Wednesday, June 17, 2015

Industrial Hubris

Breaking Defense website had an article that just infuriated ComNavOps.  Apparently, Boeing has warned the Pentagon about pausing or reconsidering acquisition programs.  Boeing has threatened to spend less of their own money on military projects unless the military continues along Boeing’s designated path.  Read the relevant quotes for yourself,

“The Pentagon’s decision to pause as it reconsiders what path to pursue with the drone fighter known as UCLASS prompted Boeing to send a warning note today that the US military had better keep its commiitments if it wants companies to invest their own money in new technologies."

“Asked about the program today, Boeing’s Chris Raymond noted pointedly that his company ‘had spent a lot of time, and frankly, a lot of money on UCLASS over the years. We were — in our minds — in a great place,’ he told reporters at a briefing in the company’s headquarters … ‘It was disappointing to see them pause.’”

Where to start?

Well, first, the US military does not exist to ensure the profitability of Boeing or any other company.

Second, any company is free to spend their money on whatever internal projects they deem most likely to be of benefit TO THEMSELVES.  If spending money on potential military projects is helpful to Boeing then they’re free to do so.  If spending money would not be helpful, they’re equally free to refrain from doing so.  How they spend their money is of no concern to the US military.  Let’s be very clear, here.  Boeing does not spend money on internal projects out of a sense of patriotism or civic duty – Boeing spends money on internal projects because they believe it will give them a competitive advantage and enable them to make more money.

Third, the military needs to break the cycle of taking whatever new product that industry gives them rather than clearly defining a product and then asking industry to build it.  Boeing (and every other company, to be fair) offers the military products that are financially beneficial to Boeing.  That the product may or may not suit US defense needs is a side issue to Boeing.  Make no mistake, they would sell a useless product to the military if the military would buy it (anyone want an LCS or F-35?).

Fourth, the military issues untold millions of dollars to companies to conduct DIRECTED research.  If private companies opt to conduct research on their own, it’s on their own heads whether it ever pays off.

Fifth, this is a blatant example of precisely the type of unwarranted influence by the Military-Industrial-Congressional Complex that Eisenhower warned us about.  When companies feel free to dictate to the military how to run their acquisition programs then those companies have become too powerful and need to be slapped down.  Perhaps the military should start focusing on smaller companies and let the larger ones die?

Sixth, the military should instantly stop issuing contracts to Boeing.  There are other companies that can do the same job.  Sure, the other companies are, undoubtedly, just as bad but they have at least had the good sense not to publicly demonstrate their hubris.

This demonstrates a very sad state of affairs.  Now, to be fair, the military is hardly blameless in this, having willingly gone along with the entire situation.  Unfortunately, the practice of Generals and Admirals retiring and then taking seats of the Boards of these companies precludes any attempt to break the stranglehold of industry on the military.

Well, this is all very unfortunate and ComNavOps has every right to be upset but does he have anything to offer other than handwringing?  Yes!

The military needs to immediately reestablish its own internal design competency.  For the Navy, that means reestablishing the General Board and BuShips (see, General Board and BuShips).  Breaking the stranglehold of industry starts with being able to generate internal designs rather than depend on industry to give us what best serves their needs rather than the military’s needs.  Once we can generate our own requirements and designs, we can then parcel out the actual building under much smaller, separate contracts rather than the single, massive contracts that are issue today.  This approach offers the ability to break the project into smaller packages and opens up competition to many other, smaller, specialized companies.

Now, before I get the usual bilgewater from industry apologists who insist that we can’t risk losing the industrial base or upsetting our industrial “partners” or losing our technical expertise, let me remind you of the example of Gates and Microsoft.  IBM wouldn’t, or couldn’t, respond to a market need so Gates simply started what would become a new giant of industry.  Similarly, if Boeing is no longer responsive to the military’s needs, let’s find the next up and coming Microsoft and start funneling contracts to them.

