Steve Blank

This article previously appeared in The National Interest.

Last month the U.S. passed the CHIPS and Science Act, one of the first pieces of national industrial policy – government planning and intervention in a specific industry — in the last 50 years, in this case for semiconductors. After the celebratory champagne has been drunk and the confetti floats to the ground it’s helpful to put the CHIPS Act in context and understand the work that government and private capital have left to do.

Today the United States is in great power competition with China. It’s a contest over which nation’s diplomatic, information, military and economic system will lead the world in the 21st century. And the result is whether we face a Chinese dystopian future or a democratic one, where individuals and nations get to make their own choices. At the heart of this contest is leadership in emerging and disruptive technologies – running the gamut from semiconductors and supercomputers to biotech and blockchain and everything in between.

National Industrial Policy – U.S. versus China
Unlike the U.S., China manages its industrial policy via top-down 5-year plans. Their overall goal is to turn China into a technologically advanced and militarily powerful state that can challenge U.S. commercial and military leadership. Unlike the U.S., China has embraced the idea that national security is inexorably intertwined with commercial technology (semiconductors, drones, AI, machine learning, autonomy, biotech, cyber, semiconductors, quantum, high-performance computing, commercial access to space, et al.)  They’ve made what they call military/civil fusion – building a dual-use ecosystem by tightly coupling their commercial technology companies with their defense ecosystem.

China has used its last three 5-year plans to invest in critical technologies (semiconductors, supercomputers, Al/ML, quantum, access to space, biotech.) as a national priority. They have built a sophisticated public/private financing ecosystem to support these plans. The Chinese technology funding ecosystem includes regional investment funds that exceed 700 billion dollars (what they call their Civil/Military Guidance Funds). These are investment vehicles in which central and local government agencies make investments that are combined with private venture capital and State-Owned Enterprises in areas of strategic importance. They are tightly coupling critical civilian companies to their defense ecosystem to help them develop military weapons and strategic surprises. (Tai Ming Cheung’s book is the best description of the system.)

The U.S. has nothing comparable.

In contrast, for the last several decades, planning in the U.S. economy was left to “the market.” Driven by economic theory from the Chicago School of Economics, its premise is that free markets best allocate resources in an economy and that minimal, or even no, government intervention is best for economic prosperity. We ran our economy on this theory as a bipartisan experiment in the U.S. for the last several decades. Optimizing profit above else led to wholesale offshoring of manufacturing and entire industries in order to lower costs. Investors shifted to making massive investments in industries with the quickest and greatest returns without long-term capital investments (e.g. social media, ecommerce, gaming) instead of in hardware, semiconductors, advanced manufacturing, transportation infrastructure, etc. The result was that by default, private equity and venture capital were the de facto decision makers of U.S. industrial policy.

With the demise of the Soviet Union and the U.S. as the sole superpower, this “profits first” strategy was “good enough” as there was no other nation that could match our technical superiority. That changed when we weren’t paying attention.

China’s Ambition and Strategic Surprises
In the first two decades of the 21st century, while the U.S. was focused on combating non-nation states (ISIS, Al-Qaeda…) U.S. policymakers failed to understand China’s size, scale, ambition, and national commitment to surpass the U.S. as the global leader in technology. Not just in “a” technology but in all of those that are critical to both our national and economic security in this century.

China’s top-down national industrial policy means we are being out-planned, outmanned, and outspent. By some estimates, China could be the leader in a number of critical technology areas sooner than we think. While Chinese investment in technology at times has been redundant and wasteful, the sum of these tech investments has resulted in a series of strategic surprises to the U.S.– hypersonics, ballistic missiles with maneuverable warheads as aircraft carrier killers, fractional orbital bombardment systems, rapid advances in space, semiconductors, supercomputers, and biotech …with more surprises likely – all with the goal to gain superiority over the U.S. both commercially and militarily.

Limits and Obstacles to China’s Dominance
However, America has advantages that China lacks: capital markets that can be incented not coerced, untapped innovation talent willing to help, labor markets that can be upskilled, university and corporate research that still excels, etc. At the same time, a few cracks are showing in China’s march to technology supremacy; their detention of some of their most successful entrepreneurs and investors, a crackdown on “superfluous” tech (gaming, online tutoring) and a slowdown of listings on the China’s version of NASDAQ, the Shanghai Stock Exchange’s STAR Market – may signal that the party is reining in its “anything goes” approach to pass the U.S.  Simultaneously the U.S. Commerce department has begun to prohibit export of critical equipment and components that China has needed to build their tech ecosystem.

Billionaires and Venture Capital Funding Defense Innovation
In the U.S. DoD’s traditional suppliers of defense tools, technologies, and weapons – the prime contractors and federal labs – are no longer the leaders in many of these emerging and disruptive  technologies.  And while the Department of Defense has world-class people and organizations it’s for a world that no longer exists. (Its inability to rapidly acquire and deploy commercial systems requires an organizational redesign on the scale of Goldwater/Nichols Act, not a reform.)

Technology innovation in many areas now falls to commercial companies. In lieu of a coherent U.S. national investment strategy across emerging and disruptive technologies (think of the CHIPS Act times ten), billionaires in the U.S. have started their own initiatives – Elon Musk – SpaceX and Starlink (reusable rockets and space-based broadband internet), Palmer Lucky –  Anduril (AI and Machine Learning for defense), Peter Theil – Palantir (data analytics). And in the last few years a series of defense-focused venture funds – Shield Capital, Lux Capital, and others – have emerged.

