E
Disruptive Threats and Department of Defense Acquisition

Other parts of this report show that the Rapid Reaction Technology Office (RRTO) in the Department of Defense (DOD) has been successful in identifying, evaluating, and promoting technologies to defeat terrorist weapons. That success, compared to the severe challenges facing the DOD elsewhere in the acquisition process, raises the important questions of why this effort has worked so well and whether the DOD might put the lessons learned from that success to work elsewhere. One of the main reasons to put these lessons to work elsewhere is that terrorism poses a disruptive threat to the DOD, in a sense made precise below. A substantial body of work on disruptive innovation and its effects on organizations has produced evidence of the danger that such innovation poses, a conceptual structure for understanding why that danger exists, and insight into how an organization can effectively respond—as well as examples of catastrophic failure when an effective response is lacking. This work applies to the DOD, and as is shown here, the formation of units such as the RRTO is one of the key models prescribed for successful responses to disruption.1

The work referred to above had its roots in the work of Clayton M. Christensen,2 a doctoral student at the Harvard Business School (HBS) at the beginning of the 1990s. HBS was sufficiently impressed by that work that it appointed Christensen, a former Rhodes scholar and White House Fellow, to the faculty

1

Readers of this appendix should be aware that the DOD does not have the freedom or opportunity to dismiss significant “nondisruptive threats” while focusing on the newer disruptive threats, as some organizations in the corporate world might be able to do (i.e., the DOD must still be prepared to deter and combat conventional “nondisruptive” threats).

2

See http://www.claytonchristensen.com/bio.html. Accessed April 2, 2009.



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E Disruptive Threats and Department of Defense Acquisition Other parts of this report show that the Rapid Reaction Technology Office (RRTO) in the Department of Defense (DOD) has been successful in identifying, evaluating, and promoting technologies to defeat terrorist weapons. That success, compared to the severe challenges facing the DOD elsewhere in the acquisition process, raises the important questions of why this effort has worked so well and whether the DOD might put the lessons learned from that success to work elsewhere. One of the main reasons to put these lessons to work elsewhere is that terrorism poses a disruptie threat to the DOD, in a sense made precise below. A substantial body of work on disruptive innovation and its effects on organiza - tions has produced evidence of the danger that such innovation poses, a concep - tual structure for understanding why that danger exists, and insight into how an organization can effectively respond—as well as examples of catastrophic failure when an effective response is lacking. This work applies to the DOD, and as is shown here, the formation of units such as the RRTO is one of the key models prescribed for successful responses to disruption.1 The work referred to above had its roots in the work of Clayton M. Chris- tensen,2 a doctoral student at the Harvard Business School (HBS) at the begin- ning of the 1990s. HBS was sufficiently impressed by that work that it appointed Christensen, a former Rhodes scholar and White House Fellow, to the faculty 1 Readers of this appendix should be aware that the DOD does not have the freedom or opportunity to dismiss significant “nondisruptive threats” while focusing on the newer disruptive threats, as some organizations in the corporate world might be able to do (i.e., the DOD must still be prepared to deter and combat conventional “nondisruptive” threats). 2 See http://www.claytonchristensen.com/bio.htm l. Accessed April 2, 2009. 87

