Steve Blank

Last week the Department of War finally killed the last vestiges of Robert McNamara’s 1962 Planning, Programming, and Budgeting System (PPBS). 

The DoW has pivoted from optimizing cost and performance to delivering advanced weapons at speed. Taking decades to deliver weapons is no longer an option. The DoW has joined the 21st century and adopted Lean Methodology.

Two organizations ought to be very concerned – China and the defense prime contractors.

Secretary of War Pete Hegseth unveiled the biggest changes in 60 years of how the Department of War (DoW) plans for and buys weapons and services. These changes aren’t a minor attempt at reform. It’s a top-to-bottom transformation of how the DoW plans and buys weapons, moving from contracts that prioritize how much a weapon costs to how fast it can be delivered. 

Instead of buying custom-designed weapons, the DoW will prioritize buying off-the-shelf things that already exist, and using fast-track acquisition processes, rather than the cumbersome existing Federal Acquisition Regulations. To manage all of this, they are reorganizing the entire Acquisition ecosystem across the Services. These changes implement every piece of good advice the DoD had gotten in the last decade and had previously ignored. 

The DoW is being redesigned to now operate at the speed of Silicon Valley, delivering more, better, and faster. Our warfighters will benefit from the innovation and lower cost of commercial technology, and the nation will once again get a military second to none.  

It’s big, bold and brave and long overdue.

Background
In 1962 Robert McNamara, the then-Secretary of Defense (and ex CFO of Ford), discovered he had inherited a Defense Department whose spending was out of control. During the 1950s the Air Force built five different types of fighter planes, three generations of bombers, and three generations of ICBMs. The Navy had created a fleet of nuclear-powered attack and ballistic missile submarines and aircraft carriers. The Army bought three generations of its own nuclear-capable missile systems. Many of these systems duplicated capabilities of other services. But most importantly, the Services, in their rush to buy new technology, hadn’t adequately budgeted for the cost of operating, training, maintaining, and sustaining what they had bought. 

In response, Secretary McNamara imposed the discipline of a Chief Financial Officer. He put in place a formal system of Planning (capability gaps, risks, scenarios, threats assumptions), Programming (5-year plans, affordability, quantities, phasing, unit fielding plans) and Budgeting that has lasted 60+ years. An entire defense university was created to train tens of thousands of contracting officers how to follow the detailed rules. Large contractors (the Primes) learned to work with this paperwork-heavy Defense acquisition system and lived with the very long time it took the DoD to buy. 

The Problem
This unwieldy and lethargic acquisition system was adequate for over half a century when our adversary was the Soviet Union who had an equally complex acquisition system, or ISIS and Al Qaida who had none.

However, in the last decade it became painfully obvious that our acquisition system was broken and no longer worked for the world we lived in. Our existing defense industrial base suffers from schedule overruns and huge backlogs; cost increases have become the norm. We’ve been outpaced by adversaries. China, for example, implemented a much more agile system that delivered weapons in a fraction of the time it took us. 

We needed a defense industrial base we could count on to scale in a crisis rather than one that will wait for money before taking action.

The war in Ukraine showed that even a small country could produce millions of drones a year while continually iterating on their design to match changes on the battlefield. (Something we couldn’t do.) Meanwhile, commercial technology from startups and scaleups (fueled by an immense pool of private capital) has created off-the-shelf products, many unmatched by our federal research development centers or primes, that can be delivered at a fraction of the cost/time. But the DoW acquisition system was impenetrable to startups. 

Our Acquisition system was paralyzed by our own impossible risk thresholds, its focus on process not outcomes, and became risk averse and immoveable. 

We needed an acquisition system that could deliver needed things faster.

Reminder: What Did Our Acquisition System Look Like Until Last Week?
The Army, Navy, Air Force, Marines and Space Force train soldiers, sailors and airmen, and specify and buy the weapons for their Service. (It’s the Combatant Commands, e.g. INDOPACOM, CENTCOM, etc., who fight the wars.)

One of the confusing things about Acquisition in the DoW is that it is more than just the buyers of equipment. In the DoW Acquisition with capital “A”, includes the entire end-to-end process – from concept, requirements, prototyping, testing, buying it, to using it and maintaining it.

