Military procurement in a digital age

Military organizations are learning to procure in a digital age through procurement-focused organizations and alternative transaction authorities. Though innovation units or other procurement-focused organizations and new transaction authorities help, they can’t solve the fundamental problem. Indeed, the popularity of these approaches might suggest the larger problem of outdated procurement processes persists.

Solving for old procurement methods will likely require militaries and government procurement organizations to undertake wholesale change through new laws and defense authorities. But crafting and passing new laws and changing large organizations will take time, time that risks national security and that militaries can’t afford.⁴ Military procurement leaders should find alternative ways of solving the procurement problem short of wholesale change.

Solutions to managing change includes:

• Adjusting procurement culture so that it can reflect an appreciation for new industry incentives and the need to use the latest or different procurement tools, like alternative transaction authorities and innovation units, to develop new industry relationships.
• Understanding a military’s place in the market (e.g., its actual, not assumed, buying power) and adjusting traditional risk postures accordingly. For example, a military’s buying power and risk tolerance could be different for commercially available software compared to bespoke software or hardware (e.g., new munitions).
• Providing new tools that allow procurement personnel to understand and navigate existing complex procurement regulations. These tools should also provide a system for sharing procurement knowledge across the organization that informs what is being bought or invested in, how, and to what end.

Two factors driving military procurement change

1. Changing nature of what militaries buy is increasingly digitally defined or digitally dependent, which affects procurement timelines and relationships.
2. Commercial products are becoming increasingly important to militaries, but militaries may not be seen as equally important consumers to commercial companies (and militaries may not understand their positions in these markets).

Some challenges to change military procurement

As militaries become more dependent on digital technologies and systems, they also become increasingly dependent on the commercial companies that produce those things. Increasing dependence on commercially produced digital systems is important for modern militaries given the advantages and efficiencies these systems offer. Yet, to more effectively benefit from digital capabilities, militaries will need to be able to procure them at relevant speeds.

Buying at the speed of digital relevance

Militaries are increasingly dependent on software and other digital systems for just about everything they do. From command and control to weapon systems, health care, and everything in between, software of some sort is required.⁵ More than just software, military hardware is increasingly built around the digital environment. Take, for example, the F-35 fighter aircraft, adopted across 17 western militaries.⁶ The F-35 is more than just a fighter aircraft; it’s meant to serve as a digital gateway for mission information.⁷ The aircraft’s helmet is even predicated on digital technologies, including an augmented reality display.

It’s not just advanced military-specific capabilities that rely on digital system. Following Russia’s invasion of Ukraine, Ukraine adopted commercial drones, smart phones, and consumer satellite communications as critical capabilities.⁸ Even the ways militaries support military families and other noncombat needs is increasingly reliant on digital tools.⁹

Adoption of digital capabilities helps militaries to accomplish their mission more effectively, just like they help commercial companies, universities, or other government agencies improve services and performance. A challenge, however, is that digital technologies often change more quickly than militaries are used to changing their equipment.

The example of the B-52 bomber is a unique one because few military capabilities operate for as long as the B-52 is planned to. Yet, even on far shorter timelines, most military equipment operates far longer than the average life or upgrade cycle of digital technologies today.

Commercial companies update key software and other IT systems every few years; consumer cell phone applications and models are updated on average every two years.¹⁰ Those timelines sit in contrast to the average procurement cycle for defense organizations. In the United States, major procurement programs for things like ships, tanks, or helicopters take on average 6.9 years from initiation to initial operating capability.¹¹ Meaning, the software selected for that major military program is likely out of date by the time the first equipment is put into use. The hull of a ship or airframe of a next-gen fighter doesn’t need to change as quickly as the associated software, so procurement should look differently for hardware and software.

To be sure, not all software militaries procure is out of date by the time it is put into service. Still, when militaries spend years detailing specific development requirements for software or treat software procurement like hardware procurement, acquiring the latest software and other digital systems is often challenging. One reason militaries can tend to struggle to keep pace is that fact that they aren’t the only—or necessarily even the highest profit generating—customer for the companies producing those products. Adjusting from being a product monopsonist to being just one of many consumers could prompt militaries to rethink procurement culture and processes.

