FEBRUARY 2003

TRANSFORMING THE DEFENSE 

INDUSTRIAL BASE: A ROADMAP
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This report and all appendices can be viewed online and downloaded at: 

http://www.acq.osd.mil/ip

This report was produced by the Deputy Under Secretary of Defense (Industrial Policy) 

from September 2002 - January 2003. Dawn Vehmeier, Deputy Director for Industrial 

Base Transformation in the Office of the Deputy Under Secretary, led this effort. 

Michael Caccuitto and Gary Powell of the Industrial Policy staff also had major roles in 

the production of this report. Support was provided under contract by the Institute for 

Defense Analyses (IDA) and First Equity Development, Inc. Among others, special 

thanks are due to Jim Woolsey and Scot Arnold of IDA, and Brett Pogany, Matthew 

Mejía, and David Cohen of First Equity for their important contributions. 

The team would especially like to acknowledge the contributions of the companies who 

provided us with data on a compressed timeframe. Companies listed or mentioned in 

this report are representative; the list is not exhaustive. Inclusion or exclusion in the 

report does not imply future business opportunities with or endorsement by DoD. 

Finally, we would like to thank our colleagues in the Office of the Secretary of Defense, 

the Services, and the Joint Staff who have helped shape this report through their 

comments and ideas. Inquiries regarding the report should be directed to Dawn 

Vehmeier at (703) 602-4322 or Michael Caccuitto at (703) 607-4065. 
FEBRUARY 2003 

iii

TRANSFORMING THE DEFENSE 

INDUSTRIAL BASE: A ROADMAP 

OFFICE OF THE DEPUTY UNDER SECRETARY OF DEFENSE

(INDUSTRIAL POLICY) 
iv

STUDY OBJECTIVES

Build upon Secretary of Defense Rumsfeld’s

operational goals for transformation, lessons 

learned from OEF, requirements from JV 2020, 

and previous industrial base studies. 

Create a compendium of representative 

emerging defense suppliers with 

transformational capabilities; highlight key 

representative technologies, best business 

practices, and products via case studies of 

selected companies. 

Gain insight from legacy defense suppliers and 

the Defense Advanced Research Projects 

Agency to capture characteristics of the most 

important, most innovative, and fastest 

products. 

Offer a roadmap for the defense industrial base 

to ensure that the warfighter of 2020 is supplied 

by an industrial base and processes that deliver 

transformational, network-centric weapon 

systems.
v

F OREWORD

This report sketches a roadmap to a transformed industrial base for legacy and 

emerging defense suppliers, as well as for senior leadership in the Department of 

Defense. It is built on case studies of 24 emerging defense suppliers who could grow to 

be tomorrow’s defense giants. These are companies not unlike the Boeing of 28 

employees in 1916. All have some business with the Department of Defense, but unlike 

today’s giants, their annual revenues are often less than $10 million and they are made 

up of dozens – not thousands – of employees. None of these companies wants to 

remain small, but all the companies in our case studies had difficulties finding their 

place in the defense enterprise and had experienced growing pains transitioning 

technologies they viewed as important to the Department and to transformation. 

As a product of its time, this report is informed by the lessons learned in Operation 

Enduring Freedom about fielding systems quickly and combining them in new and 

different ways. It also heeds the Secretary’s transformation mandate, attempting to 

make the emerging defense enterprise more transparent so that all companies – current 

and prospective, global and domestic, small and large – can better find their place in the 

United States defense enterprise and its decision-making processes. 

Our military is moving toward a new doctrine – “effects-based operations.” To 

effectively support this, our business practices must also be effects-based. This report 

recommends that the Department consider: 

 

• 

• 

• 

Viewing the industrial base as being composed of operational effects-based 

sectors that support transformational warfighting. 

Organizing its decision processes to optimize operational effects – not programs, 

platforms, or weapons systems. 

Evaluating technological and industrial capabilities and concerns within these 

sectors, including the investment and competitive issues necessary for informed, 

effective decision-making. 

Against the backdrop of network-centric combat operations, the progress made by this 

Administration in its acquisition decisions and ongoing acquisition process and policy 

retooling initiatives will either prove a springboard to transformation – or will sanction the 

status quo. With this report, we are providing a notional construct that we believe will 

help emerging defense suppliers find their place in our transforming enterprise. 

Our legacy suppliers will find tributes to the best of what they provided to us in the last 

century; the case studies of our emerging defense suppliers may help other emerging 

companies find their way. The investment community should find our compendium and 

the results of our follow-on study of critical capabilities to be published later this year 

useful guides to investing in transformation. Finally, this report may lead to enhanced 

decision-making for the Department. 

 
vi

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vii

T ABLE OF C ONTENTS

F OREWORD ............................................................................ V

E XECUTIVE S UMMARY ............................................................... 1

METHODOLOGY AND FINDINGS.....................................................................................................................1

RECOMMENDATION 1...................................................................................................................................2

RECOMMENDATION 2...................................................................................................................................2

RECOMMENDATION 3...................................................................................................................................3

T HE C HALLENGE ..................................................................... 4

NEW CONCEPTS DEMONSTRATED IN OPERATION ENDURING FREEDOM .........................................................4

A ROADMAP TO THE FUTURE .......................................................................................................................6

I NDUSTRIAL S TRUCTURE ............................................................ 9

HISTORICAL PERSPECTIVE.........................................................................................................................10

TODAY’S ENVIRONMENT ............................................................................................................................11

THE DEFENSE INDUSTRY OF THE FUTURE...................................................................................................12

CONCLUSIONS ..........................................................................................................................................15

RECOMMENDATION ...................................................................................................................................18

A CQUISITION E XCELLENCE IN B USINESS P RACTICES ....................... 19

LESSONS LEARNED FROM EMERGING DEFENSE SUPPLIERS AND BEST PROGRAMS......................................19

CONCLUSIONS ..........................................................................................................................................23

THE TRANSFORMATION BOARD STRUCTURE ..........................................................................................24

THE TRANSFORMATION BOARDS............................................................................................................25

PROCESS ENVISIONED..........................................................................................................................26

RECOMMENDATION ...................................................................................................................................30

T HE W AY A HEAD ................................................................... 33

INVESTING IN TRANSFORMATIONAL TECHNOLOGIES ....................................................................................33

SOURCING TRANSFORMATIONAL TECHNOLOGIES........................................................................................34

CONCLUSIONS ..........................................................................................................................................36

RECOMMENDATION ...................................................................................................................................37

A FTERWORD ......................................................................... 39

B IBLIOGRAPHY ..................................................................... 40
viii

A PPENDICES

APPENDIX A – A COMPENDIUM OF REPRESENTATIVE EMERGING DEFENSE SUPPLIERS WITH 

TRANSFORMATIONAL CAPABILITIES

APPENDIX B – STUDY METHODOLOGY AND FINDINGS

 – CASE STUDIES OF SELECTED EMERGING DEFENSE SUPPLIERS

o COMBAT SUPPORT

 ELUSYS THERAPEUTICS, INC. 

 IROBOT, INC. 

 NOMADICS, INC. 

 OAKLEY, INC. 

 SARCON MICROSYSTEMS, INC. 

o POWER PROJECTION

 AEROVIRONMENT, INC. 

 AMPTEK INC. 

 I2 TECHNOLOGIES, INC. 

o PRECISION ENGAGEMENT

 CARBON-CARBON ADVANCED TECHNOLOGIES, INC. 

 FOAM MATRIX, INC. 

o HOMELAND & BASE PROTECTION

 COHERENT TECHNOLOGIES, INC. 

 RIPTECH, INC. 

 RSA SECURITY INC. 

 SYSTEMS RESEARCH AND DEVELOPMENT (SRD) 

 SYMANTEC CORPORATION 

 VIISAGE TECHNOLOGY, INC. 

o INTEGRATED BATTLESPACE

 ACTUALITY SYSTEMS, INC. 

 AIRFIBER, INC. 

 DELTA INFORMATION SYSTEMS, INC. 

 SABEUS PHOTONICS, INC. 

 SRA INTERNATIONAL, INC. 

 THE INSITU GROUP

 VANU, INC. 

 ZAPLET, INC. 

– SUMMARIES OF BEST PROGRAMS – BOEING, GENERAL DYNAMICS, 

 LOCKHEED MARTIN, NORTHROP GRUMMAN, RAYTHEON, AND DARPA 

o FASTEST TO FIELD

o MOST IMPORTANT AND INNOVATIVE

o OVERALL MOST SUCCESSFUL

APPENDIX C – STORIES FROM COMPANIES EXITING DOD BUSINESS

APPENDIX D – HISTORICAL SUMMARIES, PRODUCT BATTLESPACES, AND CASE STUDIES OF THE 

FIVE LARGEST U.S. DEFENSE FIRMS

APPENDIX E – SMALL BUSINESS INNOVATION RESEARCH (SBIR) AND SMALL BUSINESS 

TECHNOLOGY TRANSFER (STTR) PROGRAM DESCRIPTIONS AND POINTS OF 

CONTACT (POCS) 

APPENDIX F – ADVANCED CONCEPT TECHNOLOGY DEMONSTRATION (ACTD) DESCRIPTION AND POCS 

APPENDIX G – DEFENSE ADVANCED RESEARCH PROJECTS AGENCY (DARPA) DESCRIPTION AND 

POCS

APPENDIX H – SUMMARY OF PHASE I STUDY AND PREVIOUS STUDIES

APPENDIX I – RED TEAMS AND CONTRIBUTING INDIVIDUALS
EX E CUT I V E S UMMARY

METHODOLOGY AND FINDINGS

For this study, we built upon Secretary 

Rumsfeld’s six operational goals for 

transformation, requirements from Joint 

Vision 2020, lessons learned from 

Operation Enduring Freedom, and 

previous industrial base studies. We 

drew on recommendations from experts 

in the Department of Defense, industry, 

and the investment community to create 

a compendium of representative emerging defense suppliers with transformational 

technologies and products.1

 We identified 24 companies’ key technologies, products, 

and best business practices in case studies.2

 We also surveyed legacy defense 

suppliers and the Defense Advanced Research Projects Agency (DARPA) to capture 

key characteristics associated with programs and products judged to be among the 

organizations’ most successful, most important and innovative, and fastest to field.3

 

Finally, we spoke with five prominent companies who have substantially exited the 

defense business.4

The messages from emerging defense suppliers resonated strongly with lessons

learned from legacy defense suppliers. They fell into six primary areas of concern:

 Insufficient visibility into the military enterprise 

 Inadequate funding and advocacy for new technology transition 

 Difficulty building a strong, interactive relationship with customers 

 Cumbersome system design specifications 

 Lengthy, laborious sales cycles 

 Limited access to development and investment capital 

The three recommendations offered for consideration in this report would provide 

emerging and legacy suppliers of interest to the Department more transparency into the 

programs and processes that constitute the military enterprise. Ongoing Department

initiatives address many of these issues. Additionally, recasting the defense industrial 

landscape across operational effects-based sectors and organizing the Department’s

decision-making processes to optimize operational effects would improve supplier

visibility into the military enterprise and help to more systematically secure “invention-toweapon” technology transition funding. If programs were arrayed this way with 

corresponding management structures, emerging defense suppliers would be able to 

 1

 Appendix A. 

2

 Appendix B. 

3

 Appendix B. 

4

 Appendix C.

