The Pentagon's Next Challenge: Winning Silicon Valley

Ready for some competition?

Photographer: SeongJoon Cho/Bloomberg

With a month to go before he assumes responsibility for the U.S. military, President-elect Donald Trump is already demonstrating his aggravation over runaway costs. Recent tweets have targeted the high price of not just Air Force One, a relatively minor project, but also the new F-35 fighter, the largest defense contract in history. He’s also called for a lifetime ban on top military officials going to work for defense contractors.

Trump’s complaints have a superficial appeal: Weapons contracts are chronically late and over budget. And the revolving door between the Pentagon and the primary defense contractors looks unseemly; most recently, retired Gen. Mark Welsh, a former Air Force chief of staff, took a board seat at Northrop Grumman, which is building the next long-range stealth bomber.

But closing off that door would be counterproductive. Defense firms need people who understand the military’s requirements and bureaucracy. As for runaway costs, Congress has already moved the Pentagon toward fixed-price contracts that hold builders more responsible for coming in on budget, and has decentralized the buying process, giving the individual services more budgetary freedom -- and thus more responsibility to limit overruns.

These moves should improve efficiency to some extent. Saving truly big money and substantially speeding production will require more radical change: Contracting needs to be less focused on the military-industrial base and more on Silicon Valley. As the Pentagon moves to smaller, higher-tech weapons such as drones, improves battlefield communications and global surveillance, and enhances its cyber-hacking abilities, it makes more and more sense to contract with tech firms for hardware that might not be designed exclusively for the military.

This shift has already begun. Since 2010, the share of contracts for new programs going out to so-called specialist companies, as opposed to Lockheed-Martin, Boeing and other prime contractors, has nearly doubled. But the military has much farther to go to develop the metabolism of a Silicon Valley startup, where progress is measured in days and weeks rather than years and decades.

The tech world itself has been part of the delay. Some companies have been hesitant to work with the military; in the aftermath of Edward Snowden’s leaks about government surveillance, some have considered it poor branding or bad customer relations. Others are turned off by the military bureaucracy. Yet the military has many incentives to offer, from its stable multiyear contracts to its willingness to pay research and development costs up front. In any case, the tech giants should accept their responsibility to work with the government, given the benefits they reap from working within the American economic system. The internet itself -- the foundation of their wealth -- was made possible by the U.S. military’s Arpanet project.

To help move the cultural shift along, Congress has given the military new powers to streamline the contracting process. Overcoming defense leaders’ ingrained habits is not easy, but some creative thinkers at the Pentagon have been pushing for a leaner, futuristic approach to military operations. They envision using man-machine cooperation, artificial intelligence and autonomous hardware to gain battlefield advantage over nonstate actors such Islamic State and to disrupt the abilities of Iran, Russia and other military powers.

As a model for how to better engage with the tech world, the military can look to the intelligence community. The CIA funds a quasi-independent venture capital entity called In-Q-Tel, which has investments in about 200 companies whose products could be useful for intelligence. In 2014, the CIA brokered a $600 million deal with Amazon to use its cloud storage service, and is now looking into using Amazon’s marketplace to simplify the spy agencies’ software acquisitions. Tech luminaries Jeff Bezos and Elon Musk -- through the deals between NASA and their commercial space companies, Blue Origin and SpaceX -- have also demonstrated how partnering with a government agency can be win-win.

When James Mattis, the former general tapped by Trump to be defense secretary, appears before the Senate for his confirmation hearings, he will inevitably be grilled on the Syrian war, his global counter-terrorism strategy, and civil-military relations. Lawmakers should also measure his enthusiasm for bringing the military further into the information age by partnering with the most dynamic U.S. companies. Protecting America’s primacy in a high-tech world depends on it.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.