Jobs (and expertise) are neither created nor destroyed, they simply move.  If Boeing dies, all their personnel and expertise will simply move to the new company(s) that takes their place.  Sometimes drastic change is good.  Most of us agree that Microsoft was a good thing.  Perhaps it’s time for some drastic change in the defense industry.


(1)Breaking Defense, “Boeing To Pentagon: Be Careful When You Pause IRAD Programs”, Colin Clark, June 14, 2015,




22 comments:

  1. Personally, I think Boeing is right to warn the military about this. The military benefits from R&D programs that are partially funded by the companies running them. However the company is throwing money away if the military has no intention of following through with the program.



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    1. Agreed. Unless company funded R&D has multiple forks that can be exploited by new products, it is risky to invest company funds into projects that go nowhere. There needs to be a good level of certainty that investment will lead to profits - that is capitalism. The DoD needs to be very clear about where they are headed so companies can make practical / strategic investments in R&D.

      As for reestablishing internal design bureaus, that makes sense - except it creates more bureaucracies...

      As far as ousting Boeing as a defense contractor, that would narrow the field even more, forcing us to rely on low-performing mega contractors like Lockheed Martin - who is doing a bang-up job with the F-35.

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    2. At the risk of repeating the post, if the military feels obligated to acquire certain products just because a supplier devoted some internal money to it, then the military is doomed to pursue unproductive paths.

      THIS IS THE TAIL WAGGING THE DOG!

      Suppliers are under NO obligation to spend money on internal R&D. If they choose to do so and it doesn't pan out ... tough luck.

      This is exactly why we're saddled with the LCS and F-35.

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    3. For UCLASS, the military is under no obligation to acquire anything yet. No winner has been chosen.

      There are a couple companies developing R&D prototypes. If the Navy ever intends to restart these programs, pausing this R&D effort wastes a lot of money and causes all kinds of internal havoc with the companies involved. Boeing has to figure out what to do with the staff and facilities dedicated to this project during the pause. They can't just tell em all to go on vacation. Boeing can't afford to let them just sit around. If it lasts any length of time, Boeing will either have to find work for these people or lay them off. Once this happens, restarting their UCLASS R&D efforts becomes MUCH harder and more expensive.

      You rail against rising prices of military programs, yet this type of thing is a main contributor. Constantly changing requirements, timelines and funding levels and frequent stop/starts plays havoc with programs.

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    4. The Navy benefits immensely from having a competitive industry willing to spend its own money to help move projects forward. Frequent start/stop/direction changes will change the industry's risk-reward calculus. They will be more reluctant to put their own skin in the game and the Navy will have to foot a larger percentage of the bill.

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    5. "... the Navy will have to foot a larger percentage of the bill."

      Actually, the Navy will foot a smaller percentage of the bill if a company is less willing to put its own money in. Make no mistake, every dollar a company puts into ANY research, whether ultimately used or not in a given acquisition, is reimbursed by the military in the next contract.

      To offer a simple example, if Company A invests in speculative R&D on a new wheel and a new radio but only the wheel is used in the next acquisition, the costs of the radio R&D will be included in the company's contract bid. So, the military pays for ALL R&D whether it is used or not.

      Thus, the military actually pays a bit less if speculative R&D is not performed and only the REQUIRED R&D is performed.

      Is there a benefit to speculative R&D for the military? Possibly, but not if it handcuffs the military's flexibility in choosing procurement paths.

      See the next post.

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    6. "Make no mistake, every dollar a company puts into ANY research, whether ultimately used or not in a given acquisition, is reimbursed by the military in the next contract."

      Not so sure about that.

      The company may ultimately make money if their design wins, but they won't necessarily get to bill the government for money they spent on R&D.

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    7. C'mon, Smitty. You know how companies work. ALL of their overhead, R&D included, gets rolled into the hourly (or fixed price contract) costs that are charged to the military during the execution of a project. If not, the company would lose money and eventually go bankrupt.

      The cost of an executive's bathroom commode is paid by the military as is every other cost incurred by a company. Those costs are what go directly into the contract bids.

