In the weeks as the announcement, the U.S. Army has shared details on how it will reform its service-level acquisition process. Part of the change involves consolidating the service’s program executive offices (PEOs), which are responsible for buying new weapons, into six new offices called “portfolio acquisition executives” (PAEs). Plans also include the creation of a new office to rapidly field and scale emerging technologies. Similar initiatives are in the works at the other services.
Measures like these have been championed by the private sector, which has traditionally on the cutting edge of innovative capabilities for decades. Cipher Brief COO & Executive Editor Brad Christian caught up with Entrepreneur and Stanford Professor Steve Blank, who recently published a Department of War Program Executive office directory to help entrepreneurs better navigate the current elaborate system for selling to government. Their conversation has been lightly edited for length and clarity.
Steve Blank
Steve Blank is an adjunct professor at Stanford and co-founder of the Gordian Knot Center for National Security Innovation. His book, The Four Steps to the Epiphany is credited with launching the Lean Startup movement. He created the curriculum for the National Science Foundation Innovation Corps. At Stanford, he co-created the Department of Defense Hacking for Defense and Department of state Hacking for Diplomacy curriculums. He is co-author of The Startup Owner’s Manual.
THE INTERVIEW
Christian: Describe your initial reaction to the Pentagon’s somewhat surprise announcement that it was overhauling its acquisition process.
Blank: It was mind blowing. It was mind blowing not because anything the Secretary said was new; these are things that people who are interested in acquisition reform have been asking for the last 10 years. But it was put in a single package and was clearly done by the infusion of people who have actually run large businesses and were used to all the language of organizations that already know how to deliver with speed and urgency.
The part that didn’t get said, is essentially that the Department of War wants to adopt startup innovation techniques of lean iteration, pivots, incremental releases, good enough delivery, and that gets you what the Secretary asked for, which was speed of delivery. But all those are things that we’ve lived with in Silicon Valley for the last 50 years. And it wasn’t until we had people who worked outside of buildings with no windows inside the Pentagon to understand that those techniques could actually be applied. And it required blowing up the existing system. And they did that spectacularly well. There are very few holes in these proposals.
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Christian: Obviously the Pentagon procurement system is a product of decades of bureaucracy and rules. Are you hopeful that you’re going to be able to see the kind of change in the rapid timeline that they’ve laid forth
Pentagon Disruption: A Clash Between Incumbents and Insurgents
The Department of War’s recent push for faster delivery and choice sourcing is poised to ignite conflict, fueled by significant financial interests. Traditionally,defense contractors – the “primes” – have operated under a system prioritizing shareholder returns and profits,a natural outcome of capitalism. However, the Department is now demanding more, essentially signaling to these established companies that the status quo is unsustainable.
This shift will inevitably lead to resistance as the primes attempt to protect their interests and “bend the rules back” in their favor.Despite the desire for disruption, it’s crucial to acknowledge the primes aren’t obsolete. Currently, no startups possess the capacity to build complex systems like aircraft carriers or fighter jets. While companies like Anduril may approach that capability within five years, a complete dismantling of the existing prime contractor base is unrealistic.
The core of the change lies in a push for speed and efficiency. The Secretary and Deputy Secretary believe the Pentagon needs to accelerate its acquisition processes and explore new sources. This reorganization will likely cause six to twelve months of confusion as roles and regulations are redefined.
Interestingly, this management is bypassing the typical Congressional approval process, a move that, while unconventional, could ultimately benefit the country.
A key factor differentiating the US defense landscape from competitors like China is the latter’s stable,autocratic government. This presents a unique challenge for the Pentagon, accustomed to potential policy reversals with each new administration. However, the current environment is different.
The influx of capital into startups, scale-ups, and private equity firms now rivals the lobbying power of the established primes. For the first time, the “insurgents” have comparable financial resources. This dynamic, coupled with the increasing presence of individuals with commercial experience within the executive branch and the Department of Defense, is fundamentally altering the conversation and driving new recommendations. The issue isn’t a lack of prior recognition of these needs, but rather the difficulty of articulating them to those without practical business experience.
Key Takeaways from the text:
This text details significant shifts happening within the Department of Defense (DoW), moving away from decades-old budgeting and organizational structures towards a more proactive, strategically focused approach. Here’s a breakdown of the key points:
1. Shift Away from PPBE (planning, Programming, Budgeting and Execution System):
* The Problem: The current budgeting system, implemented in 1962 by Robert McNamara (ex-Ford CFO), is now outdated. It’s a CFO-centric approach that stifled innovation and hasn’t adapted to modern needs. It’s been in place for 63 years.
* The Change: There’s a growing recognition within the DoW that this system needs to change, and people are now actively seeking alternatives.
2. Reorganization within the DoW:
* Policy Shift: The policy institution lost three organizations to Acquisition & sustainment (A&S), led by Elbridge Colby.This move raises concerns about the prioritization of policy versus acquisition/sustainment.
* Economic Defense Unit (EDU): A new EDU has taken over the Office of Strategic Capital. This is seen as a positive step towards a “whole of nation” approach to decoupling from China and investing in critical supply chains (minerals, batteries, drone motors, etc.). this is a large-scale strategic move.
* Overall: These moves are described as “smart chess pieces at scale,” indicating a intentional and significant restructuring.
3. Portfolio Acquisition Executive (PAE) Reorganization:
* PEO Consolidation: The Army is leading the way, likely condensing 12 Program Executive Offices (PEOs) into six portfolios. other services are expected to follow.
* New Handbook: The author is updating their existing “PEO directory” (a 300-page resource) into a “Portfolio Acquisition Executive Handbook” to map out the new organizational structure and explain how things are changing.
* Anticipated Chaos: the author anticipates 6-12 months of disruption during this reorganization and believes a clear guide to the new structure will be invaluable.
4. Underlying Theme:
The overarching theme is a move towards a more agile, strategically focused DoW, capable of addressing modern challenges (notably competition with China) with a more “whole of nation” approach and a willingness to break from established, outdated systems. the author emphasizes the importance of understanding these changes to grasp the “master chess game” being implemented.
in essence, the DoW is attempting to recapture a spirit of enterprising, large-scale problem-solving reminiscent of WWII and the Cold War, but with a modern focus on economic security and technological independence.