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88 expeRIMeNTaTION aND RapID pROTOTYpING IN SuppORT Of COuNTeRTeRRORISM of HBS on completion of his doctor of business administration degree. He has been a faculty member at HBS since then, and together with his students he has documented this understanding of disruptive innovation in several books.3,4,5,6,7 Business Week recently named the 2008 volume Disrupting Class by Christensen and colleagues one of the 10 best innovation and design books of the year. 8 What distinguishes Christensen’s work from previous studies of innovation is his identification of disruptie as opposed to sustaining innovation. Very roughly put, a disruptie technology is the entry into the market of a product or service that is usually less effective on prevailing measures of performance than is the current product, but at the same time the disruptive technology is more desirable on one or more of several other dimensions: “cheaper, simpler, smaller, and, fre - quently, more convenient to use.”9 A sustaining technology, however, improves on the prevailing model’s performance. These categories are independent of the classification of a new technology as incremental or radical: a disruptive or a sustaining technology may be either incremental or radical. The fundamental new insight that Christensen brought to the subject of technological innovation is the realization that established organizations can generally accept and use sustaining innovations but that they are defenseless against disruptive innovation. His initial work documented this assertion in a series of studies of competitive behavior in such different segments of business as computer disk drives, mechanical excavators, steel production, and retailing. Subsequent studies have extended the scope of that work to nonprofit and public- sector organizations. Why can an organization not defend itself against disruptive innovation? Christensen has shown that the reason lies in the organization’s alue network, the context within which the organization uses well-understood measures of perfor- mance to make decisions about what is desirable and what is not. Factors affect- ing those decisions typically include profitability criteria for project selection, the need to retain existing customers, and the kinds of personal career attributes that lead to promotion within the organization. A disruptive innovation, being less 3 Clayton M. Christensen. 1997. The Innoator’s Dilemma, Harvard Business School Press, Boston; HarperBusiness edition published by HarperCollins Books, New york, 2000. ,4 Clayton M. Christensen and Michael E. Raynor. 2004. The Innoator’s Solution, Harvard Busi- ness School Press, Boston. 5 Clayton M. Christensen, Scott D. Anthony, and Erik A. Roth. 2004. Seeing What’s Next, Harvard Business School Press, Boston. 6 Clayton M. Christensen, Curtis W. Johnson, and Michael B. Horn. 2008. Disrupting Class, Mc- Graw-Hill, New york. 7 Clayton M. Christensen, Jerome H. Grossman, and Jason Hwang. 2008. The Innoator’s prescrip- tion, McGraw-Hill, New york. 8 See http://images.businessweek.com/ss/08/12/1215_best_design_books/4.ht m. Accessed April 2, 2009. 9 Clayton M. Christensen. 1997. The Innoator’s Dilemma, Harvard Business School Press, Boston, p. xv; HarperBusiness edition published by HarperCollins Books, New york, 2000, p. xviii.

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89 appeNDIx e effective in terms of prevailing performance measures, will not appeal to existing customers and will not meet the profitability criteria that a firm requires to be met in order to stay in its existing mode of business. People in the firm will not enhance their reputations by backing unprofitable projects that promise reduced performance. Thus, the organization will reject the disruptive innovation because its management processes will not let it do anything else. The fatal flaw in this decision process is that the business environment is not static. New competitors, without the preconceptions built in to the old value network, can make the disruptive innovation attractive to new customers previ- ously priced out of the market. They can sell at lower profit margins, and by so doing they can build a business that eventually improves the disruptive innovation to the point that it becomes attractive to the existing (high-end) customers. The firm that could not adapt is then driven out of business. For example, in the late 1970s new firms developed 8-inch disk drives that represented a disruptive inno- vation to the prevailing 14-inch disk drive technology. Of the original equipment manufacturers successfully making 14-inch drives, two-thirds never introduced an 8-inch model, and the other third introduced 8-inch drives too late. Not one maker of 14-inch drives survived.10 Many more examples are presented in the other studies mentioned above. The DOD is a creature of the Cold War, formed in 1947. Its entire history up to the beginning of the 1990s fostered the creation of decision methods, perfor- mance criteria, and contractor relationships adapted to that war: that is, a value network. Some of the attributes of that network were slow changes in required technology, long development cycles, and dominance of the acquisition process by existing programs of record. It is since the end of the Cold War that the acquisition challenges have become intense, especially since the beginning of extensive antiterrorist opera - tions after 2001. Now the DOD is confronted with an enemy that employs cheap, simple improvised explosive devices (IEDs) that have very low effectiveness on some performance dimensions (e.g., they are frequently unreliable and not always difficult to discover; some of them also kill the operator). yet these devices are very effective at killing and wounding the U.S. military, and their performance is perfectly acceptable to terrorists. To complicate matters, the terrorists do not rely on static technology but rather push its evolution as quickly as they can. The IED is a disruptive innovation, and though probably the most prominent example of such innovations that the DOD currently faces, it is not the only one. There are many more disruptive innovations in tactics and operational methods, as Secretary of Defense Robert M. Gates recognized when he said: 10 Clayton M. Christensen. 1997. The Innoator’s Dilemma, Harvard Business School Press, Bos- ton, p. 15; HarperBusiness edition published by HarperCollins Books, New york, 2000, p. 19.

