The time is right to review the integration of defence industry with ADF capability
Describing Australian defence industry as a fundamental input to capability (FIC) is like saying the military is a fundamental input to warfare. Capability simply does not exist without industry, the means to produce defence materiel.
As the strategic environment is changing, so too is the need for the ADF to link capability with all elements of national power. Part of the challenge is too-broad definition of industry and a too-narrow focus of the capability life cycle (CLC).
None of the other Five Eyes members separate industry as an input to capability. Instead, they have a mindset which considers industry as interwoven with all components of capability. For example, how are major systems, supplies, support, or facilities delivered in Australia? Of course, they all rely on industry and a national defence industry base.
To deliver the types of complex adaptive systems that provide options for Government and synchronise with other elements of national power, Australian defence industry needs to be re-conceptualised as a substrate of capability. Military capability is affected by disruptive, early-stage technology in the same way as other capital and labour-intensive industries. Australian defence industry requires a mechanism for innovation, and an environment that encourages exploration, experimentation, and risk-taking.
In his article in ASPI’s The Strategist on 12 August 2020 entitled Strategic suspicion and coronavirus consequences: the cost of Australia’s defence, Dr Marcus Hellyer says, “While the basic settings of the government’s 2016 defence industry policy statement are the right ones, it’s likely that it’s going to have to do more to develop the kind of local industrial ecosystem necessary to deliver the level of sovereign capability described in the 2020 update and force structure plan.”
A start point could be a sovereign capability mindset that sees industry within an ecosystem that exists to solve problems and support the achievement of capability goals, rather than simply delivering products or services.
Despite the increasing complexity of the operational environment and our inability to accurately predict the future, many western defence organisations remain wedded to a linear, reductionist process for the management and development of capability delivered by projects, with layers of management at program and domain level ensuring contractual and regulatory compliance and benefit realisation.
A weakness in this approach is that the process is constantly lagging the environment when it needs to be in the lead. It should be shaping and influencing outcomes rather than reacting to events and leaving us vulnerable to strategic surprise.
It also leaves small to medium enterprises with a difficult task to develop innovative solutions and penetrate the supply chains of major system acquisitions when, often, it is too late. As Dr Hellyer says, “… assembling foreign vehicles here is not going to help you with sovereign capability”.
The question now is how to apply increasing foresight to the Defence and industry capability planning construct to better identify and address
ADF lead threat and technology indicators. The emerging relationship between capability development and industry is changing our current understanding of the FICs, especially within the context of the advanced, data-intensive next generation technologies which characterise the ADF.
The re-conceptualisation of the FICs is an option, involving the analysis of those essential to the management of the CLC and those which are intelligence-led, enterprise inputs, that address the operational, comparative interaction with the competition, both militarily and commercially. Moreover, these enterprise inputs exploit the advantages of a relatively small yet imaginative, intelligent, technology-savvy population – the accelerants in next generation warfare.
SENSE OF URGENCY
The ADF needs capability now so that it has the time to prepare for the sophisticated missions it must perform as part of an integrated joint force able to act simultaneously across air and space, sea, land, and cyberspace.
These missions involve dangerous tasks that must be completed at speed in order to preserve decision-making time and space, and avoid uncontrolled escalation. The lives of ADF personnel must not be put at risk by trading off operational capability for industry outcomes, especially if those industry outcomes are driven by interests which are counter to our own.
An early priority, therefore, is to establish a common understanding of what Defence expects from industry and vice-versa when building sovereign capability. This should start with a common understanding of what is meant by capability with a revisit of its fundamental inputs and the ways and means by which they are managed and developed. This must go beyond contracting and offering grants because the operational environment is fluid and constantly changing, and Defence and industry interoperability does not have a one-size-fits-all answer.
CAPABILITY IS POWER
Defence describes capability as the power to achieve an objective or create an effect in a given environment at a specified time, and for that effect to be sustained for a designated period.
Air and space power, maritime power, and land power contribute to capability, but information power applied in cyberspace or within the electromagnetic spectrum is becoming a more important way of building influence and shaping the environment. Conducting operations as an integrated and joint force across these power domains introduces significant challenges, not least because of the differences in the speed by which people, platforms, and data move through them. This requires not only domain expertise, but also interoperability and synchronisation so that the outcome is greater than the sum of the constituent parts. This outcome is increased capability, and thus, increased power.
Australian defence industry needs to have a clear understanding of where it fits into the capability system, as well as the constraints placed upon it by the operational needs of Defence. Therein lies another challenge. On security and intelligence grounds, Defence can only be transparent to a point, while major system providers are careful to protect their intellectual property.
This need for confidentiality means there is no clear pathway between science and technology R&D, and fielded or future ADF capability. Without a formal mechanism to connect R&D investment with operational outcomes or effects, there is limited incentive for Australian industry to co-invest with the Commonwealth to counter new threats and new risks.
BACK TO FIRST PRINCIPLES
By any standards, the First Principles Review of Defence released in 2015 should be considered a success. The establishment of the Joint Capabilities Group (JCG), formal appointment of single service chiefs as capability managers, and the ‘Smart Buyer’ risk management framework ,stand out for special mention alongside a broad range of reforms within CASG, not least in relationship to the management of the CLC.
This period of reform saw industry formally recognised as the ninth FIC. Each of the nine FICs is further reduced into individual sub-elements which, in theory, ensures that all non-financial resources and activities required to develop, manage, sustain, and support a capability are acknowledged and the relevant costs attributed. This was an important objective of the First Principles Review which highlighted at the time that, “costing methodology does not account for all of the inputs to capability, at acquisition and over project life, and the true total cost of ownership is opaque”.