      You know this.

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    8. No actually i don't. I've worked on IRADs that never got billed to a client.

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    9. IRAD??

      Regardless, every expense incurred by a company gets billed directly or indirectly. There may be an isolated project in which a company opts to bill less than the incurred cost (loss leader type projects, for example) but that just means that the next customer will get billed more than their cost.

      If you really don't get this then you need to read up on how product pricing occurs. I'm pretty sure you know this.

      As a matter of fact, not only do military suppliers cover all their costs in a military contract, they add a substantial profit and "contingency" factor specifically to allow for the military's well know confusion. Again, you know this.

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    10. Textron recently developed the ScorpionJet with the eye towards selling it as an inexpensive COIN aircraft to the USAF and various other countries.

      Textron did so with notion that they could recoup the development costs after X units are sold. They certainly hope to recoup the costs, but the launch customer won't pay for the entire development program.

      The Boeing situation is different. Boeing is just one company hoping to win the UCLASS production program. They probably aren't even the favorite. They may never see those dollars back.

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  2. Something I think you hit very well on the head, competing seperately in regards to design and production. The problem with bundling these together is theoretically you can only get the combination that is the best mix of these. However you will likely find the company with the best design is seperate from the company that can produce things the most efficently..

    This segregation of industry is very important. Additionally it brings up the issue that there is a much larger cost if you have to have a factory and design the thing. This prohibits much competition. Same with closed standards.

    Additionally, something you didn't mention, lead-times need to come down, programs like the F35 program can't take 20+ years, it should be a very short time to integrate the components into a functional system and adequately test it!!! There is no excuse as to why it takes 20+ years to integrate common systems. And where they are not fully developed (like a new radar) they should opt for using older kit untill the new stuff can be fitted..... And things like the engine for instance, they should not have ruled out the competitor like that. It's good to have options in the supply chain!

    When you have competition like that, it keeps a check on them.

    _____________________________________________________________
    About lead times, designers should be able to sketch out plans (which integrate existing systems, or technology with a high readyness level) very quickly. In a basic form. Then they should be able to start basic feasibility testing and refine to a schematics very quickly.

    I am not talking about inventing a new powerplant or anything like that, I am talking about sketching out a design for something like a ship, or a fighterplane, which integrates existing systems.

    And these concepts should constantly be developed, especially in response to any change in technology. As the navy and whatnot should be forward thinking, thinking about impacts of new technology on ship design and warfare for instance, and relating that back to doctrine. So that it is not surprised by changes, and can be at the forefront of innovation.

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    1. "Additionally, something you didn't mention, lead-times need to come down, programs like the F35 program can't take 20+ years, it should be a very short time to integrate the components into a functional system and adequately test it!!! There is no excuse as to why it takes 20+ years to integrate common systems."

      Anon, you may be new to this blog. If so, welcome. We've previously discussed the reason for the 20+ year development of the F-35 and the reason is because the bulk of the technology did not exist when the program began. The 360 deg sensor fusion and magic helmet were non-existent technology. You're correct that integrating "common system" shouldn't take long but these were not common systems - they were non-existent, technological fantasies.

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    2. I'm not quite clear why

      "Unfortunately, the practice of Generals and Admirals retiring and then taking seats of the Boards of these companies precludes any attempt to break the stranglehold of industry on the military."

      Is it that the Admirals & Generals have a trade union that takes precedence over the duties of serving officers? Or that the US accepts that senior officers are corrupted by their prospect of future jobs? Neither of those seems at all reasonable. Or is this an excuse for politicians' keenness to spend the country's money on companies in their home states?

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    3. John, I'm not clear about what you're unclear on? Are you asking why they take those positions? Or, are you asking why it's a problem? Something else?

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    4. I'm asking why it is that employing Admirals and Generals is so effective for companies that want to influence the military. So much so that it "precludes any attempt to break the stranglehold of industry on the military."

      Are serving officers constrained to do the bidding of retired officers by some means? If this were so, would it be legal?

