When Defense Secretary Donald Rumsfeld latched onto the concept of military "transformation," few people were in a better position to profit from the move than Frank Lanza, chief executive of L-3 Communications Holdings. L-3 (LLL) is one of the major advocates of transformation and provides many of the key technologies that are helping create a networked military. Since its founding in 1997, the New York-based outfit has evolved under Lanza into a nearly $7 billion conglomerate, with expected 2004 net income of $380 million.
Lanza, who has rolled up dozens of technology startups at L-3, learned the art of consolidation while spending 15 years as president of Loral under legendary dealmaker Bernard Schwartz. Now, Lanza is busy creating a defense giant of the future, selling a wide range of products and services, including communications systems, sensor technologies, flight simulators, and training programs for U.S. and foreign militaries. And with pressure growing to cut government spending, many analysts think L-3's strategy of modernizing old systems is a smart play.
BusinessWeek Computers Editor Spencer E. Ante recently spoke with Lanza about the challenges and lessons of the Iraq War and the future of the network-centric warfare. Here are edited excerpts from their conversation:
Q: Military might helped the U.S. to quickly take over Iraq. But now the war isn't going so well, despite America's technological prowess. What mistakes has the U.S. made?
A: The war was won in two weeks. What we forgot is what we do post-war. And what do we do in a country that's not like Europe, where the people wanted peace? In the Germanys and the Frances of the world, they were not fragmented. We thought Iraq would be the same thing. We would raise the flag and everybody would celebrate and take the candy from us.
We didn't recognize that...you had three or four countries within the country, and they themselves couldn't get along. We didn't put in the kind of disciplines and capabilities post-war to solve the problem.
And maybe we learned you can have mobility and speed, but that's not good in certain areas. Maybe we should go in and conquer and restructure, and then move on -- as opposed to winning the battle and leaving the ruins [of several territories] which you have to reconsolidate all at once. There are certain situations when maybe you don't want to have an overwhelming victory and you want to take it step by step.
Q: What are some of the big projects you're working on?
A: We were fortunate enough to be [a vendor] in the market for ISR: intelligence, surveillance, and reconnaissance. That has become one of the sweet spots of the transformation. So we've expanded that dramatically by making acquisitions in that area.
L-3 is a major provider of all the secure communications that connect all of the intelligence assets we have in the battlefield. We have a program where we're the major subcontractor to Deep Water, the Coast Guard's answer to homeland defense. It's the total transformation of the Coast Guard, from catching contraband to probably the most important nonmilitary mission, protecting our ports and harbors. We're responsible for all of the communications.
Q: Is L-3 doing any training in Iraq?
A: We've been over there for two years now. We have people over there supporting the training of the Iraq militia. We're also training U.S. forces [which] have never been in combat [in] how to fight urban warfare. We're also providing convoy training. We've never had to worry about protecting a convoy!
Q: One idea being floated is that the U.S. should be outsourcing the training of Iraqi militia to other countries, such as Egypt and Germany, which have supposedly offered to help. What do you think of that?
A: I think it's good. The U.N. was supposed to participate in that, and they've been very hesitant. It makes a lot of sense for the Muslim world to train the Muslim world. You know the people, you know the culture, the language. We can train the trainers. In some cases, we're better off training the trainers, which is what we're doing.
Q: Are any other changes being made to improve training?
A: The problem we have is how do you provide security to the trainees? They're being intimidated. How do you have the intelligence to know which ones are on your side? The focus...now is to try to be more selective in the recruits, try to do more background checking.
We were training from the bottom up when we started. A lot of people didn't recognize that you can't just train an infantry man without leadership. Because what happens is the minute the first sound [of gunfire hits], everybody runs or they look to the leader. We're now focused on doing more leadership training of Iraqis themselves.
Q: What's going on with the transformation program?
A: We said you don't need a lot of new platforms [or major weapons systems, such as jet fighters, bombers, sea destroyers, and missile systems]. We can't afford new platforms either, by the way. We believe we need to take the platforms we have and modernize them.
We're now a major modernizer of the E2Cs that land on carriers, [the planes] that have that flying saucer [radar dish] on them for ship defense. We have a major program of billions of dollars to modernize the radar systems, to be able to use the radar over longer range, over land, over sea. And we're doing that with all of our major aircraft, which is a budget that even the most negative analyst will tell you is increasing.
Q: What did you take away from the recently passed 2005 defense budget?
A: The big story is going to be in 2006. We thought the transformation budget would start getting impacted on the platform side in 2005. But the Iraq War came, and it has been diverted. The Quadrennial Review will be completed next year. The military will decide what the structure is going to be, how much does the Army need in people, do we have a uniform budget for all three services?
Q: What kinds of technology changes is the military making to the transformation program?
A: The Army's new chief took the only major Army system it has...the Army's Future Combat System (FCS), and said that's a ridiculous program. He said, "I can't take, by 2008 or 2009, every vehicle and platform in the Army overnight and change it into something new. It's impractical."
Two, he said, "I am responsible for readiness. So I've got to take what I've got and modernize it. With the developments that come out of the FCS, I've got to put those new capabilities into the Abrams tanks." He wanted FCS, but it's too high-risk. He took $25 billion out of the budget and reallocated it to the modernization of the current Army.
Q: On a more basic note, there's a lot of discussion about the lack of armor in Iraq. What do you make of the controversy?
A: We forgot about low technology. We forgot what we are going to do [about] all these shoulder-fired missiles and rocket-propelled grenades that have been around for 45 years. We found out that we were trying to go away from all the heavy weapons for the Army and phase out the tank corps and go to lightweight mobile Stryker-type vehicles. We found out that having a heavy vehicle with a 120mm gun instead of 105mm, which is all they can carry on FCS, has a place. You can't just be all light or all heavy. There's a balance. That's what the new chief is doing.
Q: Can transformation be stopped?
A: The chiefs have bought off on it. The important thing is the chiefs of the services, all three of them, have bought on that they must transform to meet the new environment. No matter who becomes Defense Secretary, the culture has started, the change has started. A different Defense Secretary may choose one weapon vs. another -- they're always going to modulate it -- but the battle wave has started to move.