However, depending on billionaires interested in defense is not a sustainable strategy, and venture capital invests in businesses that can become profitable in 10 years or less. This means that technologies that might take decades to mature (fusion, activities in space, new industrial processes, …) get caught up and die in a “Valley of Death.” Attempts to bridge this Valley of Death often find technology companies relying on Government capital. These programs (DIU, In-Q-Tel, AFWERX, et al), are limited in scope, time and success at scale. These government investment programs have largely failed to scale these emerging and disruptive technologies for four reasons:

• Government agencies have limited access to top investment talent to help them make sophisticated technical investment decisions
• Government agencies lack the commercialization skills to help founders turn technical ideas into commercial ventures.
• While the Dept of Defense has encouraged starting new ventures, it has failed to match it with the acquisition dollars to scale them. There’s no DoD coherent/committed strategy to create a new generation of prime contractors around these emerging and disruptive technologies.
• No private or government funds operates as “patient capital” – investing in critical deep technologies that may take more than a decade to mature and scale

America’s Frontier Fund
Today one private capital fund is attempting to solve this problem. Gilman Louie, the founder of In-Q-Tel, has started America’s Frontier Fund (AFF.) This new fund will invest in key critical deep technologies to help the U.S. keep pace with the Chinese onslaught of capital focused on this area. AFF plans to raise one billion dollars in “patient private capital” from both public and private sources and to be entirely focused on identifying critical technologies and strategic investing. Setting up their fund as a non-profit allows them to focus on long-term investments for the country, not just what’s expedient to maximize profits. It will ensure these investments grow into large commercial and dual-use companies focused on the national interest.

They’ve built an extraordinary team of experienced venture capitalists (I’ve known Gilman Louie and Steve Weinstein for decades), a world-class chief scientist, a startup incubation team, and they come with a unique and deep understanding of the intersection of national security and emerging and disruptive technologies.

AFF is the most promising effort I have seen in tackling the long-term challenges of funding and scaling emerging and disruptive technologies head-on.

At stake is whether the rest of the 21st century will be determined by an authoritarian government wiling to impose a dystopian future on the world, or free nations able to determine their own future.

These are tough problems to solve, and no single fund is can take on the massive investments China is making, but it’s possible that the AFF’s market driven approach, when combined with the government’s halting steps reengaging in industrial policy, can tip the scale back in our favor.

Here’s hoping they succeed.

Filed under: National Security | 2 Comments »

The U.S. Department of Defense is coming to grips with the idea that the technologies it needs to keep the country safe and secure are no longer exclusively owned by the military or its prime contractors. AI, machine learning, autonomy, cyber, quantum, access to space, semiconductors, biotech are all being driven by commercial companies.  At the front-end of these innovations are startups – organizations the Department of Defense hasn’t previously dealt with at scale.

They’re now learning how.

Mrinal Menon is one of my Hacking for Defense students at Stanford where he’s currently in the MBA program. He’s a former U.S. Navy Surface Warfare Officer. Jeff Decker is a co-instructor of the Hacking for Defense class and the Stanford program director. Jeff is an Army Second Ranger Battalion veteran.

Mrinal and Jeff’s article below explains how startups can adapt and thrive while working with the Defense Department. And how the Department of Defense is learning to work with startups.

This article previously appeared in Fast Company.

At a time when young companies struggle to find technology sectors not dominated by Silicon Valley’s giants, most startups remain oblivious to one of the largest markets in the world, the U.S. Defense Department. The military awarded $445 billion in contracts in 2020. By comparison, last year’s global market for software-as-a-service, one of the hottest sectors for startup creation and investment, was estimated at $104 billion.

There’s a willing market here, too. The Pentagon is eager for help from the nation’s innovators. The military is clamoring for cutting-edge technologies in areas like artificial intelligence, machine learning, and autonomy. To attract interest the Defense Department is handing out unprecedented numbers of small contracts and in 2020 seeded 1,635 firms with more than $1.5 billion in early funding. Dozens of outreach programs across the military now offer quick revenue to early-stage companies. A startup could land a contract worth up to $3 million within months of entering the defense market.

This emerging opportunity reflects the urgency of keeping pace with rivals like China and Russia, who are furiously integratingcommercial technologies like AI, quantum computing, and unmanned systems into their armed forces. If former Google CEO Eric Schmidt’s prediction about China overtaking the United States in AI comes to pass, the People’s Liberation Army could be better prepared than the U.S. military for future conflicts in which cyberattacks and drone swarms play a larger role than warships and fighter jets. Without adopting cutting-edge commercial technologies, the U.S. military may be rendered obsolete.

Yet, for every newly minted success like Palantir or Anduril, thousands of companies struggle to find follow-on opportunities after receiving early innovation contracts. Historically, more than 80% of new entrants exit the defense market before they have a chance to see recurring revenue. Anduril founder Palmer Luckey has sardonically noted that the only defense companies to reach unicorn status in the past 30 years have all been founded by billionaires able to endure long gaps in funding. To truly compete with technologically advanced rivals, the Defense Department will ultimately need to enable a broad pool of innovative founders to succeed. Until this ecosystem materializes, however, building a successful defense business is likely to take years of grueling effort. Before committing to work with the military, startups must look past the allure of early money and carefully assess whether the defense market is right for them.

