Defense

forged with several key building blocks. The synergy among these

building blocks is crucial in building a net-enabled force to operate

globally. The shift is from platforms serving single-service roles to systems of systems that deliver capabilities in support of joint and combined forces operations worldwide.

Transformation is focusing upon where joint forces and global

capability are expected to be 20 years from now and working back to

the present. This represents a significant shift in how the Department of Defense (DOD) would like to shape its industrial base.

At the heart of the transformation effort is a key focus upon an

ability to fuse data and deliver common operational pictures to the

forces.1 To do so will require a shift in the DOD acquisition

approach. One idea is to increase the role for Joint Forces Command and emphasize the role of combatant commanders in acquiring fusion technologies.2

Overview

American force transformation is about building a new

expeditionary model with flexible, modular forces that can be

managed on a global basis to protect U.S. interests. Breaking the

tyranny of geography on military forces is a key aspect to change.

Transformation represents a shift in the demand side of the

defense industrial business to provide for these new capabilities.

The Department of Defense (DOD) is seeking system-of-systems

management to deliver capabilities to the services and for joint

military operations. This represents a shift from the past emphasis upon platforms and a primary focus upon service-specific technologies and programs.

As the demand side of the equation has shifted, so has the

supply side. Defense consolidation in the 1990s dealt with scarcity;

now the newly emerged mega-primes are asked to play the role of

lead systems integrators (LSIs) or system-of-systems managers to

deliver capability to DOD for transformed operations.

DOD moved to a different way of doing business before the

transformation effort emerged as a core priority. Now that the

transformation agenda is dominating the shift in the relationship between industry and government, working through LSI

roles in shaping capabilities-based procurement will be especially important.

Additionally, the new LSI and system-of-systems management model is shaping a new approach to allies. The new model

can allow industry to shape new capabilities on a transatlantic

basis. Rather than the old export-after-production model, the new

LSI model, coupled with a transformation emphasis, leads to the

shaping of new opportunities for developing capabilities before

core series production decisions would be taken.

Transformation Drives Models

The United States is moving from an older model of forces

directed by service chiefs to a more flexible model in which systems

operate interactively to provide global capabilities for U.S. intervention. The process of building a new model for U.S. forces is being

Transformation and the Defense

Industrial Base: A New Model

by Robbin F. Laird

A publication of the

Center for Technology and National Security Policy

National Defense University

MAY 2003

Number 26

Horizons

May 2003 Defense Horizons 1

Building Blocks for the New Global Expeditionary Model

■ Crisis management and antiterrorism efforts

■ Development of global logistics support

■ Development of global information technology capabilities 

■ Global “weaponization” or the ability to resupply worldwide with 

a coalition of U.S. and allied defense industrial firms and depots

■ Interoperability across U.S. forces, allies, and coalition partners

■ Plug-and-play forces for strategic insertion on a global basis

■ Space-enablers for joint forces

■ Intelligence, surveillance, and reconnaissance focused primarily

on supporting the warfighter

■ Active defense to protect the insertion of forces

■ Strategic mobility to support the movement of Army and Marine

Corps forces 

■ Expeditionary mindset and focus
Robbin F. Laird is president of ICSA, LLC, a firm specializing in defense

industrial analysis and strategic assessments. Dr. Laird may be contacted by

telephone at (703) 820–1669 or via e-mail at rlaird@icsallc.com.

Equipment priorities in the transformation approach are not

placed on service-specific equipment choices. Rather, they are

placed on those capabilities that can emerge from multiservice

needs and requirements. In other words, DOD will want industry to

deliver equipment and systems that allow for enhanced modularity,

global management capabilities, and new approaches and technologies that are most beneficial to the widest range of operations.

Finally, technology that reduces manpower and allows for breakthroughs in life-cycle support costs is favored. Total cost of ownership

is a key principle in favor of choosing weapon systems and capabilities.

Rather than prioritizing the most advanced platform or subsystems,

DOD is looking to the strength of the overall system of combat to provide superiority. Within this calculus, individual parts of the system

need to be cost-effective from a life-cycle support perspective.

In short, central to the new transformation approach is a shift

in the demand that DOD is placing upon its defense industrial base.

A capabilities-based procurement requires lead systems integrators

(LSIs) and system-of-systems managers to work with DOD to deliver

broad-based families of systems.

A New Model

The consolidation of the defense industry over the past decade

has been a response to the downsizing of Western defense budgets.

Consolidation was a necessity due to reduced demand for equipment

in the procurement pipeline. Military forces were being downsized

and redesigned for new peacekeeping missions and reduced threats

from traditional adversaries.

The result of the defense restructuring process of the late 20th

century has been to put in place a small number of mega-primes that

can provide comprehensive systems integration and management

capabilities at the disposal of the U.S. Government. This process was

put in motion to deal with declining markets and scarcity; now the

challenge is to make good use of the new situation to enhance U.S. and

allied security.

