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Hasik, Arms and Innovation

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James Hasik, Arms and Innovation (University of Chicago Press: Chicago, IL, 2008)

MBA from University of Chicago, self-employed analyst, defense consultant
Want to know more? Read his blog!

Post-cold war multipolar security environment

Evaluation of the efficiacy of alliances between small arms industries

Case studies of business alliances

Why did we read this?
So we can be consultants
when we retire.

Central Proposition
147 – If technological advances are increasingly about dynamic recombination of existing technologies, then smaller firms may actually help produce clustered waves of the sort of continuous, incremental, recombinative innovation that can be particularly helpful in times of high uncertainty about future requirements.

Other Major Propositions.
8 – a smaller organization is simply not as bureaucratic as its larger competitors and can thus respond to changes in technological or market conditions more rapidly.
11 – an alliance of companies will only be ex ante more efficient than a single, integrated company if it offers the participants a superior combination of risk and return through: … considerable change with respect to processes and goals … moderate appropriability of intellectual assets … moderate expropriability of quasi-rents from specific assets
141 – Innovative, widely adaptable products and clever operational methods are often the way to solve problems that have defied purely technological solutions.
148 – At a minimum, do no harm to small firms. … Experiment, experiment, experiment with novel applications and combinations of weapons and platforms. … Invite industrialists to help define requirements … Stiff-arm requirements creep.
151 – Small firms will be needed for component-wise innovation, to produce leading-edge materials, and to develop novel solutions to vexing problems. Larger firms are needed to integrate multiple systems onto the more complex platforms and systems between platforms.

Chapter 1 – The Fast and the Many
2 – Alliances of small firms in the armaments industry have been hatched in large part to combine entrepreneurial drive with economic wherewithal, but managerial coordination was sometimes lacking with this approach.
3 – Today widespread disagreement exists over the drivers of military-technical innovation—whether these are endogenous features of the military requirements and funding process, or exogenous artifacts of purely technical innovation.
4 – small firms are often relatively advantaged in industries that are highly innovative but that are low in R&D intensity, and in which uncertainty about markets or future technological trajectories is high.
5 – The dissipation of the well-defined threat of the Warsaw Pact meant that many national governments lacked clarity about the exact purpose of many segments of their armed forces, and the amorphous nature of the transnational threats that arose further complicated force structure planning. Hence, the arms markets have been subject to considerable questions not just about technological trajectories but also about whether technologically possible weapons would be politically suitable.
6 – Small firms often have an advantage in industries that require a high proportion of skilled labor, and in which the production is more skill-intensive that capital-intensive.
6 – Small firms have an advantage in industries that are composed of a relatively high proportion of large firms, but that also have room for smaller competitors … when their products are subject to medium-speed learning curves.
9/10 – circumstances under which small fims in the arms industry will be relatively advantaged … how and when firms should consider alliances … sharing of risks and costs … economies of scale … access to markets
16 – If statistical studies are more reliable at telling us what is happening, then case studies are often more effective at telling how and why it is happening. (and sometimes not)

Chapter 2 – Dream Teams and Brilliant Eyes
24 – The Emperor Napoleon once famously quipped that if he had to fight, he preferred to fight against a coalition, as it lacked unity of purpose and command. These same tensions exist in commercial alliances and joint ventures. (and this book)
25 – the SBIRS project may have represented a case in which the limits of efficient inter-firm cooperation had been reached
27 – research indicates that the commercial success of defense consortia increases with the closeness of the commercial relationship and decreases with the number of firms involved.
28 – Assuming that the government does not wish to repeat its SBIRS Low experience, the Pentagon might appreciate closer management in the future from both its satellite SPO and single integrated contractors. (brilliant deduction Watson)

Chapter 3 – Unmanned, Unafraid, and Underscoped
34 – The real problem had been command and control of automated systems … What changed … was the demonstrated availability and value of high bandwidth satellite communications, computerized mission planning and rehearsal systems, and satellite (GPS) navigation.
44 – While this is neither surprising nor unfortunate, UAV adoption in the USAF may have proceeded more slowly than necessary due to an institutional bias against unmanned aircraft
46 – Scale and scope are frequently touted as essential in assembling the systems of warfighting systems that defense ministries increasingly seek. Today, however, many of these capabilities are available to considerably smaller contractors who have the skills needed to integrate the components into platforms or larger systems.
53 – the development of command-and-control systems that can operate any type of unmanned vehicle and permit uninhabited sharing of information collected from various unmanned vehicles is the industry’s holy grail. (and I’ll finance a start-up for anyone willing to try)

Chapter 4 – Five Bombs in One Hole, and Cheaply
63 – Simplifications of regulatory requirements were permitted by the Federal Acquisition Streamlining Act of 1994 … rolling down selection … primary award criteria based on past performance and best overall value … government/supplier integrated product teams … performance-based, head-to-head competitions … Contractor-supplied warranty … Minimal paperwork and limited streamlined oversight … Use of commercial products … Allowing trade-offs of price for performance criteria … Firm, fixed-price production contract
66 – Two other departures from standard practice were essential to this program [JDAM] … contractor control over the technical data … negotiations based on supplier price, not cost
67 – This mandated lack of trust (more the fault of the Congress than the Pentagon) in military contractors thus has a very real cost.
72 – The JDAM is without question a radical innovation in the field of precision weapons, but it was not an R&D challenge.
75 – Since arms contractors and their investors do not make such ventures out of pure patriotism, the Pentagon and other defense ministries might seriously consider the long-term attractiveness of contracting regimes like the JDAM program.