The Key Questions For Startup
Despite the Pentagon’s newfound enthusiasm for innovation, startups in the defense market continue to encounter longstanding obstacles. Most companies face uncertainty when trying to bridge prototyping awards with more permanent follow-on contracts. Startups that successfully fulfill innovation contracts don’t automatically scale. Instead, their solutions must still compete for funding in a formal budgeting and acquisition process before being eligible for widespread adoption . This ordeal takes two years or more, during which startups should anticipate little or no revenue as they try to push their product through the bureaucracy.

While earning the first $1 million in the defense market can be relatively easy, landing the next $10 million is extremely difficult. Before committing to work with the military, startups should carefully consider whether the defense market is right for them by asking three questions.

Is there strong interest for the product?
Those that offer solutions to high-priority problems have the best chance of sourcing funding and follow-on awards. Startups should assess how well their technologies align with the needs outlined in the defense budget, various modernization strategies, and problems posed by defense innovation hubs. For example, “flying taxi” startup Joby Aviation aligned its electric vertical takeoff and landing aircraft with the Air Force’s stated interest in advancing the market for air mobility vehicles. The 3D mapping company Hivemapper found traction with the Army by targeting its need to autonomously resupply field artillery units.

Is the company prepared to endure revenue gaps?
As noted, companies may go years without defense revenue while trying to bridge early contracts with larger opportunities. During this period, startups will need to sustain business development activities and may incur additional regulatory and compliance costs to ensure their product is usable by the military. Investors are also likely to express impatience with the long timelines of defense sales. The best prepared companies can either raise sufficient funds to keep operating or count on revenue from other sources. Palmer Luckey’s Anduril has aggressively pursued financingto sustain growth. Recently public enterprise-AI firm C3.ai entered the defense market having already built a successful commercial business in the energy vertical. Similarly, 3D-printing homebuilder Icon’s technologies have applications that extend well beyond national security use cases to commercial housing markets.

Can I balance the needs of my defense and commercial customers?
The best-positioned startups solve fundamentally similar problems for both military and commercial users. Satellite imagery firm Orbital Insight’s Go platform, for example, automates imagery analysis for defense analysts, investors, and agribusiness alike. Some amount of customization is inevitable given that military users often have specific mission requirements or technical constraints. However, companies that can serve military customers without fundamentally altering their existing product roadmap are likely to be most successful.

Incidents like Google’s withdrawal from Project Maven have highlighted the potential for conflict when commercial companies decide to work with the military. This tension tends to be lower at startups where an early team willingly signs on to pursue defense business. Regardless, companies should be mindful of the reputational impacts working with the DoD could have on their existing business.

The Case for Optimism
Companies eyeing the defense market have reason to be optimistic. There are a growing number of efforts to remove obstacles to partnerships between high-tech startups and the military. For example, the Air Force last year created the Strategic Financing (STRATFI) program. STRATFI provides the Air Force’s most promising commercial innovators, a list which includes Icon and Orbital Insight, quick access to large contracts worth up to $15M. Another positive sign is President Biden’s nomination of former Symantec CEO Mike Brown to oversee the Pentagon’s purchases of new technologies. As director of the Defense Innovation Unit (DIU), Brown has spearheaded investments in commercial technologies and helped C3.ai, Joby Aviation, and other Silicon Valley standouts navigate funding gaps. If confirmed, Brown could accelerate much needed reforms to military acquisition processes.

A startup that makes it through the hurdles may find a massive market with a stable set of customers eager for better technology solutions. The U.S. government pays its bills on time, defense budgets are shielded from short-term volatility, and contracts may be guaranteed for multiple years. Once onboarded, military users can quickly become long-term customers given the challenges involved with switching to another product.

Filed under: National Security | 1 Comment »

A version of this story previously appeared in Defense One.

The story of RYAN and Able Archer is an oft-told lesson of a U.S. intelligence failure, miscalculation, and two superpowers unaware they were on the brink of an accidental nuclear war — all because the Soviet Union relied on a software program to make predictions that were based on false assumptions.

As more of our weapons systems and analytical and predictive systems become enabled by AI and Machine Learning, the lessons of RYAN and Able Archer is a cautionary tale for the DoD.

In 1983, the world’s superpowers drew near to accidental nuclear war, largely because the Soviet Union relied on software to make predictions that were based on false assumptions. Today, as the Pentagon moves to infuse artificial-intelligence tools into just about every aspect of its workings, it’s worth remembering the lessons of RYAN and Able Archer.

Two years earlier, the Soviet Union had deployed a software program dubbed RYAN, for Raketno Yadernoye Napadenie, or sudden nuclear missile attack. Massive for its time, RYAN sought to compute the relative power of the two superpowers by modeling 40,000 military, political, and economic factors, including 292 “indicators” reported from agents (spies) abroad. It was run by the KGB, which employed more than 200 people just to input the data.

The Soviets built RYAN to warn them when their country’s relative strength had declined to a point that the U.S. might launch a preemptive first strike on the Soviet Union. Leaders decided that if Soviet power was at least 70 percent of that of the United States the balance of power was stable. As the months went by, this number plummeted. By 1983, RYAN reported that Soviet power had declined to just 45 percent of that of the United States.