Before the Bush administration came to power and before September 11, a new consolidated industry had emerged to deal with

and manage reduced demand. That industry must respond to a different set of circumstances. A dramatic increase in defense and

security spending provides a near-term opportunity for industry; the

shift to a different focus—transformation—provides uncertainty

about how that industry will be redesigned to work with the new

demands of the Federal Government.

At the core of the new effort is a new relationship between Government and industry in building systems architectures. An industrial prime works with the Government in shaping requirements and

approaches for building a system of systems, or a group of system

capabilities, that needs to be networked in creating an evolving synergistic joint and combined military capability.

Through a public-private partnership in shaping requirements,

the U.S. Government then lets a contract for constructing the

system-of-systems approach to be used in a particular military or

national security domain. Presumably, the contractor, which has

worked with the Government in developing the overall systems

architecture, is well positioned to play the role of executing the system-of-systems approach. Clearly, profitability for the firm is limited

in building the architecture and is enhanced in the second phase in

which it manages the systems architecture.

Within a system-of-systems approach, a number of firms work

with the prime contractor and the Federal Government to provide

systems and subsystems elements and components. Rather than simply providing parts, the systems and subsystems providers are participating in the execution of the systems architecture and shaping

the real-world performance of the system-of-systems capability for

combat, military, or national security systems.

Finally, there are component suppliers to the prime contractor

and to systems and subsystems providers. In other words, the classic division of defense industry into tiers is being modified to reflect

a new division of labor. At the top level are the firms that work with

the Government in a public-private partnership to create systems

architectures. These primes are then able to execute and manage a

system-of-systems capability for the Government. At the next level

are those firms that provide (through business units of the primes

or by separate commercial or military firms) system and subsystem

capabilities within the system of systems. Lastly, there are the component suppliers that work with primes and nonprimes alike in executing the system-of-systems business plan.

In effect, a new pattern of five relationships has emerged in

the wake of the consolidation process. (1) The DOD procurement

process focuses upon defining the new capabilities that the Department wants so that it can meet transformation requirements. (2)

DOD does this in interaction with the market. (3) In turn, the market supports defense firms that have predictable and steady streams

of revenue from the Federal Government, and the mega-primes

have the flexibility to move within and among programs to provide

for financial stability. (4) LSI and system of systems managers work

with the Government to establish the range of choices in the marketplace to provide the systems, subsystems, and components available to meet architectural or overall systems requirements. (5) New

mission capabilities thus emerge from the interaction between the

private sector and the DOD procurement system to provide for the

needs of a new Pentagon in its transformation quest.

To elaborate the basic characteristics of the new defense industrial model further, three cases of the emergence of the new capabilities-based approach to procurement will be briefly examined. The

first case is the adoption of the Deepwater approach by the Coast

Guard, which was forged before the DOD transformation effort but

anticipated much of this effort. The second case is the future combat systems (FCS) approach to land warfare. The third case is the

Joint Strike Fighter (JSF) and its role with allies in the system-ofsystems management model.

Deepwater and USCG Transformation

Even before transformation was a key theme for the new relationship between Government and industry, the U.S. Coast Guard

(USCG) was working on its own solution. As the USCG faced block

2 Defense Horizons May 2003
obsolescence of its core maritime and air assets, the decision was

made to pursue a mission-based acquisition approach, which was

built around an integrated approach to procurement. As written in

Naval Engineers Journal,

Rather than focusing on specific hardware, like a class of cutter or

aircraft, the Coast Guard has developed a performance specification that describes the fundamental capabilities the service needs

to perform all of its missions in the deepwater regions worldwide.3

The USCG sought to take a wide look at its needs in relationship to its missions. Performance-based acquisition was the result:

define requirements in light of mission needs and provide systems to

meet those needs. No longer would there be one-to-one platform

replacements; there would now be decisions made on putting systems in place to provide the capabilities that the USCG would need.

The Integrated Deepwater System (IDS) is the designation for this

approach to system-of-systems management. At the heart of the IDS

effort is an approach to industry relationships. The Coast Guard

competed the contract among three teams, each playing the role of

an LSI in further defining how the USCG might most effectively put

its system-of-systems approach together.

The Coast Guard sought a public-private partnership, which

could allow LSI to assist the USCG in getting past the near-term procurement requirements to consider long-term mission and capabilities requirements. How best to provide for the integration of assets

in meeting evolving challenges?

With the signature of the Deepwater contract in June 2002, the

new industrial relationship with the Coast Guard has been set in

motion. The Integrated Coast Guard Systems Joint Venture between

Lockheed Martin and Northrop Grumman is the prime for the Deepwater contract working in partnership with the USCG Program Executive Office for Deepwater. Now the task is to provide for a systemof-systems management approach.

The challenge is to mix and match different elements in the

Coast Guard universe of platforms, systems, and responsibilities. Integration is often about products; a system-of-systems management

approach is about delivering capabilities. Rather than being captured

by a single-user community, the new management approach allows

one to take a big-picture approach to how capabilities might be provided to meet evolving challenges best. If fewer helicopters are

required than fixed wings, if more cutters are necessary than aviation

assets, or if an unmanned aerial vehicle (UAV) would best serve the

task in a given area, there will be an ability to weigh such choices. The

Pentagon is seeking to do what the USCG is positioning itself to do

with IDS—that is, to be able to trade among platforms and integration

options. This is the integration implied by Deepwater.