Chapter 5 – Dili and the Pirates
89 – Thousand-ton catamaran transports were a serious innovation for most navies that adopted them.
91 – catamarans are economical ships … but its low production rates limits its capital intensity … plenty of opportunity exists in each project for adjustments to processes and parts of the product.
92 – Interoperability is a huge issue, and it is complicated by constant software upgrades to meet every new surmised threat.
94 – many navies—the United States in particular—were having some difficulty in the new environment deciding exactly what they want in warships. The task of developing new ideas—and then newer ideas—for using these novel ship types would be shared between these navies and their shipbuilders.

Chapter 6 – Mountains Miles Apart
98 – To improve on the relatively simple displays of MP&RS … the U.S. Navy subsequently launched a program to combine digital maps, ortho-rectified imagery, and digital terrain elevation data to produce three-dimensional visualizations of terrain.
99 – Aircrews assigned fixed targets to attack could rehearse their missions by “flying” the routes over a simulation of the terrain … PowerScene’s finest hour, however, was found in the subsequent peace and quasi-partition negotiations. … defining the interentity border between the Serb Republic and the Bosnian-Croat Federation
101 – Incidentally, widespread use of PowerScene was also useful for convincing the former belligerents that NATO had excellent information about their terrain and facilities, and thus could very quickly plan accurate air strikes again if the discussions fell apart.
102 – growth was driven by some relatively sustainable trends: falling cost of computing and display hardware … development of sophisticated software engineering tools and libraries … expansion of special operations forces … new requirements for simulation
103 – several technical and market trajectories: faster programming … real-time support for ground troops … merging mission planning with real-time feeds … firefighting … avoiding ambushes … distributed training

Chapter 7 – Drop Your Purse
134 – emergent needs often demand worrying less about domestic sourcing with “full, fair, and open” competition, and instead simply reward innovative companies for taking risks. In doing so, the innovators bring to the military the good ideas that the military has not fully figured out how to ask for.
135 – protection from threats of any kind, including roadside bombs, is “thirty percent equipment, sixty percent tactics, techniques and procedures, and ten percent luck.”

Chapter 8 – The Two Towers
137 – Many of the advances in the war … demonstrated the utility of the dynamic recombination of existing technologies.
138 – Small firms should seek the less-trodden paths in search of unknown, even initially unknowable opportunities.
139 – If, however, experimentation, spiral development, devolved procurement authority, and short product cycles take greater root … then small, entrepreneurial firms will find an environment in which to thrive.
141 – Many of the best small firms in the arms industry have excellent technology but considerably less marketing and systems integration capability than the established industry heavyweights.
142 – If the products that military customers need are completely plug-and-play, then one firm should simply sell black boxes to the other in a market transaction. If, on the other hand, customers require tightly integrated products … a merger of the two firms is called for, as this will align the interests of the managers in both. … For an alliance to be the suitable form of organization, integration with the larger system or system of systems must be close, but not too tight.
144 – large firms have four options with respect to small ones: ally with the small guys … acquire the technology … find another ally, then attack … acquire the whole company
145 – any assimilation of a small firm into a larger one tends to restrain the pace at which new ideas circulate in the community of engineers and technical managers
146 – the Pentagon’s interest in small business can extend past the sentimental and the crassly political. First, consolidation in the arms industry has limited defense ministries’ options.
147 – Second, smaller firms often produce the particular kinds of technical advances that military forces need in the current strategic environment.
151 – Innovation in the arms industry today shows both types of innovation: new products are constantly being developed to support the requirements of network-centric warfighting, and process improvements are increasingly being sought in the construction of platforms.

Notes from Gloves

/ innovation increased in the ‘90s due to decreased budgets and a revolutionary infrastructure technology (GPS) 5 / “some innovations are easier to digest organizationally than others” 44 / naval conservatism is a tautology 86 / technique for building mine-resistant vehicles – trade auto parts for body parts – designed to have pieces blow off and be replaced quickly and cheaply 115 / “military solutions require more than technology” – including equipment, TTP, luck, and intelligent uses of existing tech 135 / small firms have value, because competition in markets is good, and because they are often more innovative 146-7 / do lots of prototyping and experimentation – prime the pump with lots of competitors 148

seminar notes / weak narrative limits credibility / if the gov’t acquisition process worked at an 80% efficiency rate, Chiabotti would be OK with it – but it’s just over 50% / gov’t trusts no one, so the acquisition process is bureaucratic and hierarchical / the military is a “just in case”, not a “just in time"

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