This amplified Soviet leaders’ paranoia. After 25 years of back-and-forth in the nuclear arms race, the Peacekeeper ICBM and the Trident SLBM were tipping the balance in favor of the United States. Responding to the Soviet introduction of SS-20 intermediate-range ballistic missiles to Eastern Europe in 1983, the U.S. deployed Pershing II and Ground Launched Cruise Missiles missiles to Western Europe, which reduced warning time of attack on Moscow to less than eight minutes. And in March 1983, President Reagan announced the Strategic Defense Initiative – “Star Wars” – to intercept Soviet ICBMs, then piled on just weeks later by publicly labeling the Soviet Union “the Evil Empire.” And to cap off a very bad year in the Cold War, in September 1983 the Soviets accidentally shot down a civilian 747 airliner—KAL 007—killing all 269 aboard.

By 1983, Soviet political and military leaders truly believed a nuclear war was coming. The RYAN program took on even greater importance. To feed RYAN, the KGB made its top priority to collect indicators of anything that might precede a potential surprise nuclear missile attack. They were looking for direct indicators—had the U.S. Continuity of Government program (doomsday planes) been activated? Had the U.S. given advance warning to launch our strategic nuclear forces? They also collected secondary indicators. Their agents inside the U.S. and allied countries watched for heightened activities in and around Washington offices (White House, Pentagon, State Dept, CIA, etc.), including the White House parking lot, places of evacuation and shelter, the level of blood held in blood banks, observation of where nuclear weapons were stored, etc. Some of the indicators were based on a mirror-image of how the Warsaw Pact would prepare for war. Soviet case officers were instructed to look for deviations in the behavior of people in possession of classified information suddenly moving into specially equipped secure accommodations.

While most of the KGB station chiefs and case officers thought Moscow was being paranoid, they dutifully reported what they thought their leaders wanted to hear.

By November 1983, Soviet military and political leaders had convinced themselves that a nuclear first strike from the United States was probable. The RYAN program told them that the odds favored the U.S., and the war indicators in Moscow were flashing red.

That month, NATO ran a highly realistic set of wargames in Europe called Able Archer 83. These included an airlift of 19,000 U.S. soldiers in 170 aircraft under radio silence to Europe, the shifting of commands from Permanent War Headquarters to the Alternate War Headquarters, and practicing nuclear weapons release procedures.

In reaction, the Chief of the Soviet Air Forces ordered all units of the Soviet 4th Air Army on alert which included preparations for immediate use of nuclear weapons. It appears that at least some Soviet forces were preparing to preempt or counterattack a NATO strike launched under cover of Able Archer.

Luckily, no one overreacted. The Able Archer 83 exercise passed.

For years, the U.S had no idea that the Soviet Union had believed the exercise was a cover to launch a nuclear first strike. The Berlin Wall had fallen by the time information from a defector and an end-of-tour letter from the U.S. general responsible for Air Force Intelligence in Europe prompted presidential intelligence board to revisit what the Soviets had thought. In hindsight, RYAN and Able Archer took the Cold War to the brink of Armageddon.

Even when RYAN was reporting that the U.S. had a decisive military advantage, what made the Soviets believe that we would launch a first-nuclear strike? No one knows. However, given Nazi Germany’s surprise attack on the Soviet Union in WWII, resulting in 25 million dead and the extreme devastation inflicted on their country, the Soviet Union had reason to be paranoid. Some have suggested that the Soviets had interpreted President Carter’s 1980 Presidential Directive 59 Nuclear Weapon Employment Policy as preparation for a nuclear first strike. Perhaps the Soviet Union ascribed their own plans for a first strike on the U.S. to their Cold War enemy. Or perhaps the U.S. actually did have a first-strike option in one of our operational plans that the Soviets discovered via espionage.

Why were the Soviets convinced that a war would start with a war game? Several months after Able Archer, the Soviet Minister of Defense publicly acknowledged his country’s inability to tell a big NATO exercise from an actual attack: “It was difficult to catch the difference between working out training questions and actual preparation of large-scale aggression.” It’s quite likely that the Soviets’ own plans for launching a war in Europe would have been as part of a war game.

Certainly the Soviets, believing the signals of the RYAN alert system, were primed to assume a U.S. attack. In attempting to automate military policy and potential actions, the Soviets had amplified their existing paranoia. (A movie called War Games came out that year with some of the same themes.)

A Cautionary Tale for Automating Policy and Prediction
Forty years ago RYAN attempted to automate military policy and potential actions. But in the end, RYAN failed in actually predicting U.S. intent. Instead, RYAN reinforced existing fears, and accidently created its own paranoia.

Which leads to the question: What could happen when we start using Artificial Intelligence and Machine Learning to shape policy?

• What could happen when we start using artificial intelligence and machine learning to shape policy?
• Will AI/ML actually predict human intent?
• What happens when the machines start seeing patterns that aren’t there?
• How do we ensure that unintentional bias doesn’t creep into the model?
• How much will we depend on an AI that can’t explain how it reached its decision?
• How do we deconflict and deescalate machine-driven conclusions? Where and when should the humans be in the loop?
• How do we ensure foreign actors can’t pollute the datasets and sensors used to drive the model and/or steal the model and look for its vulnerabilities?
• How do we ensure that those with a specific agenda (i.e. Andropov, chairman of the KGB) don’t bias the data?
• How do we ensure we aren’t using a software program that misleads our own leaders?