Systems integration is different from system-of-systems management. With systems integration, the focus is on a product and

the mastery of the development and delivery of an integrated product (for example, building a good fighter aircraft or a good ship is

about starting with a platform and integrating more effective systems into it). System-of-systems management is not productfocused; instead, it is capability-focused. What capabilities does the

client need? What products—platforms or systems—are available

in the global marketplace to provide for those capabilities best?

Moreover, how might those products or systems best be meshed to

provide for capabilities current and future? It is crucial to this

approach to look forward, as well as back, to anticipate change

rather than simply respond to past approaches to meeting needs.

This is a different type of business organization and a radically

different approach for the Federal Government to work with industry. On the business side, the systems manager pursues an open business model in the development of the core partnerships necessary to

provide for Coast Guard needs. On the Government side, it is crucial

to be able to make decisions and to identify and communicate mission requirements and needs. There also must be commitment and

stability on the Government side.

The post-September 11 challenge has elevated the significance

of the Coast Guard in the defense of the Nation and its security interests—and, with it, the new procurement approach. The dramatically

enhanced importance of port and maritime security to the survival

of the Nation has underscored the salience of the role of the Coast

Guard and the need for it to have an approach that allows it to meet

this role much more effectively. Prior to September 11, IDS was

about service approach to procurement; since September 11, it has

been an innovative approach to national survival.

President George W. Bush’s creation of the Department of

Homeland Security (DHS) has underscored the importance of the

USCG decision to pursue IDS. At the core of the DHS mission is the

ability to enhance maritime and port security and to provide for an

integrated data fusion for all participants in the homeland security

process. As President Bush stated:

The Department would fuse and analyze intelligence and other

information pertaining to threats to the homeland from multiple

May 2003 Defense Horizons 3

The Top 10 Defense Firms Worldwide

2001 Defense Revenue

Company (Millions of US $)

Lockheed Martin 22,502.0

Boeing 19,000.0

BAE SYSTEMS, plc 14,491.8

Raytheon 11,969.0

Northrop Grumman 9,337.5

General Dynamics 7,784.0

Thales Group 5,581.8

EADS, NV 5,504.6

TRW 5,200.0

Rosoboronexport 4,200.0

Source: Defense News, November 11–17, 2002

New Defense Industrial Model

■ System-of-systems managers and strategic enablers

■ Capability providers for effects-based operations and participants

in evolving system-of-systems architectures

■ Component providers operating as a global supply base
sources.... The Department would merge under one roof the

capability to identify and assess current and future threats to the

homeland, map those threats against our current vulnerabilities,

issue timely warnings and immediately take or effect appropriate

preventive and protective action.4

The IDS approach fits right in to the Presidential demand for

interoperability of communications and data sharing within DHS.

IDS is network-centric, not platform-based. A new commercial offthe-shelf and Navy-compliant command, control, communications,

computers, intelligence, surveillance, and reconnaissance (C4ISR)

system that nets the various assets of the Coast Guard to increase

maritime domain awareness dramatically is at the heart of the system of systems. As Bruce Stubbs and Scott Truver have argued, “the

Coast Guard’s leadership role in addressing current and emerging

transnational maritime security threats will require seamless C4ISR

connectivity with not only its own operating forces, but those of myriad governmental agencies and nations allied with the United States

in confronting those threats.”

5

President Bush has argued for a proactive approach to dealing

with the threat of terrorism: “Homeland defense and missile defense

are part of a stronger security. They’re essential priorities for America. Yet the war on terror will not be won on the defensive. We must

take the battle to the enemy, disrupt his plans and confront the

worst threats before they emerge.”

6

The IDS approach will allow such a proactive approach.

According to the USCG Deepwater Web site, 

By identifying and eliminating threats well before they reach our

shores, the impact can be mitigated. Deepwater is critical to

ensuring the Coast Guard has the capabilities it needs to stop

threats to our homeland before they arrive and the effective

response capability to deal with maritime security needs.7

The formation of a new Department of Homeland Security will

better enable the USCG to play this role.

Consider this scenario: If the Coast Guard stops a ship at sea for

inspection and finds illegal immigrants on it, the USCG relies on the

Immigration and Naturalization Service to enforce U.S. immigration

law and to prevent entry. If the Coast Guard finds potentially dangerous cargo, it relies on the Customs Service to seize it. However, these

organizations may not always share information as rapidly as necessary. So instead of arresting potential terrorists and seizing dangerous

cargo at sea, our current structure can allow these terrorists to enter

our ports and thus the Nation at large. The system might also allow

the dangerous cargo to enter our ports and threaten American lives.

