The Trump administration considers “long-term strategic competitions with China” to be one of the greatest challenges facing our military. As federal budgets experience increasing pressure from entitlement spending and debt service in the coming years, partnering with government contractors and commercial companies to develop cost-effective defense innovation will be key to countering this threat.
This then begs the question: How will the United States defense industry remain competitive for its primary customer, the federal government?
Research and development
The United States is “a culture that fosters innovation and entrepreneurship ... precisely what keeps America unique and vibrant in the face of Eastern efficiency,” notes The New Yorker. American business is creative but needs to improve efficiency to address military threats.
Combining companies may be the solution. In an interview I recently conducted with Harvey Seegers, a former senior adviser to Jack Welch and now an associate dean at The Catholic University of America, he explained that “mergers eliminate duplication of R&D effort and create scale economies that accelerate innovation.”
Raytheon and United Technologies are the latest defense companies to put this theory to the test, proposing a merger that will produce a nearly $74 billion business. The new company, Raytheon Technologies Corporation, will “have unsurpassed technology and expanded R&D capabilities," according to United Technologies Chairman and CEO Grey Hayes, and it would staff 60,000 engineers and budget $8 billion annually on research and development.
Will the newly combined defense company be better for our national security? Or will it become a slow-moving, complex military-industrial behemoth?
Traditionally accepted wisdom
Anthony Cannizzaro, who specializes in international business and global strategy at Catholic University, reminded me in a recent interview that "historical evidence tells us that mergers have benefits and drawbacks for innovation. Large firms have scale and deep pockets, yet smaller companies are often better at high-risk, high-reward types of breakthrough innovation.”
Lockheed Martin, another defense giant, nurtured the famed Skunk Works, first set up in 1943 during World War II. This is an R&D workshop of small teams, which produced breakthrough technologies such as the record-setting SR-71 Blackbird. But very large teams of knowledge workers are not always this effective at generating ideas that lead to developing a product delivered on time and on budget.
This is documented in Frederick Brook’s classic IBM study, the Mythical Man-Month. This is the phenomena where adding engineers to a project will not speed development but, counterintuitively, more people, more “human resources,” will slow work and miss deadlines.
Does this past wisdom apply today?
Maybe not.
Cannizzaro continues on Raytheon/United Technologies: “Both firms are innovation powerhouses, and combined will possess highly complementary resources. ... The success of the merger will ultimately hinge on whether they can find a flexible structure that fosters coordination without stifling each units’ innovative potential.”
Can the new Raytheon have the productivity and innovation of, say, an Amazon (another $70 billion company)? Every company culture is different, but Jeff Bezos’ “two pizza rule” seems to serve them well. The rule suggests that teams are productive only if they are small enough to be fed with 16 slices.
Knowledge acquisition
But large amounts of data and human analysis are still needed. In that common culture of the pharmaceutical industry it is a common courtesy to share information for the common good of improving patient care in a cost-effective manner. Health care researchers are an open source where the code is to improve the human condition.
The more people and input, the better; the more sharing of data and insights and connections, the faster the innovation. These connections of improving health care are often independent of borders, organizations or silos.
But less so the organizational structure of national defense. There are (and better be) walls around American R&D — and not bridges.
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The fastest, easiest tactic to get a large number of engineers apart from outside collaboration would be to acquire an entire company. Getting talent is the benefit of the Raytheon/United Technologies merger. As Peter Drucker wrote in Harvard Business Review: “For managers, the dynamics of knowledge impose one clear imperative: every organization has to build the management of change into its very structure.”
Change can come from inside or imposed from outside the company, or by combining two organizations.
Talent management evolution
Modern management seems to have created a paradigm shift where R&D output increases with size. This is new.
Today’s practice of management may have caught up with early thought leaders. “Knowledge workers cannot be supervised effectively. ... Therefore, the modern organization cannot be an organization of boss and subordinate. It must be organized as a team,” wrote Drucker. And where “a manager,” said IBM’s Thomas Watson, “is an assistant to his men.”
Cannizzaro, an expert on state-owned enterprises, emphasized that “Raytheon and United Technologies are part of a private American ecosystem that fosters innovation. Contrast that with a Chinese tech sector marked by significant state ownership. The state's involvement really hurts them in matching American dynamism.”
The market appears to be showing increasing confidence in large mergers. Our military should also be as confident in relying on the private sector as a partner to defend against China.
U.S. Army Capt. Jack Yoest (ret.) is a consultant and assistant professor of practice in leadership and management at The Catholic University of America.