The somewhat-comforting news is that others have been thinking about these problems for a while. In 2020, the Defense Department formally adopted five AI ethical principles recommended by the Defense Innovation Board for the development of artificial intelligence capabilities: AI projects need to be Responsible, Equitable, Traceable, Reliable and Governable. The Joint Artificial Intelligence Center appointed a head of ethics policy to translate these principles into practice. Under JAIC’s 2.0 mission, they are no longer the sole developer of AI projects, but instead providing services and common software platforms. Now it’s up to the JAIC ethics front office to ensure that the hundreds of mission areas and contractors across the DoD adhere to these standards.

Here’s hoping they all remember the lessons of RYAN.

Lessons Learned

• RYAN amplified the paranoia the Soviet leadership already had
• The assumptions and beliefs of people who create the software shape the outcomes
• Using data to model an adversary’s potential actions is limited by your ability to model its leaderships intent
• Your planning and world view are almost guaranteed not to be the same as those of your adversary
• Having an overwhelming military advantage may force an adversary into a corner. They may act in ways that seem irrational
• Responsible, Equitable, Traceable, Reliable and Governable are great aspirational goals

Filed under: National Security | 1 Comment »

A version of this article – co-authored with Raj Shah and Joe Felter – previously appeared in War On The Rocks.

After hearing from 20+ guest speakers, including two Secretaries of Defense, Generals, Admirals and Policy makers in our Technology, Innovation and Modern War class – the direction of technology and the future of national security came into sharper focus. This series of articles will offer suggestions to transform the DoD to face the challenges ahead.

As it is currently organized, the U.S. government is ill-equipped to deal with the growing number of national security challenges that exist at the intersection of commercial and defense technology. Innovation opportunities are slipping between Washington’s organizational gaps, and America’s enemies are too.

President Joe Biden has already taken several steps that suggest he recognizes the gravity of this problem. He has elevated the science adviser to a Cabinet-level position, appointed a number of talented individuals to high-level cyber security posts, and created a national security adviser for cyber and emerging technology. But more changes are needed. Most importantly, Biden should create a deputy national security adviser with sufficient staff and authority to coordinate innovation and technology policies across the entire government.

Blurred Lines
From artificial intelligence to biotechnology, U.S. national security is inexorably and increasingly intertwined with commercial technology. Unlike in the Cold War, advancements in areas with important national security implications come from private sector research labs and are driven by consumer demand rather than government directives. Yet it remains unclear who in the government now sets policy for — or has final say over — issues that cross the boundaries between academia, defense, commerce, and diplomacy. In addition to the National Security Council, bureaucratic contenders currently include the Commerce Department, Federal Communications Commission, Federal Aviation Administration, Council of Economic Advisers, Treasury Department, the Office of Science and Technology Policy, and the Office of Management and Budget.

In theory it is the National Security Council that should coordinate a “whole of government” response that brings together tools from different agencies to address emerging threats. Indeed, this was the purpose for which the council was created in 1947. However, Cabinet members who are responsible for vertical portfolios still manage the government’s large functional agencies, and there continues to be significant overlap between those who handle commercial, defense, and diplomatic policy. It is this organizational design that creates blurred bureaucratic lines and weakens U.S. national security. 

There are a number of specific areas where these blurred lines led to subpar policies that undermined America’s technological competitiveness and left the country weaker against adversaries like Russia and China. Consider four recent examples: semiconductors, drones, the SolarWinds hack, and SpaceX’s Starship.

In the absence of a coordinated technology and industrial policy, the United States has become dangerously reliant on computer chips produced in a handful of countries for all its defense and commercial needs. Originally, all of America’s computer chips were produced in Silicon Valley. Today, none are made there. The United States is dependent on two companies, Taiwan Semiconductor Manufacturing Co. in Taiwan and Samsung in Korea, for the chips used to build a substantive part of its defense electronics. Around 60 percent of the chips Taiwan Semiconductor Manufacturing Co. makes are for American companies. Even Intel, the supplier of most of the central processing units used in desktop computers and data centers, will be outsourcing manufacturing of its next generation of chips to Taiwan. Taiwan Semiconductor Manufacturing Co. has announced that it will build a chip factory in the United States, but even when complete it will produce less than 3 percent of the company’s capacity in Taiwan.

In the case of drones, the U.S. government also missed an opportunity to maintain the country’s competitive edge. Where there was once a nascent U.S. commercial drone industry, the Chinese company DJI now controls 69 percent of the global market. Not only is DJI at the cutting edge of such crucial drone technologies as motors, speed controllers, radio modules, cameras, and artificial intelligence, but it has also allegedly used its hobby drones to map U.S. military installations. As a result, the former assistant secretary of the Air Force for acquisition, technology, and logistics lamented that the lack of Defense Department support for American drone startups was a critical missed opportunity.