1

Six Operational Goals for Transformation 

• 

• 

• 

• 

• 

• 

Protect homeland and bases 

Project power 

Deny sanctuary

Protect information networks 

C4ISR interoperability 

Unhindered access to space 

– Secretary of Defense Donald H. 

Rumsfeld 
ascertain opportunities that cut across individual programs and platforms; and identify

DoD and prime contractor points of contact with whom to engage. Conversely, senior 

DoD leaders would be better positioned to identify technology “gaps” affecting both 

individual and multiple programs. With such visibility, DoD leaders also would be 

positioned to advocate sufficient transition funding to “pull” the promising new 

technologies that would enhance operational effects for multiple defense systems. In 

this report, we will refer to this construct as the “Transformation Board” process. 

We believe that this report provides an industrial base roadmap to Secretary Rumsfeld’s

vision of transformation. If followed, the roadmap could position the Department to 

transform itself and its supplier base, and deliver innovative, network-centric weapons 

systems to the warfighter more expeditiously. 

RECOMMENDATION 1.

2

Operational Effects-Based

Industrial Sectors 

• 

• 

• 

• 

•

Combat Support 

Power Projection 

Precision Engagement 

Homeland and Base Protection 

Integrated Battlespace 

The Department should view the industrial base as 

being notionally composed of five operational 

effects-based sectors: Combat Support, Power

Projection, Precision Engagement, Homeland and 

Base Protection, and Integrated Battlespace. If we 

monitor the industry on this basis, and assess 

competition and capability issues on a similar 

basis, we will emphasize the essential functions of

warfighting across the operational spectrum of engagement. This will alter the way we

think about the required capabilities, the number of suppliers, and the frequency of

competitions required to achieve increased capability. In monitoring the industrial base 

and in making investment decisions that shape it, the Department would be positioned 

to support the future more effectively. 

RECOMMENDATION 2.

Operational effects-based decision-making will: 

• 

• 

Support the SECDEF’s mandate to

institutionalize transformation; 

Transform the resource allocation and

acquisition process; and 

• Institutionalize industrial best business

practices key to attracting systems-of-systems

and innovative commercial solutions for the

warfighter.

From program justification through 

budgeting and acquisition, the 

Department should organize its

decision-making processes to optimize 

operational effects – an integrated view 

of force structure; not programs, 

platforms, or weapons systems. The 

current processes sometimes make it

difficult to provide the forward thinking,

strategic guidance necessary to field the interoperable, complementary, and 

transformational systems required for 21st century warfighting. An effects-based 

decision-making process would maximize the operational impact of the Department’s 

limited financial resources by minimizing operational overlaps among new and legacy

defense systems. 
3

A Transformed Acquisition and Resource Allocation 

Process: 

• Defense Planning Guidance provides mission precepts and

allocates funding based on five operational effects sectors 

• Enhanced JROC identifies and prioritizes programs for

each of the sectors to respective JFCOM Component

Commander for operational scrub 

• 

• 

• 

Programs and elements are presented to Transformation

Boards or similar structures by sector

Transformation Board reviews programs and issues one

Program Decision Memorandum on all programs in each

sector 

Annual program reviews by Transformation Boards on a

calendar-driven (perhaps April-August) schedule 

This construct for a 

transformational acquisition 

and budgetary allocation 

process is organized to 

address decision-making in 

the five notional operational 

effects-based sectors. This 

approach offers a way 

ahead to maximize the 

operational impact of DoD’s

decisions on research and 

development and acquisition 

budgets. 

RECOMMENDATION 3.

DoD ought to analyze the results of a systematic assessment of critical technology

requirements in each of these sectors. This would provide important investment 

guidance to senior Department decision-makers and the defense industrial base. 

Mapping these critical technology requirements against available sources of technology

and the associated human capital would allow the Department to better understand the 

number of competitors and competitions required to shape the desired industrial base. 
T HE C H A LLENGE

Ideas and products of emerging defense suppliers will be increasingly important for 

transformational warfare; and the defense industrial landscape of, say 2020, will be

significantly different from today’s because of the pace of change and the kinds of 

companies that make the new products. Our challenge is to match innovative

capabilities and companies with the defense strategy, and provide beachheads and 

bridges – not barriers – to nurture them and draw them into defense. 

NEW CONCEPTS DEMONSTRATED IN OPERATION ENDURING FREEDOM 

Against the backdrop of the Secretary’s transformation mandate, the new concepts and 

legacy systems deployed in Operation Enduring Freedom demonstrated the value of 

transformational warfare. In this war, state-of-the-art and legacy products of the 

defense industrial base were matched with multi-dimensional, unconventional, and 

asymmetric tactics to produce a truly come-as-you-are war with a brand-new,

transformational script. 

Operation Enduring Freedom was a war unlike any our forces have previously fought. 

In 26 days, from 9/11 to the beginning of Operation Enduring Freedom on October 7, 

our forces adapted by using new systems just coming out of development, by

converting legacy systems to new roles, and perhaps most importantly, by networking 

systems to create new capabilities – all of which were focused to optimize battlefield 

impact. In so doing, we demonstrated on the battlefield some of the most important 

precepts of the Secretary of Defense’s transformation mandate.

4

“These past two months have shown that an

innovative doctrine and high-tech weaponry

can shape and then dominate an

unconventional conflict. This combination –

real-time intelligence, local allied forces,

special forces, and precision airpower – has

really never been used before.”

– President George W. Bush 

December 11, 2001 

The Global Hawk and Predator unmanned 

aerial vehicles, the two most famous new 

systems, removed pilots from harm’s way 

while providing new capabilities. In both 

cases, the Department acted creatively to 

quickly transition new, urgently needed 

technologies to the warfighter. Global 

Hawk rapidly delivered needed capability by

essentially being sent to the operator for a 

wartime field test, with no dress rehearsal. The system decreased the human footprint

in theater by deploying from distant locations, and by remaining aloft for 24 hours 

without a pilot. Global Hawk provided persistent surveillance without risk to our 

warfighters, a critical new capability. 

Although not an entirely new system, Predator brought new capability to the field. 

Predator flew lower than manned aircraft could safely fly to collect valuable imagery and 

transmit that imagery throughout the network. Predator also successfully employed 

weapons for the first time, and did so with a configuration that had seen limited testing, 

demonstrating the value of rapid technology insertion. While the loss of Predators in 
Enemy Forces

Enemy 

SUV Column

Afghanistan

Enemy

Targets

operation has demonstrated the risks of this

approach, the value of allied lives preserved and

prisoners-of-war not captured is incalculable. 

Predator was an important element of a network built

“on the fly” that was able to find moving targets, track 

them, and kill them, while minimizing the exposure of

our warfighters. Predator got cueing from the legacy

Joint Surveillance Target Attack Radar System 

(JSTARS), and in turn, relayed low-altitude video to 

another legacy system, the AC-130 gunship for

hand-off target engagement. 

 

During Operation Enduring Freedom, the Services 

successfully employed network-centric concepts in 

communications, enabling linkages across various 

Service platforms. We saw Predator video 

transmitted to personnel in the field, and to the national command structure back home.

Satellite communications and video links allowed commanders to be distant from the 

theater, while soldiers from disparate forces throughout the theater communicated via

secure DoD “chat room,” coordinating activities, supporting bomb damage 

assessments, and reducing the chatter on limited tactical voice frequencies. 

TRANSFORMATIONAL CONCEPTS IN OPERATION ENDURING FREEDOM

JSTARS

Predator

E-3 AWACS

GPS on Horseback

CV-63 Kitty Hawk

used as SOF platform

and for ground support 

operations

AC-130 Gunship

GCS

Global Hawk

GCS

Secure DoD

“Chat Room” (Outside Theater)

JSTARS cues Predator

to a moving target

CONUS

B-52

Predator sends

live video to

decision-makers

Special Forces personnel 

send coordinates to

JDAM-armed B-52

Predator sends 

video to AC-130

US

Units

Global Hawk

provides persistent 

surveillance

USS Key West

first covert ISR 

responder;

USS Providence first cruise missile

shooter

GPS

Disparate forces share

information on secure 

DoD chat room

Combatant Commander

remote from theater directs 

battlefield operations

Source: ODUSD (Industrial Policy) and Institute for Defense Analyses 

5

PREDATOR BRINGS NEW TARGETING

AND ENGAGEMENT CAPABILITIES

AC-130 Gunship

JSTARS

Predator

Source: ODUSD (Industrial Policy) and 

Institute for Defense Analyses 
Several older weapons saw new life in transformed roles. The Kitty Hawk aircraft 

carrier, commissioned in 1961 as a weapon for the Cold War, saw service carrying 

Special Operations Forces to the new war and provided direct air support to forces on 

the ground. Surprisingly, the B-52, first deployed in 1955 as a strategic bomber, saw 

action in close air support – thanks to the Global Positioning System operated by

special forces soldiers on horseback and the Joint Direct Attack Munition. 

Operation Enduring Freedom had the 

characteristics we expect of future 

conflict. It came at a time we didn’t

anticipate, in a place we had not 

prepared to fight, and was conducted 

in a manner invented on the fly. 

Some of the most important 

successes of Operation Enduring 

Freedom were those of our defense industrial base: Global Hawk brought into

operation before formally entering production; Predator armed 9 months after approval;

the cave-busting GBU-28 developed in 6 months; and the Phraselator providing 

synthetic translation services in four languages, four months after the program was 

approved. 

Operation Enduring Freedom required transformed warfighting concepts and 

capabilities. It reinforced the fact that speed is life on the battlefield and in deploying 

systems to the battlefield. Transformed DoD business practices would support the 

transformed warfighter. They would: (1) shape and access an innovative industrial 

base focused on operational effects; (2) make acquisition and budgeting decisions in a 

net-centric context; and (3) inject new technology rapidly into weapons systems. 

A ROADMAP TO THE FUTURE

 

It is the challenge of today’s policymakers to help shape an industrial base that will 

supply 21st century warriors as effectively as it has prior generations of American men 

and women in uniform. As the chart on the next page shows, the defense industrial 

base of today is a distillate of its prior form. 

The backdrop against which this Administration began making budgetary and weapons

system acquisition decisions included three key features: a number of large programs 

still on the drawing board as long as 20 years after inception; a highly consolidated

defense industrial base; and the realities of warfighting in the 21st century as punctuated 

by Operation Enduring Freedom. Recognizing that the futuristic weapons systems 

required for 2020 and beyond will not be forged overnight, the Department moved 

programs essential to next generation warfighting from development into production. As

the Department completes its review and restructuring of current programs, some may 

be discontinued, no longer relevant to the Secretary’s transformational goals. 

6

“I don’t have any problem writing iRobot, saying ‘I’m

sorry your robot died, can we get another?’ That’s a

lot easier letter to write than to a father or mother.”

– Colonel Bruce Jette, the U.S. Army’s pointman 

on robot deployment, who accompanied the 

first $45,000 iRobot “PackBots” into the field in 

Afghanistan

January 22, 2003 
What were roughly 50 major defense suppliers in the 1980s have become five highly 

consolidated, cross-Service, cross-platform prime contractors. As such, they are 

uniquely suited to provide us with system-of-systems approaches to requirements.

Some people are concerned about this allegedly excessive narrowing of the defense 

industrial base. We believe that consolidation was a normal market response to 

reduced demand, driven by the post-Cold War defense budget drawdown of the 1990s. 