Under the President’s proposal, the ship, the potentially dangerous

people, and the dangerous cargo would be seized, at sea, by one

department—a department that has no question about either its mission or its authority—to prevent them from reaching our shores.8

In other words, the IDS approach was forged well before September 11 and the emergence of any real national debate about the

connection between domestic and global security. The data fusion

requirements of homeland security are at the heart of the IDS system. A new approach to procurement to mix and match assets to

meet missions and the national security challenge is also a major

contribution of USCG thinking to future national security.

Army Transformation, FCS, and LSI

The key test of transformation is what happens with land power.

How much innovation can be generated quickly and effectively in getting the future capabilities of a global force into deployed capabilities? How much integration with other aspects of joint and combined

power can be enhanced by the new approaches? How much authority

will land forces have in directing other elements of joint power in

operating on a global basis to ensure effective military operations?

Before the Bush administration, Army leadership had already

crafted a transformation plan. The planned Army transition has been

from the legacy force (heavy and slow) to an interim force (light and

deployable) to the Objective Force 21 by 2030, which will be flexible,

agile, integrated, and sustainable. The legacy force is built around

heavy armor (60–70 tons, 650 cubic feet, and carried by a C–5 or

C–17 strategic airlift aircraft) to new armor (20 tons, 300 cubic feet,

and capable of being carried by a C–130). The Objective Force will

be able to be integrated into either the air-based or sea-based force

approach, although maximum operational flexibility seems to be

linked to innovations in joint and combined basing at sea.

The new Army would be able to operate within a system-of-systems context and to provide for the global striking power necessary

for a new expeditionary model. The Bush administration has sought

to accelerate the development of the Objective Force at the expense

of modernization or pipeline equipment upgrades in the legacy force.

The administration has also questioned whether the interim force

should not be altered to put in place elements of the future combat

systems (FCS) much earlier than envisaged prior to the defense

buildup after September 11.

For example, the Bush administration decision to cancel the

Crusader artillery system was rooted in its inability to move quickly

into theater operations. It was judged too big and its logistics tail

too long to be sustained for rapid, flexible operations. At the same

time, the administration has supported FCS, a new Army and

Defense Advanced Research Projects Agency (DARPA) initiative

that is to provide networked ground strike forces able to be inserted

rapidly and with both strategic and operational flexibility.

The Objective Force and its core systems development program—FCS—are at the center of developing an architectural

roadmap for the role of land power integrated within the ground-to-air

evolution. The Army adopted the USCG Deepwater model as a baseline to provide a capabilities-based approach to its future needs to

operate globally. The goal of the FCS program is to develop networkcentric concepts for a multimission combat system that will be overwhelmingly lethal, strategically deployable, self-sustaining, and highly

survivable in combat through the use of an ensemble of manned and

unmanned ground and air platforms.

This system-of-systems design is being crafted by using modeling

and simulation and experimentation to evaluate competitive concepts. The FCS will be capable of adjusting to a changing set of missions, ranging from warfighting to peacekeeping. An FCS-equipped

force will be capable of providing mobile-networked C4 functionalities;

autonomous robotic systems; precision direct and indirect fires; airborne and ground organic sensor platforms; precision, three-dimensional air defense; and nonlethal and adverse-weather reconnaissance, surveillance, targeting, and acquisition.

4 Defense Horizons May 2003
The U.S. Army LSI contract awarded to the team of Boeing

Space and Communications and Science Applications International

Corporation was granted with an eye to increasing the speed of realizing a future Objective Force with FCS by 2010. COL William Johnson (program manager and FCS and Army project manager for

Objective Force) recently noted that the Boeing role is to bring all of

the systems together so that they will be interoperable. The architecture focuses on informing the soldiers and synchronizing the

entire Army around the Objective Force.9

The logic behind giving the LSI role to a space company (Boeing) is rooted in the key role that space and related information systems will have for the future of the Army as a global force. The Army

decided that it needed a team that was capable of a system-centric

and not a platform-centric approach, one based on an integrated

C4ISR architecture.

The FCS program is not following the classic sequential development path to acquisition. Rather, the development of various

aspects of a mature FCS system is envisaged and pursued in parallel.

The most mature aspects of development will enter the force earlier

than others but in line with an evolving open architecture of developing technologies in the system-of-systems environment.

The core LSI responsibility is managing the parallel development process. According to LTG John Riggs, director of the Objective

Force Task Force for the Army, 

The LSI is definitely involved in every aspect of this program and

I think it’s paying off. They’re involved in assisting with requirements-development activities; they’re involved in the architecture

of the work; they’re involved in the integration work that is associated with formulating an acquisition strategy—just about every

aspect of it in this particular phase.10

Riggs went on to argue that the core benefit of the LSI arrangement was that an ability to leap to future capabilities is greatly facilitated. “But from my perspective,” Riggs stated, “the LSI arrangement has greatly assisted us in cutting years—not months,

years—off what would normally be expected in this phase of a

major equipment program.”