The FIC framework itself is nothing new. It continues to guide Commonwealth management decisions and is used by other partner defence organisations, but context is everything. The First Principles Review added industry to a legacy FIC framework which was assumed to be fit for purpose, whereas hindsight would now suggest it is time to revisit this approach.
There is no internationally agreed template for defining the fundamental inputs to capability with Five Eyes partners – the US, Australia, Canada, and the UK – each adopting subtly different models to describe the framework around which defence capability is developed and managed. Only Australia singles out industry as a discrete input and, while it signalled the growing importance of industry in the delivery of capability, the definition of industry is too broad. It would benefit from a tighter focus and definition.
There is, however, an opportunity to examine FICs from first principles and consider whether it remains appropriate for the Australian context when dealing with next generation threats, and the science and technologies which now characterise the ADF force structure.
A further examination would consider whether the FICs need to be restructured to better reflect current and emerging next generation capability paradigms, and whether there is a need for a set of higher level FICs that, in turn, need to be analysed and prioritised in greater detail before entering the CLC at Gate 0, and the Smart Buyer framework.
This process would facilitate the early identification of risks and opportunities to underpin targeted Australian science and technology R&D and experimentation programs aimed at enhancing fielded and future Australian Defence Force capability. It would also identify supply chain and national infrastructure vulnerabilities to be addressed within a broader national security and whole of Government apparatus.
Moreover, it would also play to our greatest strength by putting people at the heart of the solution and examining ways of optimising the workforce – for example, by looking at platform crewing ratios and identifying roles at an enterprise level that are better performed by industry.
This change represents an evolutionary approach rather than ‘throwing the baby out with the bath water’, and builds upon the early success of the First Principles Review. But this approach needs to be supported by a narrative that promotes the growing importance of the relationship between advanced technology R&D and people to counter new threats and new risks.
This would be an intelligence-led approach which examines the interaction with strategic competitors at a system level and address the growing importance of counter-intelligence and the potential theft of national secrets to gain military and commercial advantage. This information gathering and analysis would happen ahead of the formal CLC process, and shape the development of the sovereign capability ecosystem while synchronising Defence capability with other instruments of national power at the conceptual level.
A candidate FIC construct is offered for consideration which restructures the current FICs to better align them with present and emerging areas of capability generation emphasis, and identifies four ‘enterprise FICs’ to be considered in advance of major weapon system choices.
The principle focus areas of the enterprise FICs are: Intelligence, Innovation, Integration, and Interoperability.
This early stage planning would identify R&D incentives for industry as well as establishing the framework for competition. It would ensure policy settings were in place, ensure infrastructure and basing were appropriate to the emerging needs of the joint force, and ensure organisations were optimised for Defence enterprise level outcomes.
The enterprise FIC would better inform the capability acquisition and sustainment considerations of the remaining FIC, with feedback loops to deliver ongoing connectivity with Government and Defence strategic guidance.
The most important aspect is that defence industry is considered from the outset as an integral part of a capability system, not just an input. The subsequent acquisition of the major system in the Smart Buyer risk management framework, based substantially upon systems engineering and project management principles for which they are optimised, would be made with a greater level of confidence that it would deliver a sovereign ecosystem existing to solve problems – not to deliver a product or a service.
The vital link between the enterprise FIC and those focused upon the CLC is the people and the numerous workforce-related issues which add complexity to the Defence enterprise. It is also a workforce that must deliver both capability and capacity. As Dr Hellyer points out, “There’s no point acquiring equipment you can’t crew.” There is also little point acquiring equipment you cannot test, or if the basing posture is wrong.
To deliver the Force Structure Plan, defence industry should be incentivised to generate new ideas and create sovereign, Australian-controlled capability rather than simply creating jobs – as important as that is. Workforce is a core part of the solution, but a deliberate higher-order focus on developing defence power through superior technology and ingenuity is necessary to create the desired outcomes of self-reliant security and prosperity. And R&D is the driver.
Post-COVID planning should rightly address supply-side risks, such as supply chain vulnerability and value for money in acquisition and sustainment. But the demand-side risks are accelerating and many of those risks are new and unknown. It is therefore important to differentiate between the icing on the cake and the cake itself. This involves understanding the gaps and risks in the Australian defence and industry construct in terms of capability and capacity, both of which are required to generate power.
Representing the cake, the most significant gap can be filled by a substantial increase in the amount of money invested in Defence R&D. That funding can be found by trading off near-term capability for long-term national security outcomes, without putting at risk the acquisition of new capability systems.
This involves using funds in the sustainment budget by retiring legacy capabilities early or reducing their readiness levels, and investing the balance in next generation technology R&D. A by-product of the process would be to accelerate the major system acquisition process.
While there is no guarantee it will work here, experience in Israel suggests a national endeavour to focus on R&D and the lead indicators of technology enabled by smart people is worthy of further analysis.
According to a 2016 Forbes article entitled Secrets To Israel’s Innovative Edge, more than 250 global companies have R&D labs in Israel today, with 80 of them Fortune 500 companies. Despite Israel’s relatively small population, this was the result of a deliberate effort to build an advanced technology ecosystem highly integrated with industry, not just defence.
The CLC is vital in providing clarity to the total cost of ownership of a weapon system, but does not operate in a vacuum – it is part of this wider ecosystem. An integrated capability and acquisition process which is focused on the generation of Defence power as an outcome, rather than a Defence force, is the goal.
And there is no need to re-invent the wheel. An extension of the intelligence-led, enterprise CLC concept into the strategic centre, a greater investment in R&D within a re-vitalised FIC framework, and a renewed focus on enterprise workforce gaps and risks, is one way of addressing the challenges of strategic competition. *
This article appeared in the Jul-Aug 2020 issue of ADBR.