 

A ROADMAP TO THE FUTURE

Source: ODUSD (Industrial Policy), Institute for Defense Analyses, and E.B. Phillips 

However, we think that this “narrowing” may reverse itself as new companies join the

base in response to futuristic warfare concepts. We envision that the defense suppliers

of tomorrow may organize around operational, effects-based industrial sectors similar to 

the Secretary’s transformation goals. The five sectors on the roadmap chart above 

would provide for full-spectrum dominance: Combat Support, Power Projection, 

Precision Engagement, Homeland & Base Protection, and Integrated Battlespace. 

7
8

Operational Effects-Based Industrial Sectors 

• Combat Support 

• Power Projection 

• Precision Engagement 

• Homeland and Base Protection 

• Integrated Battlespace 

Six Operational Goals for Transformation 

• Protect homeland and bases 

• Project power 

• Deny sanctuary 

• Protect information networks 

• C4ISR interoperability 

• Unhindered access to space 

To support Secretary Rumsfeld’s six operational transformation goals, the Department 

could use operational effects-based acquisition decision processes, supported by 

associated assessments, and underpinned by industrial best-business practices to 

achieve a transformed DoD acquisition and budgeting process that productively 

engages the best American industry has to offer for the warfighter. 
I N D USTR I A L ST R U C TURE

Competitive pressures of the market place have shaped the current smaller, more 

concentrated defense industrial base. As shown in the chart below, consolidation 

spanning less than ten years fused and fundamentally changed an industry nearly a 

century in the making. However, we believe that today’s opportunities for investors and 

companies are no less promising than those offered decades ago when the defense 

giants of today were just beginning to take form. 

THE HISTORY OF THE BUSINESS RELATIONSHIP

Source: ODUSD (Industrial Policy) and Institute for Defense Analyses 

9

Findings and Conclusions:

 Competitive pressures have shaped a more concentrated defense industrial base,

with “industry giants” well positioned to provide transformational, network-centric

system-of-system solutions 

 Emerging defense suppliers will make important contributions to the battlefield of the

future 

 DoD should stop considering the defense industry only as ship-builders, aircraft

makers, and spacecraft integrators, and begin to think of it instead as providers of

required operational effects 

Recommendation:

 The Department should view the industrial base as being composed of operational

effects-based sectors, monitor the industry on this basis, and assess competition and

capability issues on a similar basis 
HISTORICAL PERSPECTIVE

10

Top Ten Defense Suppliers of 1985 

• 

• 

• 

• 

• 

• 

• 

• 

• 

•

McDonnell Douglas

General Dynamics 

Rockwell 

General Electric 

Boeing 

Lockheed 

United Technologies

Hughes

Raytheon 

Grumman 

Among the ten largest companies in the mid1980s were familiar, strong franchise firms: 

McDonnell Douglas, General Dynamics, 

Rockwell, Lockheed, Northrop, Grumman, and 

the Boeing Company. These and other venerable 

“nameplates” were readily associated with 

famous platforms: Lockheed with Skunk Works 

and its many space, strategic and aircraft 

systems; Grumman, progenitor of naval aviation, 

with the F-14, E-2, A-6, and EA-6B; McDonnell 

Douglas with the new F/A-18, C-17 and missile 

programs; and Northrop cutting its teeth on the futuristic B-2, appearing to encroach on 

Lockheed’s position in stealth. Among them all, General Dynamics had perhaps the 

most expansive footprint, with platform presence in all major combat arenas, from

submarines to space systems. 

Together the top ten firms garnered over 34 percent of all DoD prime contract awards – 

$75 billion in FY02 terms. A further 28 percent of direct DoD revenues were widely 

distributed among an additional 40 firms. This sub-tier base maintained hierarchical

subcontractor relationships with prime contractors generally characterized by wellestablished “teaming” relationships. 

However, revolutionary innovations in military technology traditionally came from these 

second-tier or niche firms, organizations that frequently went on to dominate that

market. These monumental leaps were infrequently developed by the top firms of their 

time. Furthermore, this paradigm – major innovation originating in second-tier or niche 

firms – has been observed frequently in many other industries as well. 

As the chart on the following page shows, by the early 1990s, many of the commercial 

firms in sub-tier defense niches left or dramatically reduced their presence in defensespecific product markets. Others, such as Westinghouse and Texas Instruments, 

divested defense activities to focus on non-defense core businesses. Companies such

as General Electric divested defense-specific businesses because the defense market 

environment of decreasing budgets and slim profit margins did not support growthoriented market dominance objectives to be the number one or number two player in a 

given market.5

This exit of these largely commercial firms from the defense industry precipitated a 

wave of mergers and acquisitions beginning in the 1990s. Contraction of the industry, 

most visible at the top-tier, proceeded in lockstep with the 51 percent decline in DoD

research and development (R&D) and procurement funding from 1985 to 1998. 

 5

 See company “exit stories” in Appendix C. 
11

SAMPLING OF “NAMEPLATES” THAT REDUCED/ELIMINATED DEFENSE PRESENCE

Parent Company

Military Business

Divestiture Military Products Acquirer Year 

Acquired

Aerospace Division

Satellites, radar and sonar systems, simulation systems, 

communications systems, government technical services, and other 

aerospace and defense systems

1992

IBM Federal Systems Systems integration and complex aerospace solutions (Skylab, 

AWACS, submarine sonar, FAA air control ) 1994

Ford Aerospace Tactical missiles and satellites 1990

Defense operations Communications and radiation-hardened spacecraft components, 

Sidewinder missile, airborne radar warning 1996

Defense and electronic

systems division

Advanced radar systems, airspace management, and marine and 

space systems 1996

Lucent Advanced

Technology Systems

Undersea surveillance systems, signal processing defense systems, 

vibration control systems and related technologies 1997

Magnavox Electronic 

Systems

Satellite communications products, signals intelligence electronic

combat situational awareness and combat identification systems 1995

Chrysler Tech. Airborne Aircraft modification and defense electronics 1996

Defense Systems and 

Electronics Division

Guided missiles, electro-optical systems, and defense electronics 

equipment 1997

 Defense

Airborne and ground-based radars, ground, air and ship-launched 

missiles, tactical communications, and training simulators and

services, Air Traffic Control systems

1997

Source: ODUSD (Industrial Policy) and First Equity

By the end of 2001, the five largest defense firms received the same percentage of DoD 

prime contracts by value as the top ten suppliers received in 1985. Therefore, 

Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman, the 

largest five in 2001, are as dominant in the defense market, on a relative basis, as the 

largest ten were in 1985. 

TODAY’S ENVIRONMENT

The company known today as Northrop Grumman is an excellent and highly 

representative case study of this consolidation. The chart on the next page illustrates

the coming together of an array of industry nameplates – Grumman, Westinghouse,

Logicon – consummated with the acquisition of Litton, Newport News Shipbuilding, and 

TRW to produce today’s defense giant. 

Northrop Grumman’s dramatic growth and restructuring throughout the 1990s also

resulted in an increase in direct DoD contract awards. Both as a percentage of overall 

DoD prime contracts, and in real FY02 dollar terms, Northrop’s defense presence has 

multiplied over five-fold. 
12

THE EVOLUTION OF NORTHROP GRUMMAN6

Source: ODUSD (Industrial Policy) and First Equity

THE DEFENSE INDUSTRY OF THE FUTURE

We believe that the current industrial landscape is a watershed and that transformation 

will spawn dozens of new entrants to the global defense industrial base. The 

development of the future industrial landscape undoubtedly will have its own surprises. 

After 9/11 at Ground Zero, for example, two of the first responders from the defense 

industry were from very different corporate entities. Raytheon’s thermal imaging rescue 

systems were used by one group of first responders. Other robotic searchers used on 

site were made by iRobot, a company recently better known for toys and robotic 

vacuum cleaners. Raytheon is a company of tens of thousands of employees and 

$16.9 billion in revenues; iRobot is a relatively nascent company of roughly one hundred 

employees and one-thousandth the revenues of Raytheon. 

Our confidence in the likely contributions of emerging defense suppliers such as iRobot

is rooted in the early history of today’s defense industrial base. In 1918, the Loughead 

 6

 See Appendix D for similar charts for Lockheed Martin, The Boeing Company, General Dynamics, and 

Raytheon. 
13

Flying Boat made its first flight 

and the fledgling Loughead 

Aircraft Manufacturing Company 

made its first military sale: the

Curtiss HS-2L Flying Boat to the 

U.S. Navy. This company, 

Lockheed, went on to produce 

such revolutionary airplanes as

the SR-71 Blackbird, F-117 Night 

Hawk, F-22 Raptor and the F-35 

Joint Strike Fighter, becoming the 

largest defense firm in the world. 

In much the same way, we expect 

many small, innovative firms to 

join the defense industrial base 

and grow into tomorrow’s defense 

giants. 

“I worry about the technology base in this country. The

degree of competition is declining in the defense industry.

The longer the large defense contractors deal with the

Defense Department, the more they become like the

Defense Department – and I don’t say that as a

compliment. They get big and slow and sluggish and

bureaucratic. The energy and vitality that we see in

smaller niche segments in our society, in technology, tends

not to deal with government because ... dealing with

government is just a put-off. Who in the world wants to do

it if he can avoid it? It’s burdensome. It’s ugly. It takes

forever to get anything done. Delay helps the big

companies, because they’ve got all the lawyers and all the

lobbyists and all the people in Washington. Smaller

companies don’t have the time to do all of that. That

means that government tends not to have the kind of

interaction with the creativity and innovation that exists in

our society.”

– Secretary of Defense Donald H. Rumsfeld 

November 18, 2002 

We envision three major sources 

of new and innovative companies that will be household names by 2020. First, we 

believe that most of the legacy defense suppliers have well understood the 

transformation mandate, and will change with the times. One of the ways that they

could change is by acquiring emerging defense suppliers or by expanding their product 

offerings. Their corporate names may be the same in 2020, but likely their operating 

divisions will have different names. They will be joined by lower-tier firms that grow to

be prime contractors. 

The second source of new companies in the corporate landscape of 2020 will be those

companies – perhaps like iRobot, or those innovative, emerging defense suppliers now 

in joint ventures with primes – that achieve critical mass on their own. Perhaps the 

surfboard manufacturer Foam Matrix, who entered the defense market to make wings 

for Lockheed’s Joint Air-to-Surface Standoff Missile and now produces the wings for the 

Air Force’s unmanned combat aerial vehicle in a joint venture with Boeing, will find 

enough markets to become a prime composite structures manufacturer on its own. 

And third, there will be commercial companies or divisions of companies that form

around defense requirements. These could be the pharmaceutical companies that

present themselves to the challenges of chemical biological warfare and associated

vaccination programs. Or they could be entertainment companies like Westinghouse in 

the mid-1930s, whose radio broadcasting skills the government thought may be

applicable to the development of radar. Today’s entertainment companies might, for 

example, apply their ability in visualization to the battlefield of tomorrow. 

To capture the key industrial dynamics of this watershed between legacy defense 

suppliers and those that transformation will spawn, we collected information from three 

groups of companies: emerging defense suppliers (primarily smaller, based on 
employment and revenue), legacy defense suppliers, and former defense suppliers 

(mostly commercial) that have left the industry. All of the emerging defense suppliers

evaluated for this study offer either products or enabling technologies that will help 

satisfy the goals of the Secretary of Defense. 

We asked of the legacy defense suppliers which of their programs were most 

outstanding and why; of the firms that exited the defense industry why they left; and of

the new entrants what they can offer DoD and how we can best engage them. 

