Innovation and the Integrated Review

Jack Welch, CEO of General Electric, once wrote, ‘We’ve long believed that when the rate of change inside an institution becomes slower than the rate of change outside, the end is in sight.  The only question is when.’  To avoid this fate, the Ministry of Defence must align its spend with its strategy in pursuit of the goal set by the Integrated Review: that the UK’s armed forces should be the most innovative and effective for their size globally.

Published in March 2021, the Integrated Review, the UK Government’s national security and international strategy, has been widely welcomed.  This is in part because the ‘reactionariat’ (loosely defined as those waiting to comment on Twitter) were awaiting the Ministry of Defence’s Command Paper, the Ministry’s response to the IR’s strategic direction.  The Command Paper was expected to deliver equipment cuts to close the yawning black hole in the MOD’s budget.  Although cuts were announced the paper was, as former Chief of Defence Staff General Sir David Richards noted in evidence to Parliament, too light on detail to be fully judged.  The reactionariat is still waiting, and watching, for further cuts.

But looking for cuts is looking for the wrong thing.  In an age of ever-accelerating technological change, it is not the kit, but the procurement strategy that matters: how you buy new equipment, as much as what you buy.

Tobias Ellwood, Chair of the House of Commons Defence Committee, recently reported that some of the Army’s vehicles ‘date back to back to the early 1960s, when the Morris 1100 was the most popular car and Elvis was the Christmas Number One’.  The Committee trolled the MOD with a lively video to illustrate the point.

Close the say do gap

This is a long way from the Integrated Review’s objective.  To achieve this the MOD needs to put its money where its strategy is shortening the length of programmes, constantly investing in new capabilities at scale.

The Ministry might adopt two rules to achieve this: no equipment to take longer than five years from contract to delivery; and strategic budget management that mandates a consistent shift of spending from old to new technologies, totalling 30% of the MOD budget over every 5-year cycle.

Roper’s Rule

The US has pioneered the five-year rule.  William Roper, until recently head of acquisition for the United States Air Force, insisted programmes must be shorter.  His big idea, the USAF’s Next Generation Air Dominance (NGAD) fighter jet, speeds up delivery using matrix-like simulated virtual worlds to engineer, develop and test aircraft.

His digitally engineered fighter took to the skies within 12 months of the programme commencing, to the amazement of many.  It is on track and on budget to deliver within 5 years, reversing a curve of ever-escalating delay and cost overruns that has beset all jet procurement since the 1960s.

Long programmes inflate cost.  In the 15-20 years taken to complete many defence programmes  Government priorities, who and what threatens us, and technology all change.  Consequently, systems arrive obsolete, are cut after a lot of expensive development, or need updating again and again.  Teams and leaders turn over many times, eroding corporate memory, reducing accountability and encouraging short-termism.

A ‘Roper rule’, under which all programmes must take 5 years or less, would put a stop to this.

Putting the Ministry’s money where its strategy is

A second major innovation would be for the Ministry to put its money where its strategy is, consciously divesting a minimum of 6% of assets every year and reinvesting money to new capabilities.

This would mean a line in the Defence budget allocated for rapid and continuous pull through of new equipment following innovation and technological breakthroughs.  It would amount to c.30% of the total budget over five years, and would ensure all equipment was replaced every 17 years.

An arbitrary rule would force the Services to divest themselves of kit with no recourse to inter-service wrangling.  Their strategy would have to adapt to one of continuous innovation.

It is a proven approach.  A McKinsey study of 1,600 diverse companies tracked over 15 years showed those that boldly reallocated resources to new capabilities significantly outperformed others with more timid approaches, earning on average 30% higher returns.  And it was an arbitrary rule-based approach to reallocation of funds that worked best.

The need is urgent…

The need for change is urgent.  The McKinsey Global Institute suggests that compared to the Industrial Revolution of the late 18th and early 19th centuries, change today is happening ten times faster and at 300 times the scale, with roughly 3,000 times the impact.

Reflecting on this trend, former science minister and businessman David Sainsbury wrote recently that, ‘The increasing pace of technological change means that the useful life of most capital equipment and technological capabilities is becoming shorter.’

In Defence, programmes that take many years to deliver can no longer be afforded financially or operationally.  The speed of technological change means constant disruption.  In this environment, taking the path of gradual or incremental reform is building in ever-escalating risk.

These are two simple but fundamental changes to Defence procurement.  They are the Ministry’s best hope of avoiding a centenarian Ellwood playing TikTok sea-shanties over videos of the MOD’s ageing vehicles in 2081.