      Are serving officers motivated to do as the companies want because of the prospect of a high-paying job in retirement? If so, why is this not corruption?

      Or are the officers' in-group arrangements used as an excuse by politicians seeking pork?

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    5. John, the second one. It's a conflict of interest to expect Generals and Admirals to hold their future employers accountable and it's unrealistic to think that the companies don't let it be known that the prospects for future employment are dependent on current behavior.

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    6. Are there any restrictions on activities that create a conflict of interest in US government service? The UK, for example, has restrictions on government employees, of any kind, taking jobs in areas where they've had dealings on behalf of the government.

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    7. None that I'm aware of. Hence, the problem.

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    8. CNO, you are spot on and kickingass.
      This comment below by annon could not back you up better. In a time of war this is how it would be done.
      I have studied your website and created a warship
      within the parameters presented here.
      "Shark class submersible sub". I posted it here 20 months or so ago during a similar argument..
      I researched and designed this hybrid ship in less than 6 months.
      The Quote.....................
      About lead times, designers should be able to sketch out plans (which integrate existing systems, or technology with a high ready ness level) very quickly. In a basic form. Then they should be able to start basic feasibility testing and refine to a schematics very quickly.

      I am not talking about inventing a new powerplant or anything like that, I am talking about sketching out a design for something like a ship, or a fighterplane, which integrates existing systems.

      And these concepts should constantly be developed, especially in response to any change in technology. As the navy and whatnot should be forward thinking, thinking about impacts of new technology on ship design and warfare for instance, and relating that back to doctrine. So that it is not surprised by changes, and can be at the forefront of innovation.

      sir Annon, you are truly wise and insightful.
      CNO may get jealous!


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  3. The situation with UCLASS is the perfect example of a complex weapons system where an aerospace company must carefully weigh the upsides and downsides of putting their own cash into a future technology.

    The elephant in the room with a UCLASS version which is a unmanned replacement for the F-35 is the current lack of an integrated Comm-Link / Artificial Intelligence hybrid control system which can allow the aircraft to survive a constantly fluid combat environment deep inside a high-threat A2/AD battlespace.

    Suppose that one of the major aerospace companies believed that it had within its own organization the talent and the resources needed to develop a proprietary solution for an integrated Comm-Link / Artificial Intelligence hybrid control system which could allow an unmanned UCAV to survive inside a constantly fluid combat action environment deep inside a high-threat A2/AD battlespace.

    In deciding whether or not to independently fund this work themselves, some important questions would need to be answered.

    Should this aerospace company marry their proprietary control system to their own proprietary UCAV airframe? (This might be necessary, for example, if a specific airframe shape and configuration was a necessary integral component of the proprietary comm link system.) Should they license their control system to manufacturers of competing UCAV airframes? Should they sell the intellectual property of the UCAV control system lock stock & barrel to the government at a price which recovers their investment and includes a substantial markup which is valued according to the long-term worth of the control system to the government?

    If it is done that way, i.e., the aerospace company sells the intellectual property of the UCAV control system lock stock & barrel to the government, what kinds of post-sale restrictions are imposed on the intellectual property that comprises the integrated Comm-Link / Artificial Intelligence hybrid control system when it is used aboard a competitor's UCAV? Furthermore, how do you keep China from stealing the technology?

    I think there is an argument to be made for the government acting as its own system integrator for complex weapons systems like the UCLASS by using the aerospace companies and their partners merely as subcontractors for the various parts and pieces of the acquisition program, recognizing that the programmatic components of the program are as much a part of the final end product as are the hardware and the software components of the final integrated weapons system.

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    1. "I think there is an argument to be made for the government acting as its own system integrator for complex weapons systems ..."

      This presupposes the existence of sufficient in-house expertise in the military and forms the basis for my contention that the Navy needs to re-establish the General Board and BuShips. I don't know the state of the AF's in-house expertise although the F-35 program suggests that the expertise is either lacking or not being well utilized.

      Good comment!

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