This study builds on the results of an earlier study, conducted between February and 

June 2002.7

 That earlier study focused on five innovative emerging defense suppliers

(Cisco, Cree, General Atomics, Sun Microsystems, and TriQuint). These firms echoed

many of the same concerns expressed by our traditional suppliers. 

The chart below is illustrative of the products from emerging defense suppliers 

participating in both the earlier and current study. While not meant to be definitive, this 

illustration shows how some of the technologies of emerging defense suppliers could be

incorporated and used by the military. 

TRANSFORMATIONAL NETWORK-CENTRIC POSTURE OF EMERGING DEFENSE SUPPLIERS

Source: ODUSD (Industrial Policy) and First Equity

One thing we know for sure based on all of our industrial studies, particularly this one 

focused on emerging transformational companies: all companies within the defense 

 

14

7

 A summary of Phase I can be found in Appendix H. 
15

industrial base of 2020, regardless of size, type, location or socio-economic category, 

must be able to function as nimbly as the warfighters of Operation Enduring Freedom, 

and extend the transformational trends that have emerged in 2002. Much as the 

warfighters in Afghanistan often exchanged sensor-shooter roles to achieve optimum 

operational effect, we expect prime and sub-tier companies to reverse roles when doing 

so increases win probability. Such behavior will ensure that innovation from the lower 

tiers will be leveraged in the design and development of new systems. We also expect 

that some of the innovative, emerging defense companies of today, perhaps like 

General Atomics with its Predator, will achieve and retain high profile, market leading 

positions or even grow into the defense giants of tomorrow. 

CONCLUSIONS

The challenge of today’s DoD policy makers is to help shape an industrial base that will 

supply 21st century warfighters as effectively as it has prior generations of American 

men and women in uniform. The DoD must “inspire” the roadmap. Without such a 

roadmap, we run the risk – after expending considerable time and money – of reaching 

the wrong destination. 

The battlefield of the future will be very different, and the companies building the 

systems occupying that battlefield also will be different. The way the Department thinks 

of the industrial base should be different as well. We should stop characterizing 

industry as ship-builders, aircraft makers, and spacecraft integrators, and think of them 

instead as providers of the required operational effects. Warfighting in the 21st century 

requires the best equipped and supported troops; the ability to quickly project power 

around the globe; a lethal and precise engagement capability; safe bases and a safe 

homeland; and a robust, flexible and powerful integrated battlespace. 

This way of thinking is not revolutionary. The largest legacy defense suppliers already 

think this way. Spurred by consolidation, they’ve transitioned from platform specialists 

to integrators of capabilities. Some have taken the next step; they’ve organized their 

enterprises by outcomes rather than platforms. The most successful smaller companies 

have always thought this way. They find homes for the skills they have, and build skills 

that are needed, without regard to labels like air or ground, Army or Navy. 

By thinking of the industrial landscape in operational effects-based sectors, the 

Department could better emphasize the essential functions of warfighting, without 

restrictive subcategories like sealift or strike aircraft. Unencumbered by these 

restrictions, DoD could more easily think of broader solution sets, and a broader field of 

solution providers. Looking to the future, we could more readily think of loitering 

unmanned aerial vehicles competing with space-based communications relays. 

Directed energy weapons could compete with bombs. Hypersonic strike aircraft could 

compete with aircraft carriers. 

To arrive at the proposed five operational effects-based industrial sectors, we surveyed 

(and in some cases merged) Joint Staff Mission Areas and Joint Warfighting 
Capabilities Assessments and arranged the sectors in the order of the operational 

employment spectrum from the particular to the more general. In conceptualizing the 

networks of systems that would populate operational effects-based sectors, we 

reviewed all FY03 major defense acquisition programs and placed them in the sector in 

which we deemed the operational effect most important. Many systems have 

capabilities that warrant their assignment to several categories. To operate efficiently,

the process would demand that they each be placed in a “lead sector,” but their 

contributions to other sectors should be evaluated in all reviews and analyses.

 The Combat Support sector includes functions that equip our troops and 

move them in theater. The Land Warrior program resides here, as do the V22 and utility helicopters. Chemical and biological detectors also fit into this 

sector. 

 The Power Projection sector brings the fight to the enemy wherever that may 

be. Airlift programs such as the C-17 and the C-5 re-engine program belong 

in this sector, as do sealift and many logistics functions. 

16

EFFECTS-BASED SECTORS FACILITATE TRANSFORMATION

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1

2

3 4

5

Source: ODUSD (Industrial Policy) and First Equity
 Precision Engagement puts weapons on targets. Strike aircraft such as the 

Joint Strike Fighter, F/A-22, and F/A-18 reside in this sector, as do the 

munitions programs that arm them. 

 Homeland and Base Protection includes the functions that keep deployed

troops and our homeland safe, and which have recently become ever more 

important. Missile defense functions fit into this sector. 

 Integrated Battlespace includes many of the most critical capabilities of 

network-centric warfare. This is where networks of sensors will be connected 

to give the U.S. military un-matched situational awareness, and where our

combatants will communicate as never before. Sensor programs clearly

belong in this sector, but aircraft carriers and other multi-sensor platforms

belong here too. Although they have many functions, these assets are 

dominant nodes in command, control, communications, computers, 

intelligence, surveillance, and reconnaissance networks. To maintain their 

value in the network-centric future, these high-value platforms must be 

designed and procured with interoperability and network compatibility 

foremost in mind. The placement of high-value, sensor-rich platforms such as 

those in battle groups in this sector should also allow for easier identification 

of expensive redundancy. 

These sector categories and the programs assigned to them are notional. They are 

explicitly intended to evolve as requirements, capabilities, and our understanding of 

warfare evolve. Nonetheless, this operational effects-based structure would serve from

the beginning as a construct to alter the way we think about building military capabilities. 

Looking across the sectors would allow DoD decision-makers to identify capabilities

gaps, overlapping functions, and potential trade-offs among sectors. It may be that 

Combat Support is relatively under-populated, an observation that might lead us to 

investigate whether we are effectively supporting the “tip of the spear.” We will note that

aircraft carriers and long-range bombers have overlapping functions in Power 

Projection, Integrated Battlespace, and Precision Engagement, and seek to minimize

unnecessary redundancy. We would be constantly reminded of how choices affect

multiple sectors. When ground-based precision engagement choices create a lighter

force, demand on the adjacent sector of Power Projection should be reduced. When 

unmanned vehicles replace manned functions in Precision Engagement, Combat 

Support requirements should decrease. 

17

Effects-based sectors also would change the way we think about the industrial base and 

the way that base views the defense enterprise. Companies will be able to readily

identify programs related to each other in capability or connectivity, and which might

offer multiple application opportunities for a new technology. Firms will see where

capability or technology gaps exist, and which gaps they might be able to fill. And 

particularly important for innovative, aggressive non-defense companies, the effectsbased construct would make the functions of warfare and the procurement activities that 

support them more connected and clear. 
18

This would alter the way the Department thinks about the required number of suppliers, 

and the areas where it needs increased capability. In monitoring the industrial base, 

and in making the investment decisions that shape it in this way, the Department would 

be positioned to move from the status quo and support the future. 

RECOMMENDATION

The Department should consider viewing the industrial base as being composed of 

operational effects-based sectors, monitoring the industry on this basis, and assessing 

competition and capability issues on a similar basis. In addition to organizing the 

military enterprise along net-centric, transformational lines for our own purposes, in so 

doing we will also be more clearly projecting the composition and purpose of the military 

enterprise to suppliers. 
A CQUI S I T I ON EXCEL L E NCE IN B USI N E SS P RAC TICES

19

Transforming the Department of Defense 

“We must transform not only our armed forces, but

also the Department that serves them by encouraging

a culture of creativity and intelligent risk taking. We

must promote a more entrepreneurial approach to

developing military capabilities, one that encourages

people to be proactive, not reactive, to behave

somewhat less like bureaucrats...”

– Secretary of Defense Donald H. Rumsfeld 

January 31, 2002 

The Department of Defense has fielded the most technologically innovative, capable,

and responsive defense weapons systems in the world. Today’s program managers 

continue to do so in an uncertain security environment requiring fewer new platforms 

and more transformational, network-centric defense solutions. Future success 

necessitates profound changes in DoD’s internal policies and processes and in the 

external business practices with 

which we engage industry. These 

changes will be instrumental in 

helping meet the transformational 

warfighting requirements of the 

future – now from three primary 

sources of transformational 

capabilities: transformed legacy

defense suppliers, innovative new 

firms or spin-offs, and commercial 

companies.

LESSONS LEARNED FROM EMERGING DEFENSE SUPPLIERS AND BEST

PROGRAMS

In this study, we interviewed 24 emerging defense suppliers to learn how they do 

business, both commercially and with DoD.8

 These companies averaged 621 

employees, $160 million in annual revenues, and have been in existence on average 13 

years. Nearly half of these, however, had annual revenues of less than $10 million. Of 

the emerging defense suppliers interviewed, involvement in the defense market spans 

the entire spectrum. As measured by the percentage of total revenue related to 

defense work, firms' defense participation ranges from zero (in the cases of a prerevenue start-up and a commercial company trying to break into the defense market) to 

100 percent (in the cases of a previously commercial supplier currently pursuing only 

defense opportunities and a sole-source manufacturer of a niche defense product). 

 8

 Complete case studies for these 24 companies can be found in Appendix B. 

Findings and Conclusions

 Many of the deficiencies in DoD acquisition policies cited by emerging and legacy

defense suppliers are similar 

 These deficiencies impede DoD’s ability to deliver superior operational capabilities to

the battlefield

Recommendation

 The Department should restructure its internal R&D and acquisition planning,

programming, and budgeting processes 
20

TWENTY FOUR CASE STUDIES OF EMERGING DEFENSE SUPPLIERS

Total

($ Millions)

Combat Support

EluSys Therapeutics $2.0 100% Pine Brook, NJ Anthrax Vaccine

iRobot n.a. n.a. Somerville, MA Intelligent robotics

Nomadics 7.0 80% Stillwater, OK Advanced sensors

Oakley 476.9 n.a. Foothill Ranch, CA Human form accessories

Sarcon Microsystems 0.0 0% Knoxville, TN Infrared sensors

Power Projection

Aerovironment 50.0 50% Monrovia, CA Energy systems and UAVs

Amptek 7.0 5% Bedford, MA Space instrumentation

i2 Technologies 986.0 15%2 Dallas, TX Logistics software

Precision Engagement

C-CAT 2.0 50% Fort Worth, TX Carbon-carbon components

Foam Matrix 4.0 100% Inglewood, CA Net molded structures

Homeland and Base Protection

Coherent Technologies 19.2 52% Lafayette, CO Laser radar technologies

Riptech 45.0 10% Alexandria, VA Managed security services

RSA Security 282.7 10% Bedford, MA Network security products

SRD 7.5 50% Las Vegas, NV Fraud prevention software

Symantec Corp 1,160.0 n.a. Cupertino, CA Network security products

Viisage Technology 30.5 10% Littleton, MA Biometrics technologies

Integrated Battlespace

Actuality Systems 1.0 65% Burlington, MA 3D visualization technology

AirFiber n.a. n.a. San Diego, CA Wireless equipment

Delta Information Systems 7.0 40% Horsham, PA Communications equipment

Sabeus Photonics 2.0 0% Chatsworth, CA Sensor technologies

SRA International 361.0 95% Fairfax, VA IT systems and consulting

The Insitu Group 2.0 65% Bingen, WA Long-range UAVs

Vanu n.a. 50% Cambridge, MA Software radio

Zaplet 1.0 67% Redwood Shores, CA Collaborative software

1 When military and civil government sales aggregated, most relevant government sales figure presented 2 Next year's target for new licensing revenue

n.a. = not available

Note: Companies listed are representative; the list is not exhaustive. Inclusion or exclusion does not imply future business opportunities

with or endorsement by DoD. 