The military monopsonist no longer

Militaries have typically procured products from commercial providers, but unlike in the past or with military-specific products, like tanks, ships, or weapons, militaries are no longer the principal buyer, nor are they necessarily leading innovation in many of the emerging technologies they require. According to one former US defense leader, 11 of 14 critical technologies identified by the Department of Defense (DOD) in 2022 were commercial.¹² The shift means militaries are no longer in the driver’s seat for many critical digital capabilities.

This shift changes industry and military procurement incentives, thus requiring militaries to develop new ways of building relationships with industry and new ways of buying industry products. Software is a good example of the divergence in incentives between industry and militaries. Where industry develops software quickly and efficiently to succeed, militaries often adopt a slow and methodical process to ensure what they buy fits strict performance and security requirements and regulations.¹³

Misaligned procurement incentives can create risk for commercial providers who find tedious, expensive, and time-consuming military procurement processes too risky for their business.¹⁴ The “valley of death” is a term used to describe the long wait time—too long for some companies to stay in business—between initial military funding to develop a prototype and funding to produce that prototype at scale.¹⁵ When industry finds it too risky to work with militaries, militaries may miss important innovations.

Accordingly, it can be increasingly important that militaries understand the incentives, cultures, and processes of commercial companies. Changing how militaries think and operate to accommodate industry incentives and processes can be tricky when current acquisition processes and culture are of an industrial era.

Adjusting to a new position in the market—as one buyer of many—asks militaries to reevaluate their buying power and adjust procurement risk tolerance accordingly. For instance, being a monopsonist of a weapon system affords a military a lot of buying power and the opportunity to be risk-averse because militaries are in the driver’s seat of that particular market. Conversely, when a military relies on commercial products influenced by other market segments, militaries may need to be more risk-tolerant because they will be competing with other customers for business. Limiting risk and understanding buying power often require better collaboration between acquisition officials and industry.

Better collaboration can also help militaries to reevaluate some incentives that drive decision-making within procurement organizations. New ways of procuring or adjusting risk-tolerance may not be effective if the incentives driving procurement decisions favor neither. Thus, alternative procurement methods should be accompanied by alternative incentives.

Innovation units to the rescue?

When military procurement organizations struggle to buy digital systems, they then need to create new ways of procuring what they need. For many militaries new ways of getting digital technologies have come in the form of new acquisition organizations. The purpose of each is to help foster collaboration between militaries, industry, and academia to find and fund new innovation with military value. Important to these organizations is different procurement cultures and processes, like the use of other transaction authorities (OTAs), co-location with industry, and flexibility.

US Special Operations Command (USSOCOM), for instance, created a unique capabilities and acquisition process. It includes nine Program Executive Offices, including one created in 2020, SOF Digital Applications, to help USSOCOM invest in the right digital technologies. Speed is at the center of USSOCOM’s initiative. It leverages more collaborative approaches to keep stakeholders closely coordinated to facilitate faster decisions.¹⁶ USSOCOM’s re-design of its procurement structure and processes has, in many cases, cut its requirements processes to a matter of weeks compared to years for many DOD entities.

Similarly, the US Defense Innovation Unit (DIU) was created to change how the military acquires key capabilities and resources. Key to both DIU and USSOCOM’s approach are novel uses of transaction authorities, like OTAs, that allow government entities to award contracts to companies developing prototypes without going through the traditional acquisition process. Additionally, viable prototypes can move directly to production without going through another competitive process. Using these authorities, from 2021 to 2022, DIU nearly doubled the number of dual-use technology projects they transitioned to military services from eight to 17, which equated to a total contract ceiling of $1.3 billion.¹⁷

The United Kingdom’s Strategic Command has undertaken several similar actions as the United States’ Defense Department with regard to buying in the digital age. The UK’s Defence Digital unit, which is led by a chief information officer, has the responsibility to provide “both direction and coherence in the development and exploitation of digital technologies across the whole of Defence and acts as the primary delivery agent for Defence core digital systems and services”¹⁸—in other words, acquisition of digital technology.

Key to UK Strategic Command’s approach is jHub. jHub is a procurement innovation unit like DIU. It’s focused on products and services covering six areas, including AI, autonomy, data analytics, simulation, behavioral sciences, and blockchain, that are market or near-market ready and that can be tailored to military needs.¹⁹ When jHub is fairly certain it has found a good match, jHub then has “the empowerment and delegated authority to enable it to seize high risk – high reward opportunities, taking more risk than the wider [Ministry of Defence] typically would,” which results in pilot projects lasting only 1–6 months.²⁰ If a pilot is successful, then jHub presents it to a board within Strategic Command and, if approved, it becomes equivalent to the US Defense Department’s program of record.

