GAO Urges DOD to Differentiate Management of ‘Disruptive’ and ‘Incremental’ R&D

On June 29, the Government Accountability Office released a report comparing the Defense Department’s innovation investment and management strategies to practices in the private sector. In preparing the report, GAO reviewed DOD S&T projects and procedures and interviewed officials at Amazon, Dow Chemical, Honeywell, General Motors, IBM, Qualcomm, Siemens, and Valvoline.

GAO conducted the report to comply with language in the conference report accompanying the fiscal year 2012 National Defense Authorization Act, which directed the GAO“to conduct a holistic review of the Defense S&T enterprise, including its investment strategy, technology development and transition activities.” The report follows an earlier study of DOD’s technology transition practices that GAO released in 2013.

GAO: Industry distinguishes ‘disruptive’ and ‘incremental’ innovation

GAO found that in industry it is considered best practice to manage R&D projects differently depending on whether they are “disruptive” or “incremental” in nature.

According to GAO, incremental innovation aims to benefit existing product lines and generally constitutes about 80 percent of companies’ R&D expenditures. Incremental projects tend to command higher budgets and are closely managed. Managers of such projects engage stakeholders both inside and outside the company from an early stage to ensure the end technology will satisfy customers’ requirements.

Disruptive innovation, by contrast, does not serve specific product lines and might ultimately displace them. Consequently, in its early stages, it tends to proceed within dedicated research centers, independent of business-unit input. Companies support it to buttress their long-term viability, in some cases with low-level funding and in other cases with the resources necessary to expedite progress toward distant technological goals. GAO reports that industrial research groups eventually produce initial prototypes to attract business interest and then undertake rounds of advanced prototyping to develop technologies into viable products.

‘Cultural barriers’ between S&T and acquisition hinder innovation

GAO observes that, while some DOD practices are similar to those in industry, the department has not adopted industry’s distinction between disruptive and incremental innovation. For this reason, DOD does not explicitly balance its investments between incremental and disruptive projects, nor does it tailor projects’ management based on the distinction. Instead, DOD manages projects based on the “maturity” level of the projects’ technology and the current scale of investment in it.

According to GAO, there are significant “cultural barriers” separating technology development at DOD from product development. It points out that technology development activities are handled through organizations, such as DOD labs, that are funded through the early-stage, research, development, test, and evaluation (RDT&E) accounts — 6.1, 6.2, and 6.3 in DOD shorthand, and collectively known as the “science and technology” (S&T) accounts. Product development, meanwhile, is handled by the DOD acquisitions community, which is funded out of the later-stage RDT&E accounts, 6.4 through 6.7.

GAO found that R&D projects funded by the DOD acquisitions community often receive stakeholder input similar to that provided in industry. However, R&D projects initiated and funded from within the S&T community do not. Although S&T officials “may consult with potential customers in the acquisition community to gauge interest before starting a project or to present results after it is complete, … those customers are not part of the development team.” Moreover, once projects transition into product development, S&T organizations “do not transition scientists and engineers along with the technologies they developed to the acquisition program.”

GAO also reports that S&T officials, who lack access to advanced component development and prototypes (6.4) funding, often do not develop advanced technology prototypes. This, GAO suggests, leads to scenarios where the acquisitions community takes responsibility for technologies too early and must mature them on its own, contributing to cost growth, schedule delays, and performance shortfalls.

As to fostering disruptive innovation, GAO finds that although there is a gap between S&T and acquisitions, S&T officials are nonetheless strongly incentivized to initiate projects that are “roadmapped to requirements” defined by the military’s capability needs. This constrains officials from proposing potentially disruptive projects, though GAO notes that the Navy divides its S&T budget into “strategic buckets” to ensure a balance between short-term and long-term projects. GAO also notes that, while DOD labs also use discretionary “Section 219” funds to initiate off-roadmap projects, these funds must serve competing priorities and that labs do not always fully use the permitted amounts.

GAO spotlights paths to instituting new practices

In examining why DOD manages innovation the way it does, GAO notes that in addition to the cultural gap between S&T and acquisitions, the department also must structure its decision making according to its Planning, Programming, Budgeting, and Execution (PPBE) process. Built around the congressional appropriations cycle, PPBE imposes a project approval process that can last almost two years between proposal and execution. This demands that project planning abide by defined requirements designed to facilitate congressional oversight. However, GAO points out that it also hinders the flexible decision making that characterizes industrial innovation management.

GAO emphasizes that there are parts of DOD where alternative models prevail. It spotlights the $3 billion Defense Advanced Research Projects Agency as employing practices similar to those in industry. DARPA’s projects, GAO observes, are geared toward disruptive innovation and are “generally not tied to existing DOD weapon systems or a specific military department requirement.” GAO also points to newer, smaller service-level initiatives: the Army Technology Maturation Initiative; the Air Force Strategic Development, Planning, and Experimentation Office; and the Navy Rapid Prototyping, Experimentation, and Demonstration Initiative.

GAO regards DOD’s forthcoming appointment of an under secretary of defense for research and engineering position to be an opportunity for DOD “to rethink its policies that govern technology development.”

DOD, though, in its response to GAO, refrained from making any commitments concerning the responsibilities of the new under secretary. Prior to the congressional mandate enacted in December 2016 to create the new under secretary position, DOD had opposed removing responsibilities for technology from the current under secretary for acquisition, technology, and logistics. It argued the split would disrupt the interaction between technology development and acquisitions necessary to implement new technology quickly and effectively.

As part of its Third Offset Strategy, DOD is currently working to more rapidly transition game-changing technologies from development into acquisition, including through more vigorous prototyping. As part of its efforts, in the last two years DOD has opened small offices to build contracting relationships in regional innovation hubs, and it has established a new Defense Innovation Board to advise on how it can become a more technologically agile organization. This emphasis on near-term technology implementation may exist in some tension with the GAO report’s emphasis on long-term disruption.