Company Name Defense Location Enabling Technologies 1

(%)

Annual Sales

Source: Emerging defense suppliers interviews

During our discussions, these suppliers made recommendations as to how to improve 

the Department’s relationship with its emerging supplier base in order to enhance its

capacity to acquire leading edge, revolutionary technologies. The most common and 

most significant of these are distributed across the various stages of the product 

lifecycle and encapsulated in the table on the next page. 
21

EMERGING DEFENSE SUPPLIERS’ RECOMMENDATIONS FOR BEST BUSINESS PRACTICES

Market 

Identification

Communicate military needs more effectively 

Assist innovative companies in navigating military command structure 

Foster interactive relationships between customers and suppliers 

Reduce redundancy in military sales efforts 

Allocation of R&D 

Capital 

Conduct application-focused research to meet user needs 

Involve end-user in research process 

Concept 

Development 

Decrease use of cumbersome system design requirements 

Be receptive to high-risk and innovative concepts 

Contract 

Negotiation 

Fund all stages of a technology’s lifecycle 

Increase direct DoD involvement with second and third tier suppliers 

Centralize and simplify contracting to speed development 

Reduce systems bundling 

Product 

Development Connect developer to user more directly in acquisition process 

Product Testing Standardize technological requirements 

Product Delivery Increase direct DoD involvement with second and third tier suppliers 

Provide incentives for primes to work with innovators more often 

Life Cycle Support Provide channel to allow suppliers to directly support their technologies 

Contract 

Administration 

Streamline and simplify initial and follow-on contracting to speed 

development 

Use more small, long-term contracts 

Centralize decision-making capabilities along technological lines 

Promote cross-agency collaboration 

Intellectual 

Property Protect companies’ intellectual property while assuring military usage rights 

Foreign Sales Monitor export regulation enforcement to prevent unnecessary export 

restriction 

Source: Emerging defense suppliers interviews 

In addition to discussions with emerging defense suppliers, we sought insights from 

legacy defense suppliers and DARPA9

 to help us identify what currently “works” – 

innovative and effective ways of delivering critical weapons systems to the warfighter. 

To get a complete effects-based picture, we asked them to characterize their fastest to 

field, most important and innovative, and overall most successful programs.10

 

9

 See DARPA description in Appendix G. 

10 Full program summaries can be found in Appendix B. 
22

 

The messages from emerging defense suppliers resonated strongly with lessons 

learned from legacy defense suppliers. The messages heard from both fell into six 

primary areas of concern: 11 

 Insufficient visibility into the military enterprise 

 Inadequate funding and advocacy for new technology transition 

 Difficulty building a strong, interactive relationship with customers 

 Cumbersome system design specifications 

 Lengthy, laborious sales cycles 

 Limited access to development and investment capital 

The latter three concerns, particularly, have surfaced in a multitude of previous reviews. 

The Department has addressed them in the past, with mixed success; and continues to 

seek effective solutions today. In October 2002, the Department canceled its existing 

acquisition policy documents. Replacement policies, now being finalized, are intended 

to create an acquisition environment that fosters efficiency, flexibility, creativity, and 

innovation. The new policies would: 

 Give the program manager more authority and freedom by minimizing regulatory 

requirements, removing prescriptive practices, and tailoring the timing and scope 

of milestone decision reviews; 

 Encourage the use of performance-based acquisition and sustainment strategies 

by stating contractual requirements in performance terms; and only using military 

specifications and standards to address Government-unique requirements; and 

 Emphasize evolutionary acquisition as the preferred strategy and spiral 

development as the preferred vehicle to execute that strategy. This approach 

would facilitate reduced cycle times and deliver military capabilities to the 

warfighter more rapidly than in the past. 

Improving access to development and investment capital poses a difficult challenge. 

Emerging defense suppliers frequently face hurdles in raising money for military 

research and development and project opportunities. Capital markets are extremely 

tight (as evidenced by the significant reduction in the number of initial public offerings 

since 2000) and venture-financing opportunities similarly have declined. These 

problems are compounded in defense markets because potential investors do not view 

the risk-reward ratio as sufficiently attractive. To address this problem, the Army, 

Office of Force Transformation, and the Director of Defense Research and Engineering 

have established separate venture capital initiatives. These sorts of initiatives to fund 

and gain access to innovative commercial sector firms and apply their technologies to 

meet defense needs should be institutionalized in the recast investment process to 

provide transition funding to programs across the five operational effects-based sectors. 

11 See Appendix B for a more detailed discussion of these issues. 
Six Primary Areas of Concern:

• 

• 

Insufficient visibility into the military enterprise 

Inadequate funding and advocacy for new technology

transition 

• 

• 

• 

•

Difficulty building a strong, interactive relationship with

customers 

Cumbersome system design specifications 

Lengthy, laborious sales cycles

Limited access to development and investment capital

Over time, we could address

key aspects common to these 

issues by recasting the defense 

industrial landscape across

operational effects-based 

sectors and organizing the 

Department’s decision-making 

processes to optimize

operational effects within those 

sectors. This would improve supplier visibility into the military enterprise and help to

more systematically secure “invention-to-weapon” technology transition funding.

Emerging defense suppliers would be able to ascertain opportunities that cut across

individual programs and platforms; and identify DoD and prime contractor points of 

contact with whom to engage. Most importantly, senior DoD leaders would be better

positioned to identify technology “gaps” affecting both individual and multiple programs. 

With such visibility, DoD leaders also would be positioned to advocate sufficient 

transition funding to “pull” the promising new technologies that would enhance 

operational effects for multiple defense systems. 

Over time, we could address

key aspects common to these 

issues by recasting the defense 

industrial landscape across

operational effects-based 

sectors and organizing the 

Department’s decision-making 

processes to optimize

operational effects within those 

sectors. This would improve supplier visibility into the military enterprise and help to

more systematically secure “invention-to-weapon” technology transition funding.

Emerging defense suppliers would be able to ascertain opportunities that cut across

individual programs and platforms; and identify DoD and prime contractor points of 

contact with whom to engage. Most importantly, senior DoD leaders would be better

positioned to identify technology “gaps” affecting both individual and multiple programs. 

With such visibility, DoD leaders also would be positioned to advocate sufficient 

transition funding to “pull” the promising new technologies that would enhance 

operational effects for multiple defense systems. 

23

The Department’s recent moves away from 

encouraging prime contractor total system 

performance responsibility and the bundling of

smaller contracts should strengthen DoDsupplier relationships by permitting more 

direct communication with emerging defense 

suppliers and making it easier for such firms 

to compete for and win DoD contracts. 

The Department’s recent moves away from 

encouraging prime contractor total system 

performance responsibility and the bundling of

smaller contracts should strengthen DoDsupplier relationships by permitting more 

direct communication with emerging defense 

suppliers and making it easier for such firms 

to compete for and win DoD contracts. 

“Total System Performance Responsibility

is dead. It was a bad idea to start with. It’s

a bad idea today, and we’re not going to

allow it to live any longer.”

– Air Force Secretary James Roche 

May 14, 2002

It is also possible that a reinvigorated Department relationship with preeminent

engineering and manufacturing universities could assist in the “clearing house” function 

cited by a number of the companies in our case studies. Universities specifically tasked

for each of the operational effects-based sectors and provided requirements insight by

the Department could assist innovative companies – and investors – in conducting 

application-focused research and help with technology transition. 

It is also possible that a reinvigorated Department relationship with preeminent

engineering and manufacturing universities could assist in the “clearing house” function 

cited by a number of the companies in our case studies. Universities specifically tasked

for each of the operational effects-based sectors and provided requirements insight by

the Department could assist innovative companies – and investors – in conducting 

application-focused research and help with technology transition. 

CONCLUSIONS

Restructuring DoD’s internal investment, budgeting, and acquisition processes to place 

them in an operational effects-based context would: 

 Support the SECDEF’s mandate to institutionalize transformation; 

 Transform the resource allocation and acquisition process; and 

 Institutionalize industrial best business practices key to attracting systems-ofsystems and innovative commercial solutions for the warfighter. 
The construct described below suggests a model with which this recommendation could

be implemented. 

THE TRANSFORMATION BOARD STRUCTURE

In this effects-based acquisition and resource allocation process model, the envisioned 

Transformation Boards for each of the operational effects-based sectors would facilitate

cross-Service, network-centric, strategic planning and decisions within each operational 

segment. 

COMPOSITION OF FIVE TRANSFORMATION BOARDS

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Transformation Board

Standing Members

USD(AT&L)

Dir(PA&E), USD(C), J8

USD(P&R)

Service Secretaries/SAEs

Service Chiefs

Dir(T&E)

(CAIG)

Transformation Board

Standing Members

USD(AT&L)

Dir(PA&E), USD(C), J8

USD(P&R)

Service Secretaries/SAEs

Service Chiefs

Dir(T&E)

(CAIG)

4 Homeland & Base Protection TB

(Northern Command – primary advocate)

Standing members plus:

JWCA – Strategic Deterrence

PEOs – Air & Missile Defense (A)

Other – Missile Defense Agency

2 Power Projection TB

Standing members plus:

JWCA – Dominant Maneuver

PEOs – Aviation (A)

Airlift & Trainers (AF)

Air Assault & Spec Msn Progs (N)

Expeditionary Warfare (N)

Mine & Undersea Warfare (N)

5 Integrated Battlespace TB

(Joint Forces Command – primary advocate)

Standing members plus:

JWCAs – Intel, Surv & Recon

Comm/Computer Environ

Information Superiority

PEOs – Intel, Elect War & Sensors (A)

Cmd, Control & Comm Sys (A)

Cmd, Control & Combat Spt (AF)

Enterprise Info Sys (A)

Information Technology (N)

Space (AF) 

Aircraft Carriers (N)

Theater Surface Combatants (N)

Submarines (N)

3 Precision Engagement TB

Standing members plus:

JWCA – Precision Engagement

PEOs – Tactical Missiles (A)

Strike Wpns & Unman Aviation (N)

Weapons (AF)

Tactical Aircraft Progs (N)

Joint Strike Fighter Prog (N/AF)

Fighter & Bomber Progs (AF)

Surface Strike (N)

1 Combat Support TB

Standing members plus:

JWCAs – Focused Logistics

Full Dimension Protection

PEOs – Ground Combat & Spt Sys (A)

Ammunition (A)

Soldier (A)

Chemical and Biological Def (A)

Services (AF)

Source: ODUSD (Industrial Policy) 

24

Each of the Transformation Boards would have both standing and sector-specific 

members. The standing board members would be essentially the same as the current 

Defense Acquisition Board members as shown at the center of the graphic above. The 

proposed Transformation Board structure would provide equity for all current process

shareholders. The Service Acquisition Executives would remain as stewards/architects 

of programs and key advocates. 
25

However, the Service Chiefs have been added as standing members of the 

Transformation Boards, recognizing that the unit of the “last tactical mile” is the soldier, 

sailor, marine, or airman. The Services must retain responsibility for personnel, training, 

maintenance, and readiness – and if we are successful in reducing program cycle 

times, their direct participation in decisions would allow them to more directly implement 

those requirements. Full participation by the Service Chiefs, Secretaries, and 

Acquisition Executives would also make them accountable to the Department’s 

transformation mandate, provide funding discipline, and provide for program 

implementation and execution. 