In some cases, the danger is more immediate. The SolarWinds cyber attacks revealed how the failure to secure commercial software can compromise even well-secured government networks. In this case, the Russian government exploited commonly used civilian network management software in order to infiltrate the Treasury, State, and Defense departments. By adding malicious code to the SolarWinds update tool, hackers gained access to the data of 18,000 customers — including many in the U.S. government.

Efforts to harden government agencies and protect sensitive information against infiltration will fail so long as adversaries can circumvent them through commercial companies. Private companies have lobbied Congress against requirements that would mandate expensive investments to secure their systems. Furthermore, financial penalties for large-scale breaches of commercial companies are trivial. SolarWinds received national attention because it was an attack on the government, but cyber attacks on private companies continue unabated.

Finally, the fate of the SpaceX Starship offers an example of how government oversight agencies can stifle innovation when they are unable to keep pace with the speed of contemporary technological development. In temporarily halting test launches of the SpaceX Starship, the Federal Aviation Administration sought a lengthy investigatory period that put unnecessary roadblocks in the way of a company that is transforming access to space. In innovation, failure is part of the process. Test rockets blow up, test airplanes may crash. If you do not push the envelope and discover the limits of your design you are not innovating fast or far enough. It goes without saying that you strive to minimize loss of life and property, but the rules governing innovation programs should recognize a heightened need for speed. The U.S government appreciated this when developing rockets and experimental aircraft in the 1950s and 1960s — better organization could help it apply this understanding again today.

Reorganize to Win
To solve these problems, the White House needs to ensure there is a single organization that has stewardship of all the issues that cross existing lines between national security, commerce, and technology. 

An effective way to do this would be to create a new deputy national security adviser. Armed with sufficient resources and influence, this position would be given real responsibility to help shape the budget, trade policy, and alliance strategy. This adviser would ideally sit on both the National Security Council and National Economic Council, where they could coordinate policies covering a range of technological and scientific issues. These would include the fields of artificial intelligence, machine learning, biotech, hypersonics, and microelectronics, to name just a few. This position would also be responsible for building a civil-military alliance for protecting civilian assets and incentivizing private companies to do work with a national security payoff. The reach of the new deputy national security adviser could also be enhanced by putting appointees in key agencies such as the Department of Defense, the Office of Management and Budget, and the Office of Science and Technology Policy who would be responsible for leading and coordinating innovation policy across the government.

The Biden administration may opt for a different form of reorganization. Several plausible alternatives have been proposed. Regardless of the approach, the important thing is for Washington to recognize and close the organizational gaps its adversaries have exploited.

Filed under: National Security | 1 Comment »

A version of this article – co-authored with Raj Shah and Joe Felter – previously appeared in The National Interest.

After hearing from 20+ guest speakers, including two Secretaries of Defense, Generals, Admirals and Policy makers in our Technology, Innovation and Modern War class – the direction of technology and the future of national security came into sharper focus. This series of articles will offer suggestions to transform the DoD to face the challenges ahead.

—

“We need to couple the $150 billion a year U.S. Venture capitalists (VCs) spend to fund new ventures with the speed and urgency that the DOD now requires.”

We stand at a crossroads of history. The decisions this new administration makes about how to engage, incite, and rally the full force of American capitalism will determine whether we stand in the backwash of China’s exhaust or we continue to lead.

In the twenty-first century our country’s military and economic power will rely on the rapid development and deployment of new technologies—5G, microelectronics, cyber, AI, autonomy, robotics, access to space, drones, biotech, quantum computing, energy storage, and others yet to be invented.

The technologies we employed to prevail in the Cold War and the War on Terror were largely developed by big defense primes and U.S. government labs, but today most of the advances come from commercial vendors—many of them Chinese. For the first time in the history of modern civilization most of the technologies needed for the military are driven by consumer demand and the potential for profit—not government directives.

China is executing a plan to win with new technologies through its strategy of Military-Civil Fusion—they’ve torn down the barriers between Chinese companies and academia and its military. Its purpose is to improve China’s military technology by integrating Chinese industry and academia so it can develop the Peoples Liberation Army into a world-class military equal or superior to the U.S. Meanwhile, its Orwellian National Intelligence Law mandates that citizens and companies must cooperate with state defense and intelligence work. (Yes you, Apple and DJI.) Simultaneously, the Chinese Communist Party is integrating party leadership in both state-owned companies and private businesses (which account for 60 percent of the country’s output).

The takedown of Jack Ma, founder of Alibaba and Ant Group, is a warning shot to every Chinese CEO that regardless of a company’s size, the party and government are back in control.

China’s Military-Civil Fusion and National Intelligence Law stacks the deck against every U.S. and Western company. You’re not competing against an individual Chinese company; you’re competing against the Chinese government.

What it means for the U.S. military is that our national security is now inexorably intertwined with our success in leading in commercial technology. Developing, maintaining and safeguarding our technological edge will be key to prevailing in great power competition.

Today, the DOD requirements and acquisition systems are driven by a sixty-year-old model predicated on 1) predicting the future (both threats and technology), 2) delivering solutions decades out optimized for lifecycle costs and 3) assuming that government labs and incumbent prime contractors drive technological innovation. Every one of those assumptions are no longer true.