In each of the Services, the current Acquisition system started with a group that forecast what the Service would need in the future and wrote requirements for future weapons/services/software. This process could take a year or more. Next, Service laboratories developed the technology, tested prototypes and concepts. This could take 3 to 6 years. Next, a vendor was selected and began to prototype and refine the systems. This added another 3 to 4 years. Finally, the system was ready to be built and delivered. It could take 1 to 2 years to deliver weapons in low rate production, or 5 to 10 years for something complex (e.g. aircraft, ships,  spacecraft). In the system we’re replacing the time from when a need was turned into a requirement to delivery of a weapon would take 8 to 16 years. As you can imagine, given the rate of change of current technology and new warfighting concepts our own Acquisition process was an obstacle to building a modern War Department.  

As an example, the Army’s current Acquisition system has 32,000 civilians and military (program managers, contracting officers, etc.) If you include the long tail of sustainment that’s another 165,000+ people. The Acquisition system in the Army (representative of the other services) looks like this:

What Was Wrong With this Process?

• Responsibility in the Acquisition system was scattered across multiple, siloed organizations with no one individual responsible. 
• The existing system was designed to acquire individual products (weapons, services, etc.) with a Program Executive Office to manage each effort that only indirectly solved warfighter problems. 
• Requirements were written so that most everything the DoW bought was bespoke and required development from scratch. 
• Acquisition was process-focused with rigid rules that emphasized compliance to contracting rules. 
• Compliance to the rules and processes overrode speed of delivery
• Weapons and systems development used sequential “waterfall” development processes which precluded learning, pivots and iterative design. ​
• The result was that speed of delivery was on no one’s priority list.

Why Is The Warfighting Acquisition System A Big Deal?
While previous administrations tried to go around the process, this new system confronts it head on. It is a revolutionary  transformation in the Department of War. It was clearly designed by people who have worked in industry and understand commercial Lean Processes. This transformation will solve the DoW critical Acquisition problems by:

• Prioritizing speed of delivery
• Moving the focus from process to outcomes
• Organizational redesign of the Acquisition process
• Changing what weapons we ask for and how we prioritize what we need to buy
• Changing the preferred vendors the DoW will buy from
• Changing the contracting methods the DoW will use
• Changing how we measure and reward success 
• Changing how we educate Acquisition professionals
• Insisting that disparate systems/vendors interoperate 

The New Warfighting Acquisition Organization – The Portfolio Acquisition Executive
To cut through the individual acquisition silos, the services are creating Portfolio Acquisition Executives (PAEs). 

Each Portfolio Acquisition Executive (PAE) is responsible for the entire end-to-process of the different Acquisition functions: Capability Gaps/Requirements, System Centers, Programming, Acquisition, Testing, Contracting and Sustainment. PAEs are empowered to take calculated risks in pursuit of rapidly delivering innovative solutions.

PAE Offices Are Matrix Organizations
Portfolio Acquisition Executives (PAEs) are organized as a matrix organization – using people from existing organizations – requirements, PEOs, sustainment, contracting etc. The PAEs themselves will have a small staff for coordination.

Portfolios Around Common Problems
In the past, Acquisition was organized by weapon systems and managed by Program Executive Offices. Portfolios will organize instead around common Warfighting Concepts, technologies, or operational integration needs.

Multiple Portfolios In Each Service
Each of the services are consolidating and reorganizing the functions of what were their Program Executive Offices into Portfolios. Program Executive Offices/Officers (PEOs) will become Capability Program Executives (CPEs), and act as a Portfolios’ acquisition arm.

(The examples below are from the Army. Other Services will have equivalent organizational designs for their Portfolios.)

The acquisition chain of authority runs directly from Capability Program Manager to PAE to the Service Acquisition Executive (SAE), with no intermediate offices or approval layers. (The Service Acquisition Executive for the Army is the Assistant Secretary for Acquisition, Logistics & Technology. For the Navy/Marines, the Assistant Secretary for Research, Development & Acquisition. For the Air Force/Space Force the Assistant Secretary for Acquisition, Technology & Logistics.)

The Army Has 6 Portfolio Acquisition Executives
For example, the Army will likely reorganize its 12 existing PEO offices to become part of 6 portfolios aligned with Army Warfighting Concepts and functions. Each of the 6 portfolios headed by a PAEs will be commanded by a Major General.