11

The LSI is responsible for a number of key aspects in FCS

development, including awarding contracts to system, subsystem,

and component providers for the development of specific technologies and concepts. By June 2003, the LSI must provide the

DARPA–Army client with an initial system-of-systems architecture,

C4

ISR architecture, and platform architecture.12

In short, rather than building a set of stovepiped products, the

prime contractors for the future combat systems are orchestrating the

development of a set of capabilities for the U.S. Army. There is an

opportunity as well to enhance their European partnerships—a major

German firm is already involved—to blend a C4 and ISR approach to

ground combat with European ground systems as well. Rather than

selling a product, the U.S. companies with U.S. and European government cooperation could develop capabilities for allied forces.

Joint Strike Fighter

The JSF program, managed jointly by the U.S. Air Force and the

Department of the Navy, represents the most mature transformation

program for the development of new U.S. combat capabilities. The

JSF system is interservice in character. It is designed to build joint

rather than separate service systems capabilities. It spans three

administrations and represents a commitment to change in providing a global capacity for the U.S. military with simplified logistics,

weaponization, and worldwide interoperability with key allies.

The JSF program has instituted a new approach to international procurement. The program is modeled in part after the Airbus

approach to building commercial aircraft. There is a single production line, but participants in the program build subsections for the

entire global buy of JSF, which are then flown to Fort Worth, Texas,

for final assembly. Commercial approaches to logistics are an important part of the JSF model that explains in part the agreement

between Fort Worth and Airbus on logistics issues.

Boeing and Lockheed Martin competed to provide the architecture for the JSF combat system for the U.S. Government. Now that

Lockheed has won the JSF contract, it is working closely with the

Government to establish a system-of-systems management approach

for the launch of the JSF system. The participants in the JSF program

provide systems, subsystems, and components in a radically different

approach from the F–16 or F–18 model. Historically, subcontractors

provided parts; in JSF, partners provide systems and subsystems.

The international approach revolves around participation at

different levels of partnership, ranging from level one to level three

partnerships; levels depend on the amount of investment and

involvement through technology sharing and government-to-government agreements.13

Industrial participation is not through industrial offsets but participation within a global production run of the program. For example, rather than the Dutch simply producing parts for their JSF,

Dutch industry participating in JSF will produce system or subsystem

components for the entire global production run of the Joint Strike

Fighter, regardless of production specifically for the United States or

another country. Such an approach is much more akin to a commercial effort than a classic military aircraft production approach and

thus more like the Airbus model than the classic F–16 approach.

The JSF production model is in many ways the testbed of

change in the role of industry in leading transformation. If technology sharing can be framed by multinational licensing and a new relationship between the U.S. prime and its systems and subsystems

providers, a new type of Airbus model can be introduced in the military air combat domain.

The JSF is designed to operate as a provider of missions in an

integrated battlespace. The shift is from providing a pure platform to

becoming a full-spectrum provider—one that is customer-driven

and able to provide air combat capabilities, ranging from future new

aircraft to full-service field maintenance.

This concept rests in part on the ability to leverage the commercial and global markets in order to be able to provide the best

customer solution at the most affordable price. Specific to the JSF,

the objective is to provide tailored customer solutions, teaming with

the global customer, suppliers, and partners.

Using this emerging business model, the defense industry—like

its commercial counterparts began doing almost a decade ago—will

have to be more involved in maintaining the products they build.

Increasingly, military acquisition policy is focusing on total ownership

cost. Bundling of a product’s total life cycle is far more cost-efficient

May 2003 Defense Horizons 5
and less expensive than acquiring the product and then seeking to

support it throughout its life cycle with a series of one-off contracts.

This new model seeks to provide integrated combat missions to global

customers with government/industry teams providing cradle-to-grave

support for military aircraft and related air combat systems.

But for the JSF model to fulfill its promise, the logistics, information technology, and weaponization capabilities associated with

the model will have to become truly global, which means conducting

overseas operations and support with allies playing key roles in operations as well as production and maintenance. Thus, the Italians,

after making their commitment to JSF, have argued for a European

JSF support center. Certainly, the leading European missile firm,

MBDA, will be in a position to weaponize JSFs for European as well

as American use. It would be advantageous for the United States to

have alternative sources of supply for weapons in combat situations

where European suppliers are closer at hand than American ones.

The Allied Dimension

The new defense industrial model is generating opportunities

for cooperation and an ability to provide for enhanced allied capabilities. At the systems architecture development or system-of-systems management level, it is difficult to see anything but a national

U.S. or European approach. But with regard to systems and subsystems capabilities plugging into architectures and system-of-systems

approaches, European, Asian, and American firms could contribute

equally to American or allied capabilities.

The new primes in Europe—notably, EADS, BAES, and

Thales—can provide an ability to shape a European architecture or

system-of-systems approach for European allies. System or subsystems capabilities, which might contribute to either U.S. or European

architectures, would enhance the ability of inter- and intra-allied

operations. Interactive military transformation would be the result.