Maintaining our technology leadership will require the DOD to understand that delivering new/disruptive innovation versus execution of existing technologies happen at different speeds, with different people, organizations, culture and incentives. Buying the next incremental version of a gun, tank, plane, ship, means you can (hope to) predict its lifecycle cost, delivery schedule, etc. And you can assume that with enough dollars it will appear.  That’s not how innovation actually happens. And we are living in that new world where innovation is happening continually. We don’t need to abandon our methods of buying incremental improvements, but we must have a parallel set of activities—at scale—to keep up with our adversaries who already understand this.

How can we effectively compete? One of the reasons the United States prevailed in the Cold War with the Soviet Union was that total government control of innovation is an inherent weakness. When the Soviets launched ideological purges of their best and brightest and jailed their dissidents, they throttled innovation at scale. There were no Soviet Steve Jobs or Bill Gates. Meanwhile in the U.S., venture capital was funding startups led by iconoclasts, troublemakers and dissidents. The result has been a half-century of continuous and extremely profitable disruptive innovation.

The U.S. military must now invest in new capabilities and concepts to reimagine how it fights. It needs to use rapid/agile innovation, disposable systems that take advantage of innovations in the commercial technology base. We need to couple the $150 billion a year U.S. Venture capitalists (VCs) spend to fund new ventures with the speed and urgency that the DOD now requires. We need to leverage the inherent advantages of a capitalist democracy and align public and private sector incentives to drive technology advances.

We need a Civil-Military Alliance. One that’s driven by incentives, not coercion. By public-private partnerships, not government control. Private industry, from primes to startups incentivized at scale, will ensure our leadership in science, in industry, and in new technologies.

A few suggestions:

For a Civil-Military Alliance the DOD needs new sources of disruptive innovation and ideas. Not as replacements for the valuable prime contractors we have but as complementary partners who are agile, can attract the best and brightest, and are willing to bet their company on new ideas.

In the 20th century most military contractor-built hardware, and software was an add-on. When an upgrade was required, a new contract was needed, which took years. The new generation of military systems will be built around software with hardware as the add-on. Upgrades can happen over the air in weeks not years.

Today, the world’s innovation ecosystem for new technologies are VCs and startups. To make Civil-Military Alliance work the DOD needs to understand that no investor wants a new startup to spend three years going through the existing DOD requirements and acquisition process when there’s a viable alternative in a commercial market.  (Today, even if a startup gets an early DOD award of a million dollars it’s not enough to incent the technologies they need.)

Few inside the department of defense understand how the commercial venture capital/startup innovation ecosystem works. Going forward, inside every service acquisition arm there needs to be a deputy who can go to a whiteboard and draw how private investors make money. And more importantly work with them to get the best and brightest of their portfolio companies engaged.

One solution is that the DOD needs to pick new entrants as winners at scale. Today, no DOD acquisition chief wants to be in front of Congress explaining to a committee chair why the incumbent vendor in their district lost. That will happen unless both the DOD and Congress clearly articulate that the process for picking winners for existing incremental changes is different from disruptive ones. And that the default ought to be new vendors. Each service should pick 1-2 startup/scale-up winners and buy heavily.

As part of the Civil-Military Alliance, the U.S. needs to massively reinvest in critical technologies. China has invested over $100 billion in moving its manufacturing base from making low-tech products to rapidly developing ten high-tech industries including electric cars, next-generation computing, telecommunications, robotics, artificial intelligence, and advanced chips. They’ve raised over $50 billion just for building an indigenous semiconductor industry.  We need to pick critical industries and do the same at scale. Not only the incumbents but with new entrants.

Another part of a U.S. Civil-Military Alliance would be transforming our existing government R&D Labs. The U.S. spends $15 billion a year on forty-two Federally Funded Research and Development Centers (FFRDCs)—twenty-six R&D labs, ten study and analysis centers, and six system engineering and integration centers. Set up in WWII and scaled during the Cold War, the truth is that most of them are no longer the country’s cutting edge. We need to radically reorient their relationship with the new centers of innovation.

Finally, the existing prime contractors have sat out the innovation game. While many have a token VC arm, today they are not leading in disruptive technology, particularly if the profit incentives are to continue to lobby and build the status quo and get a new contract every time a system needs an upgrade. We need serious incentives to have primes get into the disruptive innovation game. They need to actively invest in and buy startups—at startup multiples—with billions, not millions. Their CFOs need to tell us what incentives (tax write-offs, acquisition preferences, etc.) can be tied to rapid delivery and deployment—not demos—of new technologies and systems.

This is a critical time for our nation. Our adversaries aren’t waiting. The Biden administration can choose business as usual and let U.S. leadership in technology disappear and the country founder in the backwash of the coming China age. Or it can choose to build a Civil-Military Alliance ensuring our leadership in science and in industry, while maintain our core values. Our hopes for peace, security, and self-determination around the world, require us to make this effort.

Filed under: National Security | 5 Comments »

A version of this article – co-authored with Raj Shah and Joe Felter – previously appeared in Defense One.

(Update: After this article was written the Secretary of Defense fired every member of all 40+ defense advisory boards and will start anew. Hopefully the suggestions in this post will help inform how they reconstitute the boards.)

Last week the Biden administration delayed seating several Trump appointees to defense advisory boards. It’s a welcome signal that incoming leaders recognize these groups are essential, not just patronage jobs. But the review needs to go much further than that.