The likely 6 Army Portfolios are: 1) Maneuver, 2) Maneuver Air, 3)  Fires, 4) C2/CC2,  5) Agile Sustainment and Ammo, and 6) Layered Protection and CBRN. One additional portfolio, called the PIT, will likely include the Army’s Innovation at the Edge activities.

Army PAE Maneuver will likely combine elements of PEO Soldier, PEO Ground Combat Systems, Future Capabilities Division and Maneuver Divisions, Test and Evaluation Integrator, Strategic Contracting Office, and others. This portfolio will likely have the Abrams tank, XM30 Mechanized Infantry Combat Vehicle (replacing the M2 Bradley), the ISV (Infantry Squad Vehicle), Soldier Borne Mission Command program (SBMC), Next Generation Squad Weapon (NGSW), Soldier Borne Sensor (SBS) program, and Organization Clothing and Individual Equipment (OCIE).

Authority to Make Trade-offs
PAEs now have the authority to make trade-offs between cost, schedule and performance and apply flexible funding between weapons systems to rapidly deliver capabilities to the warfighter. This means focusing on fielding “good enough” technology instead of waiting for a product that meets every single requirement.

Army PAE Maneuver Air will likely combine elements of Program Executive Office Aviation, Aviation and Missile Command, Futures Command Future Vertical Lift team DEVCOM Aviation & Missile, and others. It will likely include the Long-Range Assault Aircraft (FLRAA) the Bell V-280 Valor (to replace the UH-60 Black Hawk), Uncrewed Aircraft Systems (UAS), Rotary and Fixed Wing, and Autonomy.

Program Executive Officers (PEOs) are Now Capability Program Executives (CPEs)
Inside each portfolio is a Capability Program Executive (CPE), typically a Brigadier General or a civilian SES. Capability Program Executives have similar roles and responsibilities as today’s PEOs. They are the Acquisition leader responsible for cradle-to-grave management of their programs within their portfolio.

Streamlined Layers of Bureaucracy
97 Army acquisition programs may be reassigned to align with the Army PAE reorganization. 46 organizations that were writing requirements likely will be consolidated into 9 Future Capability Directorates.

Army PAE Fires will likely combine elements from Program Executive Office Missiles and Space, Enterprise Information Systems, the Rapid Capabilities and Critical Technologies Office, Fires System Center, and others. It will likely include the Integrated Battle Command System (IBCS), Patriot/PAC-3, Precision Strike Missile (PrSM), Long-Range Hypersonic Weapon – Dark Eagle (LRHW), Common Autonomous Multi-Domain Launcher (CAML), Guam Defense and Golden Dome.

DoW Will Buy Commercial First
One of the biggest changes is the mandate for PAEs to buy Commercial Off the Shelf (COTS) products, modify them if necessary and only buy bespoke products as a last resort. This change by itself is going to send shockwaves through the existing Prime contractors.

It’s telling everyone that the playing field is now open to everyone. Forget who has more lobbyists on K-Street. Speed, mission impact, and innovation is what will be rewarded. What this means for startups is that if you can execute and deliver (not just PowerPoints) you can become a supplier to the DoW.  

Incentive Compensation to PAEs and Program Managers
PAEs will be judged on whether they deliver systems to the warfighter on time and on schedule. PAEs and Program Managers will have “incentive compensation” tied to “capability delivery time, competition, and mission outcomes. (How they’ll pay that kind of compensation for a member of the military remains to be seen.)

Incentives and Scorecards for Contractors
They’ll be managing their contractors with “time-indexed incentives” to make sure contractors deliver on time and on budget, using “scorecards” to keep tabs on how each portfolio is doing.

Army PAE C2/CC2 (Command and Control/Counter Command and Control) will likely combine elements of PEO Command, Control, Communications and Network.. And include NGC2, TITAN, TENCAP, Next Generation Constructive, STE

Non-Traditional Entry Points
Companies selling to the DoW previously had to comply with the impenetrable DFAR and FAR – the Defense and Federal Acquisition Regulations – with over 5,000 pages of complex rules. It was designed for buying Aircraft Carriers, not startup technology. 

Now the DoW is telling PAEs to toss those and use Non-FAR regulations like OTAs (Other Transaction Authorities). OTAs are not subject to the extensive, rigid rules and regulations of the DFAR. They allow for greater flexibility, speed, and allow the DoW to work with a broader range of innovative commercial companies. For startups this means massively reduced documentation, shorter timelines, and fewer barriers to working with the DoW.