The key challenge for allied governments is to shape policies

that allow the major companies to work with one another to provide

capabilities available to allies. By allowing the small number of

primes on both sides of the Atlantic to pursue goals to meet common

needs, transformation could be promoted. The old export model of

taking 20 years to develop a product and then compete in the marketplace serves neither American nor European interests. Nurturing

multiple partnerships among the Euro-Atlantic primes can create

new technologies and opportunities for change.

Developing an innovative relationship between industry and

government and fostering greater European capacity to leverage a

transatlantic defense market are key tools for driving change within

European defense and promoting inter-allied transformation. As

Gordon Adams recently argued, 

Prague has opened a new door to a transformed alliance. But the

ambitious goals set out at the summit will be doomed to failure

without major steps in the U.S. trade regime that will make transAtlantic industrial and technological cooperation possible.14

Several examples further illustrate the changes under way.

UAVs have become a key focal point for DOD thinking about transformation opportunities after the initial Afghan operation. Drawdown in

manned systems, a better use of ISR, and integration of space, air, and

ground capabilities are on offer from the rapid development of UAVs

and then unmanned combat aerial vehicles (UCAVs).

Notably, the United Kingdom has focused on the Watchkeeper

UAV program as a key part of its integrated combat system of the

future. At the core of the Watchkeeper program will be the formation

of a network warfare solution, and, almost certainly, U.S. firms such

as Northrop Grumman, General Atomics, or Lockheed Martin will be

involved in the Ministry of Defense solution.

The aim is to focus attention on binding the systems

together—as well as integrating them within the developing British

information, surveillance target acquisition, and reconnaissance

(ISTAR) system-of-systems network—using the expertise of the

group as the glue. The system must be able to interface seamlessly

with Bowman, the new British digital communications network, the

Royal Air Force (RAF) airborne stand-off radar (ASTOR), and other

ISTAR systems. The data generated by Watchkeeper must ultimately

be disseminated to shooters such as RAF (or coalition) aircraft

operating in the close air support role, the WAH–64D Longbow

attack helicopter, and artillery units.15

To promote inter-allied capabilities on unmanned systems further, the United States and the United Kingdom have recently signed

an agreement to share technologies. Notably, the agreement will

allow the United Kingdom to have access to developing technologies

for the Boeing X–45 UCAV program.16

Also, the Northrop Grumman and EADS agreement to develop

a Eurohawk variant of Globalhawk provides an opportunity to build

up the number of UAVs available to U.S. and allied forces and to

allow Europeans as well as Americans to develop their own modular

packages within the common UAV bus. Joint capabilities can clearly

emerge from this, and without common buses, the U.S. goal of having a global sensor system to detect various ballistic and cruise missile worldwide would be even more complicated.

An especially compelling case of the advantages of blended programs for military transformation has been the IZAR–Bath–LMC partnership to build Aegis frigates. This effort began with a competition to

build the F–100 Spanish Aegis frigate. The partnership then allowed

the team to bid for the Norwegian frigate program and to create a

smaller platform, which also will carry Aegis. This will lead to at least

nine Aegis frigates emerging from Europe, which will certainly prove

useful to Euro-Atlantic naval and aerospace operations. Now that

IZAR has led the way to build an even smaller 2,500-ton frigate, which

is Aegis-capable and available for export, the main opportunities

might come in the Asia-Pacific region. When one adds the new frigate

populating selected Asian allied navies with the Japanese Aegis programs, the benefits to the United States as well as allies are obvious.

Global missile defense is another example of a transformation

area in which blended programs can become significant. The medium

extended air defense system (MEADS) program among the United

States, Germany, and Italy will be part of the shooter network. Aegis

upgrades and inclusion in the global sensor network will be important

as well.

But the overall effort to develop ballistic missile defense C3 is an

area in which blended systems could become significant indeed. There

is a need for ground-, air-, and space-based sensors networked to provide regional and global convergence against ballistic, air, and cruise

missile threats. With the formation of an open battle management,

6 Defense Horizons May 2003
command, control, and communications (BMC3

) architecture, the

U.S. Government would be in the position to work with allied governments to allow the key U.S. and European primes to develop and network their systems to provide for national, European, American, and

global sensor capabilities.

Boeing recently has signed agreements with EADS, BAES, and

Alenia to pursue the possibility of developing common capabilities in

the global missile defense area. EADS and Boeing have capabilities

in both the sensor and launcher areas of interest to build a global

missile defense system. BAES is one of the world’s leading companies in ISR capabilities, and its strong presence in both Europe and

the United States makes it an ideal partner for pursuing strong

transatlantic missile defense efforts.

James Albaugh, president and chief executive officer of the

newly formed Boeing Integrated Defense Systems unit, commented

on the Alenia agreement: 

Boeing is the prime on integrated missile defense. We have established the MOU [memorandum of understanding] that provides

an open framework for industrial cooperation. The intent is to

establish long-term relationships between Boeing and Alenia

Spazio in global missile defense.17

By promoting industrial cooperation in the wake of the termination of the Antiballistic Missile (ABM) Treaty, Washington seeks to

promote global missile defense capabilities. According to The Washington Times, “U.S. officials have said that the participation of allies

in creating a missile-defense system could extend its range, defray

some costs and allow the United States to test and deploy sensors,

radar or missile interceptors closer to enemy countries.”