One of the many changes the Department of Defense needs to make is to reimagine the role and makeup of its advisory boards and ask them for 10x advice, not 10% advice.

—-

The Defense Department is at a crossroads. Incremental improvements are no longer good enough to keep up with China; the Pentagon needs substantive and sustained changes to its size, structure, policies, processes, practices, technologies, and culture. The last administration asked most of the Pentagon’s 40-plus boards for advice on small improvements — with a few notable exceptions, such as the Innovation Board’s Software Study and the work of the National Security Commission for AI — the latter an independent effort chartered by Congress.

This is no longer sufficient. The DoD needs to ask for big ideas, boards who can deliver transformative advice, and it needs to reshape its boards to provide them.

What’s an Advisory Board?
DOD’s Advisory Boards are comprised of individuals outside of the organization who can provide independent perspectives and advice. An advisory board has no official role in managing – they can’t hire, fire, or order people to do things.  All they can do is offer advice.  But with the right membership and senior support, they can have tremendous impact. In the past decades, advisory boards have challenged conventional thinking and nudged leaders towards major policy changes.

Most of the DOD advisory boards are in the services or agencies. For example the Army and the Air Force each have their own Science Board, the military academies each have an advisory board they call the “Board of Visitors.” The office of the Secretary of Defense has 7 advisory boards: Policy, Innovation, Science, Business, Military Personnel Testing, Women in the Services, and Sexual Assault. (Steve had the pleasure of serving on one – albeit for a short time.)

Different Advisory Boards for Different Times
In times where the status quo is sufficient – when your company or country is the leader –  advisory boards are asked for advice about improvement – how to improve your existing systems. You appoint advisors who have detailed knowledge of existing systems and have long term institutional knowledge and connections. And you generally discourage Ideas that might disrupt the status quo.

However, these are not normal times. Incremental improvements no longer assure that our country can compete. For example, rapid innovation in new technologies – cyber, AI, autonomy, access to space, drones, biotech, etc. – is no longer being led by military/government labs, but instead comes from commercial vendors – many of them Chinese. The result is that unlike the last 75 years, the DOD can no longer predict or control future technologies and threats.

So it’s time for DoD leaders and staff to hand off requests for advice about incremental improvements to consulting firms and refocus their advisory boards on critical competitive issues.

The first order of business is overhauling the boards’ membership to support this turn toward rapid innovation. In the past, the DOD has had some extraordinarily effective advisory boards. During the Cold War examples included the Jasons, the Gaither Committee, the Land Panel, and numerous others. More recently the Defense Innovation Board had admirably carried that torch. Unfortunately several advisory boards have become moribund resting grounds for political apparatchiks.Today’s challenges demand the DOD’s advisory boards appoint the best and brightest regardless of party.

We believe the new administration can quickly refocus their boards in three steps: 1) reset the membership of the current DOD Advisory Boards to support rapid innovation 2) Think strategically about the future, and 3) Set high expectations for engagement and implementation.

Reset board membership and structure to support rapid innovation and transformation

• 1/3 DOD insiders who know the processes and politics and help ensure non-standard solutions actually get implemented. They can steer the board away from dead-ends or incremental solutions.
• 1/6 crazy DOD insiders – the rebels at work. They are the Uniformed and civilian leaders with great ideas that have been trying to be heard. Poll senior and mid-level managers and have them nominate their most innovative/creative rebels
• 1/3 crazy outsiders. Innovators and technologists with new, unique insights in the last two years, who are in sync with the crazy insiders to build 10x solutions
• 1/6 outsiders who represent “brand-name wisdom”. They provide top cover and historical context. Connectivity to large institutions required for implementation at scale

Once the new members are in place, DoD should ask for big and bold ideas in several key areas, including:

Think strategically about the future

• Technology and innovation: Given finite budgets, how best to evaluate, choose, and scale a plethora of new technologies and new operational concepts?
• Business practices: Examine and explore entirely new ways of building commercial partnerships and influencing the private sector.
• Policy: Ensure we understand our adversaries and how they are fusing together military, economic, and private markets to challenge us. What issues require educating Congress and DOD leadership?
• Human capital: How should we reshape the DoD’s personnel architecture to attract more technologists and fit into today’s more sclerotic career paths?

Finally, DoD leaders should ask for more than ideas; they should engage and lead the boards. They should set high expectations for engagement and implementation, and work up and down the chain to ensure recommendations are achievable. Do we need new authorities, laws, organizations? Do we need to reprogram existing budgets? Acquire new ones?The boards should report to the principals of their sponsor organizations, who should regularly review whether the boards have delivered real value to the mission.

Americans are ready to answer the call to service to help the DoD and the nation reform and strengthen.  The Biden Administration and DoD leadership have the rare opportunity to completely rethink and reset its Advisory Boards.  Successfully taking on this challenge will not only repair strained ties between the public and private sectors but is essential to the future defense of our nation.

Lessons Learned

• Flush all the political appointees from the advisory boards. (Update: Done- fired everyone not just the new appointees..)
• Replace them with people with the experience and expertise needed to help the U.S. keep its competitive edge
• DOD leadership needs to ask and act for transformational, contrarian and disruptive advice
  • And ensure they have the will and organizations to act on it
• Move requests for advice for incremental improvements to the consulting firms that currently serve the DOD

Filed under: National Security | 5 Comments »