and you can’t sell to the Chinese market, for example, that would be a big inhibition for a lot of robotics firms,” Schake said.

Because of these reasons a company like Apple is OK with the Defense Department buying its products off the shelf, but it’s not interested in building something exclusively for the military, said FitzGerald. “It’s not a market that’s worth it to them.”

Then there is what Silicon Valley calls the “Valley of Death,” the space between coming up with a workable idea and taking it to market.

“In DOD, it’s a Grand Canyon,” FitzGerald said.

This is a problem that Newell is all too familiar with. Since retiring from the Army, he has become a managing partner at BMNT Partners, a consulting company that tries to match government problems with the right tech companies that can solve it.

Newell said he’d just received an email from someone in the Army who was frustrated by the responses he’d received to a request for information he’d posted on FedBizOpps.gov.

“I’m going to have to tell him that companies looking at this thing would say, ‘Why bother.’ They’re not interested in an esoteric discussion about what might happen three years down the road. That’s just a waste of time,” Newell said.

At the Pentagon, “they make rules designed to save them a dime and end up wasting a million dollars in the process,” he added.

This is what frustrates companies like Palantir and SpaceX, California-based tech firms that have been trying to break down the barriers to doing business with the Defense Department.

Both companies portray themselves as the little outsider going up against big, entrenched stakeholders in the defense industry and at the Pentagon. Not surprisingly, things have gotten a little ugly along the way.

“Silicon Valley firms tend to be more sharp-edged in their competition,” Schake said. “Most defense firms would not play the game that aggressively because there are going to be future rounds to the game.”

Last month, SpaceX, founded by billionaire Elon Musk, agreed to drop its lawsuit challenging the Air Force’s award of a sole-source contract to the United Launch Alliance, a joint venture of Boeing and Lockheed Martin.

Musk said he was satisfied with steps the Air Force had taken to improve competition in the military satellite launch market. But before this agreement was reached, Musk questioned the integrity of the Air Force’s acquisition officials, suggesting their decisions were shaped by their desire to secure a future job with Boeing or Lockheed, something that was not received well by Air Force Secretary Deborah Lee James.

“I think those are rather unfortunate comments. I don’t know who he means,” she said at a press briefing in January.

Palantir has also been going toe-to-toe with a multibillion-dollar Army intelligence system called the Distributed Common Ground System (DCGS), built by a consortium of major Beltway contractors, including Raytheon, Northrop Grumman, Lockheed Martin, and General Dynamics.

The company, which was created through a combination of funding from the CIA and investments from Silicon Valley venture capitalists, aggressively campaigns on Capitol Hill and in the media to unseat DCGS, which Palantir says is an inferior product to its own software.

Both companies “want to shake things up, make things better and more cost-effective,” said FitzGerald, but the billions of dollars the United States has already invested in other technologies can’t just be ignored.

“We don’t have a clear solution for this problem yet, but the takeaway is that the Department of Defense has to learn how to create the right environment to make good on its intent, because it’s not going to get what it needs otherwise,” FitzGerald said.

DoD Photo By Glenn Fawcett

Kate Brannen is deputy managing editor at Just Security and a contributor to Foreign Policy, where she previously worked as a senior reporter. @K8brannen

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