18

Among the most vocal of these officials has been David Martin,

Missile Defense Agency (MDA) deputy for strategic relations. Martin has underscored the significance of the new opportunities

opened by the end of the ABM Treaty for U.S.-allied cooperation,

and not only with Europeans. MDA also is pursuing work with Israel,

Russia, and Japan.19

The new industrial model also means that Europe can pursue

its systems architecture and system-of-systems approach where it

meets its needs rather than simply following American leads. Then

partnership among primes in shaping participation of system and

subsystem suppliers can allow for the emergence of greater EuroAtlantic capabilities.

For example, if Europe goes ahead with the A400M airlifter, it

could pursue a variant of the approach of General John Jumper, U.S.

Air Force chief of staff, which is to build smart capabilities into

lifters and tankers. Here Europeans would build common C2 and

other network systems on the lifters that would allow them to work

together in joint interventions.

The controversial Galileo system is an example of Europe trying to build a common architecture, which could involve American

participation at the system and subsystem levels. Perhaps the only

way the United States might avoid Galileo would be the engagement

of Europe as a key stakeholder at the global positioning system

(GPS) table, something that was envisaged in the GPS II process.

The European Union and the European Space Agency (ESA)

have jointly launched the development and validation phase for their

global competitor to the American GPS system. On March 26, 2002,

the European Transport Council approved its part of the joint funding, so the new phase is under way. This is the first time that the

European Union and ESA have worked together, and the cooperation

represents a key management test of joining these two public entities. At the same time, a common program management office, which

will include the private sector, is being launched.

Many space companies across the European Union see great

economic potential from the program, ranging from building hundreds of components for the 30-satellite constellation to providing

ground equipment and services down the Galileo value chain.

For Europeans, the launching of Galileo will allow them independence from the United States. European space and telecommunications industries will receive a much-needed boost in a time of

economic downturn; and for the first time, the space industry will be

able to tap European transport infrastructure funds.

In short, the new defense industrial model in Europe and the

United States means that a small number of consolidated primes will

be the gatekeepers for Europe in building architectures and systemof-systems management approaches. Global relationships between

U.S. and European primes can frame ways to enhance inter-allied

capabilities as America pursues its transformation approach. The

United States will then be able to implement its new global military

model more effectively as well.

Conclusion

The system-of-systems approach is at the core of the U.S. Government approach to transformation. The effort to get beyond support for discrete systems in the pipeline—to examine comprehensively where one wants to be in future joint operations and to work

backwards—is crucial for the transformation effort. Having megaprimes aligned with this vision and, in fact, directing a strategic

redesign of military and security capabilities are key aspects of a successful transformation strategy.

For this to work, the relationship between the mega-primes

and the Government needs to become more effective. Industry

needs to play its leadership role in sorting out the range of possible

technical and organizational choices that best serve a system-ofsystems approach; the Federal Government needs to provide guidance on where it wants to go in this process and to generate support for innovation.

Sponsoring innovation will occur in several ways: Government

research and development (R&D) provided in laboratories are key

parts of the equation for innovation. Defining the relationship

between the LSIs and the laboratories will be a main challenge for

the Government. Sponsoring black-box innovation, via DARPA and

similar agencies, is important as well. But what will the relationship

be between the limited profit made on Federal Government blackbox R&D and the prospects for much greater profit on series production items?

In other words, how does one avoid vertical integration practices of the large firms, which squelch innovation, and yet use the

LSIs to work with small and mid-size firms essential for innovation?

How does the Government define profit structures for the relationships between the LSIs and system-of-systems managers and the

May 2003 Defense Horizons 7
system, subsystem, and component suppliers and the R&D drivers to

the process of innovation?

Pierre Chao of Credit Suisse has underscored the tensions

between the U.S. Government and industry in trying to make the LSI

model work:

There are two major obstacles to getting a defense industrial base

capable of meeting the Pentagon’s transformation goals. The first

is cultural. The new system-of-systems and Lead Systems Integrator approach to defense contracting hinges on one critical element . . . the ability for the industry and the Department of

Defense to work as partners. This, however, flies in the face of

decades of conditioning that prizes maintaining an adversarial

relationship with industry and a media that is looking for any

signs of the insidious military-industrial complex that Eisenhower

supposedly warned us about. The second set of obstacles are the

laws, rules, and regulations in place that make it difficult to create a true partnership with industry.20

Defining pathways for commercial firms to provide technologies

of increasing value to the Federal Government is another issue for

transformation. Here, the United States could seek to deal with commercial firms, which have limited interest in dealing with the Government as a customer, or to find ways to use the larger firms as gatekeepers for commercial firms to provide the systems or subsystems

relevant to system-of-systems management. The challenge is not only

to recognize that large firms are necessary to play LSI roles but also

to ensure that competitive processes are generated within the system-of-systems management effort.