The standing board member structure allows senior DoD leaders to act as harvesters of 

technology across all sectors as programs are reviewed, ensuring every Board links 

programmatic and budget decisions to achieving the Secretary’s operational goals for 

transformation. They also would monitor performance on key performance parameters 

important to joint operations such as operation-wide integration, flexible 

synchronization, mobility, sustainability, lethality, and survivability. In addition, as 

security requirements change, the precepts communicated to the boards in the Defense 

Planning Guidance would change to reflect the most important, overarching needs of 

the Secretary and of the warfighter. 

THE TRANSFORMATION BOARDS

In addition to the standing board members, each operational effects-based 

Transformation Board would include senior warfighting and acquisition leaders from the 

Joint Staff and Services most knowledgeable in the pertinent program and joint warfare 

concept areas. Two of the Transformation Boards have obvious primary advocates. 

For instance, the Homeland & Base Protection Transformation Board could be 

supported by Northern Command whose mission is homeland defense and civil support. 

The Integrated Battlespace Transformation Board could be supported by Joint Forces 

Command whose mission is to serve as a “force provider” to the geographical 

commands - providing trained and ready forces to deploy rapidly and conduct sustained 

operations worldwide. 
SECDEF PRIORITIES STRUCTURED ALONG OPERATIONAL EFFECTS-BASED SECTORS

PROVIDES CONTEXT FOR TRANSFORMATIONAL DECISION-MAKING

Integrated Battlespace

Transformation Board

• Member 1

• Member 2 ...

Homeland/Base Protection

Transformation Board

• Member 1

• Member 2 ...

Precision Engagement

Transformation Board

• Member 1

• Member 2 ...

Power Projection

Transformation Board

• Member 1

• Member 2 ...

DPG

Precepts

• Precepts ...

Annexes

• Prior year 

Transformation

Board Decision

Memoranda (5) ...

Combat Support

Transformation Board

• Standing members

• Sector-specific members

Decision Memoranda (5)

• Answer DPG precepts

• Provide budget/program guidance

• Cross-board action as required

Investment/

Funding

Program

Execution

Integrated Battlespace

Transformation Board

• Member 1

• Member 2 ...

Homeland/Base Protection

Transformation Board

• Member 1

• Member 2 ...

Precision Engagement

Transformation Board

• Member 1

• Member 2 ...

Power Projection

Transformation Board

• Member 1

• Member 2 ...

DPG

Precepts

• Precepts ...

Annexes

• Prior year 

Transformation

Board Decision

Memoranda (5) ...

Combat Support

Transformation Board

• Standing members

• Sector-specific members

Decision Memoranda (5)

• Answer DPG precepts

• Provide budget/program guidance

• Cross-board action as required

Investment/

Funding

Program

Execution

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Source: ODUSD (Industrial Policy) 

The Transformation Boards would provide funding and program implementation 

guidance for the programs in their purview, identify gaps or overlaps among programs 

for which they are responsible, and function as innovation and capability sponsors as 

critical capability shortfalls and innovative solutions are identified. 

PROCESS ENVISIONED

26

“Instead of four services working as best they can to see

their way to the future and then trying to cobble together

what their acquisitions bring to the battlefield, you’ve got

an understood, validated warfighting concept that the

Services have all worked on together.”

– Marine Corps General Peter Pace, Vice Chairman 

of the Joint Chiefs of Staff, regarding the top-down 

JCS procurement approach 

January 27, 2003 

Transformation guidance would

come from the top in the form of 

annual Defense Planning 

Guidance (DPG) that would 

clearly state the Secretary’s 

mission precepts and also

allocate funding based on the 

operational effects sectors. An 

enhanced Joint Requirements 
Oversight Council, or similar body, would identify and prioritize programs (including 

current programs, new desired capabilities, and capability gaps) for each sector and 

present the prioritized programs to the appropriate Component Commander of the Joint

Forces Command for a warfighter assessment. 

Once they have determined the array of

programs that meet the Secretary’s

guidance for a particular operational 

effects-based sector, the assigned program 

managers would be responsible for

structuring, managing, and briefing these 

programs in their respective operational 

effects-based context to the appropriate 

Transformation Board. While programs

would continue to be managed on a 

milestone basis, Transformation Boards

would generally conduct program reviews 

annually (in lieu of at program milestones).

A calendar-driven schedule (perhaps AprilAugust) would provide timely feeds to the 

budget and the following year’s DPG 

process. Annual reviews would optimize 

synergies across sectors – particularly 

early in transformation – but may not 

always be necessary. 

At the end of these sector reviews, each Board would issue a single, binding acquisition

and funding decision memorandum for its sector addressing programmatic issues and 

budget/funding decisions for each program. As necessary, these decision memoranda 

would also include tasking for cross-sector issues to be resolved. Each year’s 

investment deliberations would be interactive across sectors and would build on the

previous years’ Transformation Board reviews. 

This fusion of functions of the Joint Chiefs of Staff as envisioned in the Goldwater

Nichols Act with such an operational effects-based investment and program

implementation process would provide a sound basis for re-engineering the 

requirement/acquisition/resource process and structure. Some legislative changes may 

be required. 

 

Perhaps most importantly, top to bottom, all participants – government and industry

program teams, emerging and legacy suppliers, and key decision-makers – would 

operate within the newly described context. Budget and operational trade-offs would be 

easier to reconcile and capability gaps and overlaps would be more readily identifiable 

by sector. In addition to improving DoD’s strategic thinking and processes, the 

Transformation Board construct also would foster participant learning and the 

application of innovative techniques and technologies across all sectors. 

27

TRANSFORMATION BOARDS CONDUCT ANNUAL

CALENDAR-DRIVEN REVIEWS

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Source: ODUSD (Industrial Policy) 
The Transformation Board process would contribute to reduced cycle times by fostering 

cleaner, cross-Service strategic planning and decision-making. It would force the crossprogram learning and consistent oversight so important to successful joint programs,

limit iterative funding and oversight burdens, and help reduce the need for program 

stretches and course changes. 

The effects-based focus of the Transformation Boards also would encourage spiral 

development and testing. Depending on circumstances, three basic forms of testing 

could be employed: (1) classical testing as enumerated in existing guidance, (2) 

focused joint experimentation to analyze proposed capabilities, and (3) battlefield 

testing. The involvement of the Joint Staff and Combatant Commanders would be key 

to the latter two testing options. 

PROCESS IMPROVES COMMUNICATION WITH INDUSTRY AND

PROVIDES FEEDBACK CRITICAL TO INDUSTRIAL TRANSFORMATION

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Integrated Battlespace

Transformation Board

• Member 1

• Member 2 ...

Homeland/Base Protection

Transformation Board

• Member 1

• Member 2 ...

Precision Engagement

Transformation Board

• Member 1

• Member 2 ...

Power Projection

Transformation Board 

• Member 1

• Member 2 ...

DPG

Precepts

• Precepts ...

Annexes

• Prior year 

Transformation 

Board Decision 

Memoranda (5) ...

Combat Support

Transformation Board

• Standing members

• Sector-specific members

Decision Memoranda (5)

• Answer DPG precepts

• Provide budget/program guidance

• Cross-board action as required

Investment/

Funding

Program 

Execution

Integrated Battlespace

Transformation Board

• Member 1

• Member 2 ...

Homeland/Base Protection

Transformation Board

• Member 1

• Member 2 ...

Precision Engagement

Transformation Board

• Member 1

• Member 2 ...

Power Projection

Transformation Board 

• Member 1

• Member 2 ...

DPG

Precepts

• Precepts ...

Annexes

• Prior year 

Transformation 

Board Decision 

Memoranda (5) ...

Combat Support

Transformation Board

• Standing members

• Sector-specific members

Decision Memoranda (5)

• Answer DPG precepts

• Provide budget/program guidance

• Cross-board action as required

Investment/

Funding

Program 

Execution

1

2

3 4

5

Source: ODUSD (Industrial Policy) 

28
29

Transformation Board pressure could be focused to create performance-based 

specifications in the context of operational effects and transformational goals. Both 

emerging companies and representatives from successful legacy programs identified 

performance-based specifications as powerful enablers. 

Recognizing that this structure should be more transparent to industry, the five 

operational effects-based Boards could evolve to sponsor the development of critical 

technologies and provide the funding and advocacy required to effectively “pull” new 

technologies into weapons systems. This would be the place to institutionalize the 

numerous “venture capital” funding initiatives spawning in the Department and 

potentially, provide representation for the university enablers as well. 

Suppliers and potential suppliers would learn to use this more transparent system for 

transformation advocacy and the Transformation Boards would evaluate new 

capabilities (and capabilities gaps) on an annual basis. Finally, the Boards would 

improve supplier visibility into the defense enterprise by presenting DoD’s goals, 

strategies, and funding plans in an integrated, network-centric context. This would help 

potential suppliers learn DoD’s objectives and plans, and how emerging products could 

fit into those objectives and plans. Several emerging defense suppliers examined our 

proposed operational effects-based sector structure and found that it "makes sense” 

and provides emerging defense suppliers "significant insight" into the Department and 

relevant programs. 

Perhaps most importantly, the Transformation Boards would be able to nurture creative 

and successful program management that emphasizes program manager knowledge 

of, and compatibility with, other programs within and across operational sectors. The 

Transformation Boards also would be able to provide a management structure that 

encourages reasonable risk-taking in pursuit of optimized operational effects. The 

schedule discipline embedded in this approach would focus the program manager’s 

attention on process matters for only the period of his sector’s reviews. For the balance 

of the year, he would be free to manage his program and source the best technology 

solutions available in industry. 

This construct for process change has not been developed in a vacuum. Over the last 

year, the weapon system decision reviews have struggled to provide a more operational 

effects-based context. The Defense Planning Guidance provided early evidence of key 

tenets of this approach, and the corresponding decision document, the Program 

Decision Memorandum, provides many of the essential elements envisioned for the 

Transformation Board decision memoranda. The Department has also been in the 

process of retooling its program elements to reduce platform focus. The Joint Staff has 

produced a strawman Joint Capstone Concept to deconflict and coordinate Service 

forces into a fully integrated capabilities-based force. The Under Secretary of Defense 

for Acquisition, Technology, and Logistics restructured his Defense Systems 

organization to better focus on capabilities-based acquisition. The staff of the Secretary 

of the Navy has been reorganized to focus on mission rather than platform areas. 

Similarly, the Air Force has shifted from program reviews to a review process centered 
30

on warfighting capabilities and effects. The revisions to the 5000-series acquisition 

regulations and the corresponding Joint Staff Requirements Generation System 

currently underway are surely a recognition that Department business practices must 

change. And finally, with the reorganization of the House Armed Services Committee 

subcommittee structure, our colleagues in the legislative branch are also changing with 

the times. 

RECOMMENDATION

From program justification through budgeting and acquisition, DoD should organize its 

decision-making processes to optimize operational effects – not programs, platforms, 

and weapon systems. Once an effects-based acquisition and budgetary process is put 

into place, effects-based procurement and contracting practices will follow. 