One strategy of many of these innovation organizations is to foster new relationships with industry to better understand industry incentives. Just as venture capital firms open offices in Silicon Valley to better connect with high-tech firms, so too are military innovation organizations. DIU created offices in American cities known for their high-tech ecosystems – Mountain View, CA; Austin, TX; Boston, MA; Washington, D.C., and Chicago, IL. In April 2023, the UK’s Strategic Command opened a new office literally on the campus of Imperial College–London. This office is called the Central Collaboration Space and its location is intended to facilitate collaboration between defense officials, academics, and private industry to “enhance co-creation and co-delivery.enhance co-creation and co-delivery”²¹

There are many ways this could be done across militaries, but one way is to put end-users and members of the defense industrial network in the same room together rather than users throwing their needs over a fence to acquisitions officials who then throw their requirements over a fence to industry while programming and budgeting officials develop multiyear plans. The importance of co-location is about removing barriers, such as communication and process knowledge necessary to sell to governments, that make procurement challenging for industry and militaries.

More than just co-location, many of the processes these innovation units adopt are designed to make cooperation between military procurement officials and industry easier. Procurement organization’s unique and flexible application of OTAs can increase the willingness of industry to engage with them. For example, the way DIU leverages OTAs helps solve industry’s need to move more quickly from prototype to production to avoid the valley of death. At the heart of both co-location and novel processes is the goal of making defense procurement more collaborative and flexible.

Military procurement organizations around the globe are taking steps to create more focused, collaborative, and speedy acquisition organizations and tools. While these are useful steps, the growth in acquisition-focused organizations doesn’t fix the broader procurement problem. For instance, DIU, despite all of its success helping DoD acquire necessary products more quickly, represents less than 1% of DoD’s procurement budget.²² Indeed, such organizations and alternative acquisition authorities are often limited in scope and purpose.

Moving forward

The shift toward increasingly digital technologies necessary for modern warfare isn’t likely to slow down, but rather intensify as new technologies, like AI, quantum, artificial and virtual reality, and others, become more common. Efforts to improve military procurement through innovation units and use of new transaction authorities can be helpful, but they may fall short of more complete change. While some militaries and governments do require more comprehensive reforms to change procurement, there are additional things that can be done today to enhance how militaries buy digital capabilities. They include:

Adjusting military procurement incentives to align with industry. The dichotomy between industry and military procurement often leads to some misalignment in incentives. When militaries aren’t the most important consumer of industry’s technology, militaries may need to be the ones to change. As a result, militaries should consider:

• Changing procurement incentives to align with industry by being receptive to ever-evolving industry interests,
• Identifying bridgebuilders who can span both industry and military procurement, and
• Expanding collaboration opportunities beyond innovation units (or direct more resources and reasonable authorities to innovation units).

This means militaries should be open to thinking inventively about procurement processes, how they engage with industry, and the talent they develop to improve procurement. This will likely require culture change across the military so that familiar procurement practices aren’t the default but one of several approaches.

Providing tools to improve procurement processes and collaboration. The complexity of procurement regulations can stymie attempts to procure in new ways. Indeed, understanding such complex rules often continues to challenge procurement leaders. Similarly, siloed approaches to procurement between military services and organizations can lead to inefficiencies and siloed institutional knowledge. Military procurement organizations should adopt tools that improve procurement personnel’s understanding of processes and enables a more collaborative procurement environment, including:

• Generative AI tools trained on procurement regulations that offer procurement personnel with efficient resources to ask questions and better understand the art of the possible. Such a tool should be developed for the entire military, not just a single service’s procurement, and be accessible to industry so knowledge is shared between militaries and industry.
• Shared procurement collaboration and knowledge tools that can provide a common operating picture of procurement programs large and small while also helping militaries share resources, learn collectively, and improve procurement approaches beyond siloed innovation units.

For militaries to continue accelerating their ability to buy in the digital age and stay ahead of ever-shifting defense challenges, they should continue to improve their acquisition systems. From a 50,000-foot view, this means continuing to imagine a better system, engaging with stakeholders earlier in the process, aligning incentives, and adjusting culture.