The DoD’s technological edge is eroding.

Since 2015, the department has pursued a strategy to regain the lead. During the Obama administration, it was called the Third Offset.  The Trump administration has abandoned that nomenclature, but it is pursuing the same objective.

The DoD seeks dominance in robotics, artificial intelligence, autonomous systems, and three-dimensional printing, among other fields. It recognizes, however, that such innovation will not come from the usual sources — government labs or the defense industrial base.

Nondefense firms have a decisive lead: The center of gravity in cutting edge, military applicable research is shifting abruptly away from the defense establishment to relatively new commercial firms.  The DoD must engage with these nondefense firms to build the next generation of weapon systems. But how should it do so?

Two decades ago, defense economists David Parker and Keith Hartley, mapped the options for procurement along a continuum. On the far left, managerial diktat determines sourcing, and prices have little role in the process. On the far right is a fully competitive market, where the “relationship between buyer and supplier is transitory, non-committal beyond the current purchase, and arm’s length”; between these extremes are, from left to right, subsidiary purchases, joint ventures, partnerships, networks, preferred suppliers, and adversarial competition.

Keiran Walsh, Yale professor of economics, distilled these options down to three:

[T]here are three basic ways of getting people to do what one wants done. One can force them to
behave as one wishes them to. One can give them a set of incentives that aligns their interests with
one’s own. Finally, one can try to shape the values that they hold so that they will naturally want to
do what you wish them to do.

Walsh’s three alternatives, Parker and Hartley explain, correspond to coercion, competition, and long-term partnering.  Of course, the same option needn’t be chosen for every procurement, and perhaps different alternatives may work better in some cases than in others. But the DoD must choose from these options as it determines how to buy innovation from nondefense commercial suppliers and perhaps should identify a default that works best in most cases.

Keep reading this paper at: https://www.airuniversity.af.edu/Portals/10/ASPJ/journals/Volume-32_Issue-4/V-Schoeni.pdf