If the Department is successful in designing an enhanced decision-making process, 

programming and budgeting acquisition decisions would be based on an integrated 

view of force structure focused on operational effects. The current processes 

sometimes make it difficult for senior DoD leaders to provide the forward thinking, 

strategic guidance necessary to field the interoperable, complementary, and 

transformational systems required for 21st century warfighting. Sometimes, current 

processes also hinder DoD’s ability to effectively leverage limited financial resources for 

an optimal operational mix between emerging and legacy defense systems.

The chart on page 32 details a notional construct of our proposed investment, 

budgeting, and acquisition process model organized to address decision-making in the 

five operational effects-based sectors. The proposed construct presents an opportunity 

to review complex programs in a manner that crystallizes interrelationships within a 

given program as well as with other programs in the same or complementary 

operational effects-based sectors. 

An important benefit to this approach is in providing better monitoring of the competitive 

landscape of the defense industry. Since all programs within a sector would be 

evaluated essentially simultaneously, DoD leaders would be positioned to identify those 

contractors providing multiple programs or major subsystems in a given sector. This 

would provide senior Department decision-makers real-time assessments of all 

programs contributing to system of systems solutions. Such reviews conducted in this 

way would provide ongoing assessments of the extent to which contractors with 

substantial vertical and horizontal capabilities are offering internal solutions at the 

expense of better external solutions. If necessary, DoD then could require acquisition 

strategy changes to ensure competition-driven innovation. 

Finally, defense suppliers – particularly emerging defense suppliers – would benefit 

significantly from this operational effects-based arrangement of programs because 

program interfaces would become more visible. The Transformation Boards would, in 

turn, provide insight into how these programs are managed. Suppliers would be able to 

ascertain opportunities that cut across individual programs and platforms; and identify 
31

DoD and prime contractor points of contact with whom to engage. When suppliers are 

afforded more visibility into DoD’s goals, strategies, and funding plans, they are better 

able to marshal their unique industrial and technological capabilities and offer innovative 

solutions to a myriad of defense requirements. 
T

R

ANSFO

R

M

A

TION 

ACQUISI

TION A

ND 

RESOURCE 

ALLOC

A

TION

STRUCT

U

RE A

ND 

PROCESS

4 Homeland & Base Protection T

B

(Northern Com

mand lead)

JW

C

A – Strategic Deterrence

PEOs – Air & Missile Defense (A)Other –

Missile Defense Agency

3 Precision Engagement T

B

JW

C

A – Precision Engagement

PEOs – Tactical Missiles (A)

Strike

Wpns & Unman Aviation (N)

Weapons (AF)

Tactical Aircraft Progs (N)

Joint Strike Fighter Prog (N/AF)Fighter & Bomber Progs (AF)

Surface Strike (N)

2 Power Projection 

T

JW

C

A – Dominant Ma

PEOs – Aviation (A)

Airlift & TraineAir Assault & Expeditionary 

Mine & Unde

5 Integrated Battle(Joint Forces Co

m

m

JW

C

As – Intel, Surv & 

Co

m

m/Co

m

Information 

PEOs – Intel, Elect 

C

md, Contr

Cmd, ContrEnterprise 

Information 

Space (AF)Aircraft CarTheater SuSubmarines 

Minuteman

III

GMLRS

ATACMS BAT

F22

SSN 774 MP RTIP

MIDS-LVT

JTRS

HPCM

MIDS-LPD

H-1 Upgrades

T-AKE

Chem

De

mil

JDAM

JASSM

C-17

LPD 17

LHD 1

HIMARS

JSOW

AMRAAM

Land

Warrior

SBIRS

High/Low

MEADS ABL

PAC-3

SBL

JLENS

MTHEL

THAAD

MC2A

LAIRCM

JSTARS

WIN-T

CVN68 Integrated

Battlespac

e

5

Bradley Upgrade

MH60-R/S

Excalibur

AWACS

Adv. EHF JSIMS

MMA

AOC-WS

MUOS

ATIRCM/

CM

WS

Javelin

Longbow Apache

AGM

88E

AIM-9X

Tactical

To

maha

wk

Trident II

JSF

C-130 AMP/J

BMDS

LCS

MPF(F)

CSAR

SBR

DDG51 Adv. WB

Satco

m

AF

Tanker

Precision

Engagement 

3

F/A-18E/F

B2-

RPP

NMD

Homel

and

& Base

Prote

ction 

4

CH-47F

Transformation Board

Standing Members

USD(AT&L)

Dir(PA&E), USD(C), J8

USD(P&R)

Service Secretaries/SAEs

Dir(T

&E)

(CAIG)

T-OE(X)

GCSS

FCS

Longbow

Hellfire

GCCS-AF

AESA

Abrams Upgrades

B1-B

SDB

C-5

RERP

Stryker

FMTV

CV-22

Co

m

bat

Support 1 NTW

GMD

SM 2

E2C

Reproduction

GlobalHa

wk

GBS

Chem

Bio

MV-22

NAS

Po

w

e

r

Projection 

2

EELV

GPS

= Army

= Navy

= Air Force

= DoD

Key:Color coding of PEOs denotes potential overlaps

Comanche

LHA

NFN

AAAV

1 Combat SuppJW

C

As – Focuse

Full Dim

PEOs – Ground 

AmmunChemicSoldier Service

Source: ODUSD (Industrial Policy) 

32
T HE WAY AHEAD

INVESTING IN TRANSFORMATIONAL TECHNOLOGIES

Probably the most important thing that the Department can do to improve and develop 

innovative technologies is to provide robust funding. The chart below illustrates that the 

FY04 $379.6 billion defense budget increases defense spending by approximately four

percent over FY03, with R&D and procurement accounts each increasing on the order 

of six percent over FY03. 

DEFENSE BUDGET TRENDS: DOD BUDGET AUTHORITY

Source: Department of Defense FY03 Budget and FY04 Budget Estimates 

33

Findings and Conclusions

 We must know what to procure for future generations of warfighters mapped in the

same five operational effects-based sectors 

 Such critical technology assessments will identify capability and technology shortfalls

to focus Department and industry investment and human capital development to the

required capabilities 

 Such assessments will be useful in assessing the number of sources and frequency

of competitions required for critical technologies. 

Recommendation

 The Department should conduct industrial assessments – focused on operational

effects-based sectors – in order to provide DoD decision-makers an industrial base

investment roadmap to the future
The tools for transformational warfare and thus the keys to preserving U.S.

preeminence in innovation will be forged in the next several years of R&D spending as 

well as in discretionary spending allocated for transformational capabilities, such as the 

over one billion dollars allocated in the FY04 budget for unmanned aerial vehicles. The 

overall upward budget trends bode well for the defense industry. 

DEFENSE BUDGET TRENDS: CHEMICAL AND BIOLOGICAL DEFENSE

Source: Chem-Bio Defense Program Office 

 

In fact, spending for transformational technologies will grow faster than the aggregate 

defense budget, as evidenced by a greater projected growth in defense expenditures for

chemical and biological defense technologies through 2009. This new focus on 

transformational warfighting requirements will continue to provide more business

opportunities for legacy defense suppliers and also will attract emerging suppliers to the 

defense market. 

SOURCING TRANSFORMATIONAL TECHNOLOGIES

The “how” of transformation will be a product of improved processes and robust

funding. The “what” will be less clear unless we systematically study existing and 

required capabilities across the same five operational effects-based sectors we use for 

investment and acquisition decision-making. 

 

34

In our recent space study co-sponsored with the National Reconnaissance Office, we 

developed a systematic methodology useful for this endeavor. This methodology 

identifies and assesses the technologies within a defense sector critical to the 

warfighter’s needed capabilities. The resulting picture shows the Department where to

focus attention and highlights weaknesses and gaps in industrial technical maturity. 
35

This enables us to shape the transformation of the industrial base by mapping critically 

required capabilities against which to direct Department and industrial investment 

strategies. 

 

The critical technologies assessment of our space study begins with identification of 

capability leadership goals as shown on the next page. This analysis shows us, from 

left to right, which capabilities should be readily available in the global industrial base 

and which are more rare. This grid is also useful in mapping which capabilities require 

more competitors – and more frequent competitions. 

Underlying this assessment is the understanding that where global capabilities are more 

robust, products can be acquired in the global marketplace at competitive prices, thus 

requiring fewer domestic suppliers. As defense solutions become rarer and the 

technologies of interest more critical to the warfighter – the far right column of the chart 

– the Department must stimulate competitions and multiple sources to achieve the 

required innovation. We believe that singular among all factors, competition induces 

innovation. Timely, well-spaced competitions for systems that “push the envelope” are 

the industrial equivalent to “writing it all down” when one compiles a term paper or takes 

an exam in school. The opportunity to bid on contracts is the only way industry can 

“strut its stuff” and government customers can learn most about technology available in 

the defense industrial base. 

Using this same methodology, assessments of each of the proposed operational 

effects-based industry sectors would enable the Department to direct future investments 

to maximize limited financial resources, directly feed critical technology requirements to 

the Transformation Boards, and provide guidance to industry on DoD’s goals and 

strategies. 
CONCLUSIONS

The Department has historically conducted industrial assessments to identify and 

evaluate those industrial and technological capabilities needed to meet current and 

future defense requirements. It has used the results of these decisions to make 

informed budget, acquisition, and logistics decisions. 

Heretofore, the Department has not conducted a systematic evaluation of the ability of

the defense industrial base to develop and provide transformational, network-centric, 

operational effects-based warfighting capabilities. To enable informed and effective 

decision-making, it should perform such assessments. The Department should address

– for each operational effects-based industry sector – enabling technologies, human 

capital, funding constraints and opportunities, and the competition and acquisition 

strategies that would permit the Department to leverage all of its resources to shape a 

transformed defense industrial base for the 21st century. 

36

U.S. SPACE LEADERSHIP GOALS: AN EXAMPLE

(WHERE THE U.S. SHOULD BE AHEAD IN CAPABILITIES) 

DEGREE OF LEADERSHIP

Mission Area Open Market Equal or Better Be Ahead Be Way Ahead

Space Control Current Counterspace, 

Situational Awareness

Next Gen Counterspace, 

Situational Awareness

Position, Nav, Timing Civil Uses National Security Uses *

Missile Warning Shared Warning Warning Missile Defense Related

Intelligence,

Surveillance, 

Reconaissance

Commercial Imagery

Nat'l Security Imagery, 

SIGINT, Persistent

Surveillance

Environmental Sensing Commercial Uses Civil Uses National Security Uses *

Communications Civil and Commercial 

Common Uses

National Security Common

Uses Hardened, Secure Agile, Low Prob Intercept, 

Unlimited Bandwidth

Force Application Through Space From Space

Satelitte (Sat)

Operations

Civil and Commercial 

Common Sat Command 

and Control (C2)

National Security Common

Sat (C2)

Nat'l Sec Unique Sat C2, 

On-Orbit Maintenance, Sat 

Power Supplies

Autonomous Ops, 

Miniaturization, Sat Cluster 

C2

Space Transportation Expendable Launch

Vehicles

Space Shuttle, Propulsion

in Space

Next Generation Reusable 

Vehicles, On-Orbit

Vehicles

Space, Science, and 

Exploration

Deep Space, 

Interplanetary, Manned * *

Critical Technology

* National Space policy states that we will share space science, exploration technology, and other civilian

applications of space technology with the rest of the world. Thus, goals to put us ahead of the rest of the

world in these areas have not been established.