Above all, the new defense industrial model contains elements

of its own dynamics for further change. As Byran Callan of Merrill

Lynch and his colleagues have put it, long-term defense industrial

restructuring is probable as DOD seeks to deal with consolidation

and innovation challenges. First, DOD will seek to enhance competition and innovation by engaging small to medium-sized defense firms

and seeking to attract commercial information and electronics

firms. Secondly, global systems models could devolve as “companies

will probably need to concentrate on systems engineering or focus

more on dominating particularly product and system markets.”

21

In short, we have already crossed the Rubicon. Even with the

augmented U.S. defense and national security budget after September 11, there is only enough money to support a small number of

defense primes in interaction with a global systems and supply base.

At the same time, these primes and the systems and subsystems

suppliers will provide the means through which transformation will

be executed.

Transformation will be generated through a new defense

industrial model, which is built around public-private partnerships

in creating systems architectures, managing system-of-systems

approaches, and working with U.S. and allied systems and subsystems providers. 

The transformation process emphasizes joint as well as combined military capabilities pursuing network solutions. Industry is

crucial to frame ways for the United States and its allies to anchor a

transformation process. Any serious treatment of military transformation must consider how industry leads, interacts with, and supports

this process.

Notes1 Fusion is the ability to link intelligence and surveillance sensors and combine

their products into a single battlefield picture. 2 Donald H. Rumsfeld, memorandum to the Chairman of the Joint Chiefs of Staff,

October 22, 2002: “Options should include, but not be limited to, (a) creation of an

agency which would address, fund, and implement aspects of battle management and

control [sic] (BMC2) interoperability and connectivity; and (b) allocation of money

directly to all Combatant Commanders to buy ‘joint’ BMC2 systems; and (c) authority

and allocation of money directly to JFCOM to buy ‘joint’ BMC2 systems to support combatant commanders.” Quoted in David A. Fulghum, “Rumsfeld Pushes Network Warfare,” Aviation Week and Space Technology 157, no. 20 (November 11, 2002), 32–33. 3 Michael Anderson, Diane Burton, M. Steven Palmquist, and J. Michael Watson,

“The Deepwater Project—A Sea Change for the U.S. Coast Guard,” Naval Engineers

Journal 111, no. 3 (May 1999), 125–131. 4 George W. Bush, The Department of Homeland Security (June 2002), 3.

5 Bruce Stubbs and Scott C. Truver, America’s Coast Guard: Safeguarding U.S.

Maritime Safety and Security in the 21st Century (Washington, DC: United States

Coast Guard, 1999), 107. 6 George W. Bush, commencement address, United States Military Academy at

West Point, June 1, 2002. 7 United States Coast Guard, Integrated Deepwater System Program: Maritime

Domain Awareness, accessed at <http://www.uscg.mil/deepwater/>. 8 Bush, Department of Homeland Security, 5.

9 Stuart McCutchen, “Army Says ‘Lead Systems Integrator’ Approach Will Expedite FCS Implementation,” Infobase Web site (March 13, 2002). 10 John G. Roos, “Army Transformation: Objective Force Vision Encompasses Much

More than Hardware,” Armed Forces Journal International, October 2002, 38–44. 11 Ibid., 42.

12 For a good treatment of the lead systems integrators in relationship to the

future combat system, see Daniel Gouré, “The Army’s FCS Gamble: Robots Could Outnumber Soldiers in the Service’s Planned Future Combat Systems,” Armed Forces

Journal International, October 2002, 46–54. 13 “F–35: The Business Strategy,” Jane’s Defence Weekly, July 24, 2002. 14 Gordon Adams, “Aftermath of Prague: New Strategy Hinges on U.S. Defense

Trade Reform,” Defense News, December 16, 2002, 17. 15Nick Cook, “Watchkeeper Contest Set for a Showdown,” Interavia 57, no. 665

(July-August 2002), 30–32. 16 Andrew Chuter, “U.K., U.S. to Share UAV Technology,” Defense News, December

9–15, 2002, 1, 8. 17 “Boeing and Alenia Announce Transatlantic Partnership for Missile Defense,“

Business Wire, July 23, 2002. 18 “Boeing Inks Pact with Three Firms in Europe,” The Washington Times, July

24, 2002. 19 Kerry Gildea, “U.S. Japan Review Options for Future Sea-based Missile

Defense Work,” Defense Daily International, July 12, 2002. 20 Personal communication with author, November 18, 2002.

21 Merrill Lynch, Defense and Aerospace (June 27, 2002).

8 Defense Horizons May 2003

Defense Horizons is published by the Center for Technology and National Security Policy through the

Publication Directorate of the Institute for National Strategic Studies, National Defense University.

Defense Horizons and other National Defense University publications are available online at

http://www.ndu.edu/inss/press/nduphp.html.

The opinions, conclusions, and recommendations expressed or implied within are those of the

contributors and do not necessarily reflect the views of the Department of Defense or any other

department or agency of the Federal Government.

Center for Technology and National Security Policy

Hans Binnendijk

Director