PAEs Will Use Lean Methodology
Rather than fixed requirements and using waterfall development processes, the services are now insisting that vendors use Lean Methodology to set incremental and iterative delivery targets. That means they can field “good enough technology” that can be incrementally updated in the field and improved on a more frequent cadence.

The only requirement for each increment is that they need to target 1) an initial fielding date,
2) set a maximum cost of each unit and 3) meet the minimum standards for mission effectiveness. Other than that, PAEs have the authority that other attributes of the weapons/software can remain tradable throughout development to allow incremental enhancements and rapid delivery of subsequent increments. This includes the ability to waive technical standards and environmental and other compliance requirements, unless they are mandated by statute or safety.

One other interesting Lean mandate is that each PAE will set up lean technical advisory processes to inform accelerated decision-making, ensuring technical rigor without sacrificing speed.

Weapons Will Be Able to Talk to Each Other – By Design
The new PAEs are also tasked with insisting that all weapons across their programs use Modular Open System Architectures, including by asserting government purpose rights over critical software interfaces — a move that allows the Pentagon to retain the data rights needed to avoid “vendor lock” (weapon systems that can only be modified and/or repaired by the company that designed it).

Army PAE Agile Sustainment will likely combine elements of PEO Combat Support and Combat Service Support, PEO Solider and PEO Joint Program Office Armaments and Ammunition. It will likely include next generation Common Tactical Truck (CTT,) Family of Medium Tactical Vehicles (FMTV), 155mm, 6.8mm ammunition.

Two Vendors Through Initial Production
The DoW has painfully learned that having only one vendor selected leads to cost overruns and late projects. A new idea is that each critical acquisition program will have at least two qualified sources through initial production. While this will cost more upfront, it gives government leverage when it is strongest and enables them to re-compete modular components and find alternative suppliers if needed.

Design For Rapid Scale In a Crisis
PAEs have been told to establish acquisition strategies that decouple design from production to allow additional third-party suppliers to surge and rapidly scale manufacturing capacity in a crisis. They are to put in place  guidelines for wartime consumption rates through manufacturing and supply chain partnerships and alternative sources.

Army PAE Layered Protection and CBRN (Chemical, Biological, Radiological, and Nuclear) will likely combine elements of PEO JPEO-CBRND. It will likely include Joint Chemical Agent Detector, UIPE, Decontamination Family of Systems, Biometrics

PAE Officers Now Have More Time To Learn On the Job
A complaint from past acquisition program managers is that they would only be there for two or three years, and then off to their next assignment. Two years was not enough time to see a program through. Now PAEs will have 4-year tours, extendible for another 2 years.

PAEs Top to Bottom
Every military service has 60 days to tell the Secretary of War a list of portfolios it is proposing to be initially stood up. A full implementation plan is due in 90 days. All major acquisition activities across all Services are going to be transitioned to PAE portfolios within two years. 

Army PIT is the Army’s innovation initiatives at the edge. It’s the front door for startups wanting to partner with the Army. 

• The PIT includes the Joint Innovation Outpost, the Global Tactical Edge Acquisition Directorate (G-TEAD) Marketplace, the FUZE program, and Disruptive Technologies. 
• The G-TEAD Marketplace merges Prize Challenge events (e.g., Army xTech Program) and DEP submissions through open call announcements.
• FUZE brings together the Army SBIR/STTR seed funding, MANTECH (Army Manufacturing Technology program), TMI (Tech Maturation Initiative) and XTech the Army’s scouting program. 

Reeducation Camp – Warfighting Acquisition University
To retrain/reeducate contracting and acquisition officers, the “Defense Acquisition University” will become the “Warfighting Acquisition University.” They have been ordered to stop compliance-focused training operations and in six months transform into a competency-based education institution.

The university will pivot to offer experiential team-based programs that work on real DoW challenges (does that ever sound like a description of Hacking for Defense.) And they’re going to have their students get out of the building and take part in industry-government exchanges. In the next six months they’re going to prioritize education and rotation programs to get their students exposure to commercial industry practices, manufacturing and operational expertise, and real-world problem-solving. All to develop Acquisition executives critical thinking and agile and rapid decision-making skills. (Note to DAU: we’ve been building these programs for a decade at the Stanford Gordian Knot Center for National Security Innovation. Our national security classes are in 60+ universities and we’re happy to help.)