Source: Space Research and Development Industrial Base Study Phase Two Final Report (Booz-Allen & Hamilton) 
RECOMMENDATION

The Department ought to conduct a systematic assessment of critical technology

requirements in each operational effects-based industry sector, in order to provide 

senior Department decision-makers and the industrial base visibility into sought after 

capabilities. The Department would apply this methodology to all proposed operational

effects-based sectors in a study to be initiated by the Deputy Under Secretary of 

Defense for Industrial Policy. 

 

This study would capture the capability leadership goals in each sector and analyze key

technologies for each capability using the methodology shown below. To carry out the 

analysis, we plan to assemble teams of experts with experiences ranging across the 

sectors and services and reviewed by a senior advisory group. We envision a yearlong 

effort to identify the industrial capabilities critical for successful transformation and 

sustained U.S. defense leadership. 

37

CRITICAL CAPABILITIES METHODOLOGY

DEGREE OF LEADERSHIP

Mission Area Open Market Equal or Better Be Ahead Be Way Ahead

Space Control Current Counterspace,

Situational Awareness

Next Gen Counterspace,

Situational Awareness

Position, Nav, Timing Civil Uses National Security Uses *

Missile Warning Shared Warning Warning Missile Defense Related

Intelligence,

Surveillance,

Reconaissance

Commercial Imagery

Nat'l Security Imagery,

SIGINT, Persistent

Surveillance

Environmental Sensing Commercial Uses Civil Uses National Security Uses *

Communications Civil and Commercial

Common Uses

National Security Common

Uses Hardened, Secure Agile, Low Prob Intercept,Unlimited Bandwidth

Force Application Through Space From Space

Satelitte (Sat)

Operations

Civil and Commercial

Common Sat Command

and Control (C2)

National Security Common

Sat (C2)

Nat'l Sec Unique Sat C2, 

On-Orbit Maintenance, Sat 

Power Supplies

Autonomous Ops,

Miniaturization, Sat Cluster 

C2

Space Transportation Expendable Launch 

Vehicles

Space Shuttle, Propulsion 

in Space

Next Generation Reusable

Vehicles, On-Orbit

Vehicles

Space, Science, and 

Exploration

Deep Space,

Interplanetary, Manned * *

Critical Technology

Step 2

Develop

Technology List

by Mission Area

Critical

Technology

List

Critical

Technology

List

Sources,

State-of-Art,

Expected

Future

Performance

Attributes,

Funding,

Risk,

etc.

Sources,

State-of-Art,

Expected

Future

Performance

Attributes,

Funding,

Risk,

etc.

Candidate

Technologies

List by

Mission Area 

Candidate

Technologies

List by

Mission Area 

Is US Technology

Ahead or Behind?

What is the US

Industrial Base Size?

Who are the Foreign 

Competitors?

Is this a

Breakthrough Tech?

Does it have a Broad

Application?

What are the Export

Control Restrictions?

Is US Technology

Ahead or Behind?

What is the US

Industrial Base Size?

Who are the Foreign 

Competitors?

Is this a

Breakthrough Tech?

Does it have a Broad

Application?

What are the Export

Control Restrictions?

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Step 3

Describe

Each

Technology

Step 4

Use Goals to Filter Candidates and

Identify Critical Technologies

Relevant to U.S. Leadership

Step 5

Answer Specific

Questions About

Each Critical Industry

Step 1

Identify Capability

Leadership Goals for

each Sector

Source: ODUSD (Industrial Base) and Space Research and Development Industrial Base Study Phase Two Final Report 

(Booz-Allen & Hamilton) 
This information would help decision-makers sustain and nurture key suppliers and the 

human resources needed for the future, identify capability gaps to be filled, target new 

transformational technologies, and structure competitions to advance state-of-the-art

technologies for future defense applications. Perhaps of special interest, the results of 

our assessment of the nascent Homeland & Base Protection sector could help identify

key suppliers and new technologies with the potential capability to help lay the 

groundwork from an industrial base perspective for both the DoD Homeland Security

office and the new Homeland Security Department. 

Once all sector studies have been completed, the Department will have validated the

Roadmap to 2020 we posited earlier in this report. These sector studies will, in time,

provide direct feed to the Defense Planning Guidance and the Transformation Board 

process envisioned to ensure that the future generations of warfighters have the tools

required to fight in the network-centric context envisioned by the Secretary of Defense’s 

transformation mandate. They will also by an invaluable resource for emerging and 

legacy defense suppliers looking to focus their research and investment strategies to 

best support future warfighters. 

38

FEEDBACK LOOP BETWEEN CRITICAL TECHNOLOGIES AND THE INDUSTRIAL BASE

DEGREE OF LEADERSHIP

Mission Area Open Market Equal or Better Be Ahead Be Way Ahead

Space Control Current Counterspace,

Situational Awareness

Next Gen Counterspace,

Situational Awareness

Position, Nav, Timing Civil Uses National Security Uses *

Missile Warning Shared Warning Warning Missile Defense Related

Intelligence,

Surveillance,

Reconaissance

Commercial Imagery

Nat'l Security Imagery,

SIGINT, Persistent

Surveillance

Environmental Sensing Commercial Uses Civil Uses National Security Uses *

Communications Civil and Commercial

Common Uses

National Security Common

Uses Hardened, Secure Agile, Low Prob Intercept,

Unlimited Bandwidth

Force Application Through Space From Space

Satelitte (Sat) 

Operations

Civil and Commercial

Common Sat Command 

and Control (C2)

National Security Common

Sat (C2)

Nat'l Sec Unique Sat C2, 

On-Orbit Maintenance, Sat

Power Supplies

Autonomous Ops,

Miniaturization, Sat Cluster

C2

Space Transportation Expendable Launch

Vehicles

Space Shuttle, Propulsion

in Space

Next Generation Reusable

Vehicles, On-Orbit

Vehicles

Space, Science, and

Exploration

Deep Space,

Interplanetary, Manned * *

Critical Technology

Critical

Technology

List

Critical

Technology

List

Sources,

State-of-Art,

Expected

Future

Performance

Attributes,

Funding,

Risk,

etc.

Sources,

State-of-Art,

Expected

Future

Performance

Attributes,

Funding,

Risk,

etc.

Candidate

Technologies

List by

Mission Area

Candidate

Technologies

List by

Mission Area

Is US Technology

Ahead or Behind?

What is the US

Industrial Base Size?

Who are the Foreign

Competitors?

Is this a

Breakthrough Tech?

Does it have a Broad

Application?

What are the Export

Control Restrictions?

Is US Technology

Ahead or Behind?

What is the US

Industrial Base Size?

Who are the Foreign

Competitors?

Is this a

Breakthrough Tech?

Does it have a Broad

Application?

What are the Export

Control Restrictions?

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Critical Capabilities Assessments

DEGREE OF LEADERSHIP

Mission Area Open Market Equal or Better Be Ahead Be Way Ahead

Space Control Current Counterspace,

Situational Awareness

Next Gen Counterspace,

Situational Awareness

Position, Nav, Timing Civil Uses National Security Uses *

Missile Warning Shared Warning Warning Missile Defense Related

Intelligence,

Surveillance,

Reconaissance

Commercial Imagery

Nat'l Security Imagery,

SIGINT, Persistent

Surveillance

Environmental Sensing Commercial Uses Civil Uses National Security Uses *

Communications Civil and Commercial

Common Uses

National Security Common

Uses Hardened, Secure Agile, Low Prob Intercept,

Unlimited Bandwidth

Force Application Through Space From Space

Satelitte (Sat) 

Operations

Civil and Commercial

Common Sat Command 

and Control (C2)

National Security Common

Sat (C2)

Nat'l Sec Unique Sat C2, 

On-Orbit Maintenance, Sat

Power Supplies

Autonomous Ops,

Miniaturization, Sat Cluster

C2

Space Transportation Expendable Launch

Vehicles

Space Shuttle, Propulsion

in Space

Next Generation Reusable

Vehicles, On-Orbit

Vehicles

Space, Science, and

Exploration

Deep Space,

Interplanetary, Manned * *

Critical Technology

Critical

Technology

List

Critical

Technology

List

Sources,

State-of-Art,

Expected

Future

Performance

Attributes,

Funding,

Risk,

etc.

Sources,

State-of-Art,

Expected

Future

Performance

Attributes,

Funding,

Risk,

etc.

Candidate

Technologies

List by

Mission Area

Candidate

Technologies

List by

Mission Area

Is US Technology

Ahead or Behind?

What is the US

Industrial Base Size?

Who are the Foreign

Competitors?

Is this a

Breakthrough Tech?

Does it have a Broad

Application?

What are the Export

Control Restrictions?

Is US Technology

Ahead or Behind?

What is the US

Industrial Base Size?

Who are the Foreign

Competitors?

Is this a

Breakthrough Tech?

Does it have a Broad

Application?

What are the Export

Control Restrictions?

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

1. Combat

Support

2. Power

Projection

3. Precision

Engagement

4. Homeland

& Base

Protection

5. Integrated

Battlespace

Critical Capabilities Assessments

Strategy & Decision Making Process

Defense Industrial Base Transformation

Integrated Battlespace

Transformation Board

• Member 1

• Member 2 ...

Homeland/Base Protection

Transformation Board

• Member 1

• Member 2 ...

Precision Engagement

Transformation Board

• Member 1

• Member 2 ...

Power Projection

Transformation Board 

• Member 1

• Member 2 ...

DPG

Precepts

• Precepts ...

Annexes

• Prior year

Transformation

Board Decision

Memoranda (5) ...

Combat Support

Transformation Board

• Standing members

• Sector-specific members

Decision Memoranda (5)

• Answer DPG precepts

• Provide budget/program guidance

• Cross-board action as required

Investment/

Funding

Program

Execution

Integrated Battlespace

Transformation Board

• Member 1

• Member 2 ...

Homeland/Base Protection

Transformation Board

• Member 1

• Member 2 ...

Precision Engagement

Transformation Board

• Member 1

• Member 2 ...

Power Projection

Transformation Board 

• Member 1

• Member 2 ...

DPG

Precepts

• Precepts ...

Annexes

• Prior year

Transformation

Board Decision

Memoranda (5) ...

Combat Support

Transformation Board

• Standing members

• Sector-specific members

Decision Memoranda (5)

• Answer DPG precepts

• Provide budget/program guidance

• Cross-board action as required

Investment/

Funding

Program

Execution

1

2

3 4

5

Source: ODUSD (Industrial Policy) 
39

AFTERWORD

This report was inspired by the excellence that our defense industrial base has 

delivered to generations of warfighters over the last century. The combination of 

Secretary of Defense Rumsfeld’s transformation mandate, the ingenuity of our men and 

women in Operation Enduring Freedom, and the imagination and dedication available in 

some of the companies struggling to emerge as defense suppliers have all been 

important motivating factors in giving us the courage to recommend substantial changes 

in the way the Department conducts its business with industry. 

We are also mindful that these recommendations are but outlines of the roadmap that 

will allow us to provide the best that American industry has to offer future generations of 

warfighters. But as we set on this course together, there is one time-honored principle 

which should inform the planning of our financial and industrial resources: the 

requirements of our men and women in uniform. They will be the first judges and proof 

of our success. 
40

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46