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90 expeRIMeNTaTION aND RapID pROTOTYpING IN SuppORT Of COuNTeRTeRRORISM Other nations may be unwilling to challenge the United States fighter to fighter, ship to ship, tank to tank. But they are developing the disruptive means to blunt the impact of American power, narrow the United States’ military options, and deny the U.S. military freedom of movement and action.11 A difference from the industrial situation is that the challenge to the DOD is not how to make better IEDs but how to develop technologies and tactics to defeat them. However, in the development of those technologies and tactics, the DOD encounters the same problem of the value network that the disk drive mak - ers encountered. Developing simple, cheap methods to defeat IEDs does not pay off in the current acquisition value network: it is unlikely to lead to high-profile programs of record that will build reputations and get people promoted; there is not time enough to design a near-perfect product; and the relatively simple, low-margin products that are best suited to quick deployment are unlikely to be very attractive to the major defense contractors that play important roles in the acquisition world. This is certainly not the first suggestion that the DOD is endangered by dis - ruptive innovation developed by the nation’s enemies. For previous examples, see the proposals by Sandra Irwin12 and by Mark Johnson and Charles McLaughlin,13 both of which are based on Christensen’s work (Johnson is the chair of Innosight, LLC, which he co-founded with Christensen). Irwin’s article mentions the Army’s Rapid Equipping Force, another example of an organization within the DOD with enough autonomy to do unconventional things. The research on disruptive innovation shows that an organizational response based on standing up new subunits—which can generate their own business mod- els suited to the new challenges—is much more effective than trying to force the existing organization to change its ways of doing things. Over the course of time those new subunits that succeed will attract more resources and their influence within the parent organization will grow, so that the business model of the parent organization will evolve to reduce or eliminate the danger posed by the disrup- tive innovation. Christensen provides examples of why this is so: a particularly stark example contrasts the actions of Digital Equipment Corporation (DEC) and IBM in confronting the disruptive innovation of the personal computer (PC). DEC tried four times to enter the PC market, and each venture failed to meet the standards of profitability of the parent company: people in DEC perceived PCs 11 Robert M. Gates. 2009. “A Balanced Strategy: Reprogramming the Pentagon for a New Age,” foreign affairs 88(1):1. 12 Sandra I. Irwin. 2006. “Defense Stifles Innovation Despite Urgent War Needs,” National Defense, July. 13 Mark Johnson and Charles McLaughlin. 2007. “To Defeat Terrorists, Military Services Must Innovate, Disrupt,” National Defense, January.

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91 appeNDIx e as “low-margin products that their customers did not want.”14 By contrast, IBM created a freestanding organization that could and did develop its own business model and that was not constrained by the value network of the parent company. It succeeded, while DEC went out of existence. The DOD has recently found by hard experience that this principle holds for government just as it does in industry, as Secretary Gates acknowledged when he asked: Why was it necessary to go outside the normal bureaucratic process to develop technologies to counter improvised explosive devices, to build MRAPs [Mine Resistant Ambush Protected], and to quickly expand the United States’ ISR [intelligence, surveillance, and reconnaissance] capability? In short, why was it necessary to bypass existing institutions and procedures to get the capabilities needed to protect U.S. troops and fight ongoing wars? The Department of Defense’s conventional modernization programs seek a 99 percent solution over a period of years. Stability and counterinsurgency missions require 75 percent solutions over a period of months. The challenge is whether these two different paradigms can be made to coexist in the U.S. military’s mindset and bureaucracy.15 The DOD had to go outside the normal bureaucratic process for the same reason that, as seen above, it was necessary for IBM to do so when it developed the PC. And, as also seen, the study of disruptive innovation has shown clearly that the two paradigms do not coexist well: an organizational response to disrup- tion has far more chance of success if it is managed by a freestanding subunit unconstrained by the existing value network. 14 Clayton M. Christensen. 1997. The Innoator’s Dilemma, Harvard Business School Press, Boston, pp. 109-110; HarperBusiness edition published by HarperCollins Books, New york, 2000, pp. 126-127. 15 Robert M. Gates. 2009. “A Balanced Strategy: Reprogramming the Pentagon for a New Age.” foreign affairs 88(1):1.

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