The Joint Staff – Coordinating the Needs of All the Services
While each of the Services generated their own weapons requirements, plans and budgets, they all had to be approved by the Joint Staff (which reports to the Secretary of War) through a process called the JCIDS (Joint Capabilities Integration & Development System). In theory this was to coordinate each of the Service’s needs so they weren’t duplicating each other, to ensure that they were interoperable, and to give the Combatant Command a voice; and tie all the requirements to joint concepts – all of this needing to be done before Service weapons programs got funded and built.

The problem was that JCIDS moved at the speed of paperwork, not war, so the Secretary of War eliminated it earlier this year. (They kept part of it called the Joint Requirements Oversight Council but reoriented it from validating documents to identifying joint operational problems, which will drive the priorities for the entire department of War.) 

In JCIDS’ place the Secretary of War created three new organizations:

• The Joint Acceleration Reserve, a pool of money set aside to quickly field promising capabilities.
• The Requirements and Resourcing Alignment Board (RRAB) that will tie money directly to the top warfighting priorities and how much money each will get from the new Joint Acceleration Reserve.
• The Mission Engineering and Integration Activity brings government, industry, and labs together early on to rapidly experiment, test, and prototype new tech.

It’s interesting to note that none of these changes at the Joint Staff have seemed to (at least publicly) filter down to the charter of the Services Portfolio Acquisition Executives (PAEs). The achilles heel of the Services Acquisition process appears that they are still planning to put the Requirements and Capability gap analysis up front.  Here’s why that’s a problem and how to fix it.

Foreign military sales
One other tangential decision in this redesign was not in acquisition but in sales. The DoW wants a greater emphasis on selling our weapons to our Allies. They’ve moved two agencies responsible for those functions – the Defense Technology Security Administration DTSA and the Defense Security Cooperation Agency (DSCA) – from OSD Policy to OSD Acquisition and Sustainment. 

This move is about selling more of our equipment, but makes no mention of buying any equipment from our allies.

Inferred But Not Mentioned
Pretty interesting that in this reorg no one has noticed that Elbridge Colby – Under Secretary for Policy – had three organizations taken away from him.  

1. Defense Technology Security Administration DTSA
2. Defense Security Cooperation Agency (DSCA)
3. The Joint Production Accelerator Cell (JPAC) now renamed the Wartime Production Unit (WPU)

All three organizations were handed to Michael Duffey the Under Secretary for Acquisition & Sustainment. Regardless of the public statements the optics are not a vote of confidence.

Bigger and Better?
It appears that the Office of Strategic Capital may have been swallowed up by the Economic Defense Unit run by George Kolitdes. From all appearances the Economic Defense Unit is tasked to decouple our economy from China, using private and public capital. That means considering how to on-shore the critical components like minerals, chips, batteries, motors, PNT, etc.) The Acquisition announcement was how to buy things. This Economic Defense Unit is how do we ensure the things we buy are made with parts we know we can have an assured supply of?

Summary

• Startups and the DoW are now speaking the same language – Lean, feedback from the field, pivots, iterative and incremental product design, speed to delivery.
•  The DoW mandate to first buy commercial-off-the-shelf products is a once-in-a-lifetime opportunity for every startup and scaleup.
  • But you have to deliver. Don’t hand wave with PowerPoints.
  • DoW will be ruthless in shutting down and freezing out non-performers.
• The use of Non-Federal Acquisition Regulations will eliminate huge amounts of paperwork. 
  • It eliminates one of the reasons to subcontract with a prime or other company 
• DoW needs to be ruthless in reforming the compliance culture
• Who to talk to in each service and how will they do business will be unclear for at least the next six months
  • Reorganizations will create uncertainty of who is the front door for startups, how the new rules apply, and who can commit to contracts.
  • The Army appears to be further along than the other services in putting a PAE organization in place.
• In theory this is a knife to the heart of the Primes’ business model. 
  • They will flood Congress and the Executive Branch with infinite capital to change these rules.
  • It’s a race between private capital and public company lobbying money
• Let’s hope these changes stick

Thanks to Pete Newell of BMNT for the feedback and insight.

Filed under: National Security, Technology Innovation and Modern War | 7 Comments »