How Top Military Contractors Raytheon And BAE Systems Are Drawing Non-Traditional Suppliers Into Defense

During the long years that U.S. forces were fighting Islamic extremists in Southwest Asia, Russia and China were investing in new warfighting technologies.

Russia's hybrid military campaign against Ukraine in 2014 was a wake-up call for Washington to start paying more attention to “near-peer” threats. China's steadily increasing investment in long-range anti-ship missiles, anti-satellite weapons and cyber warfare reinforced awareness that America's military might be falling behind in the capabilities needed for winning high-end fights.

These trends led the Trump Administration to produce a new national defense strategy in 2018 focused mainly on countering the military challenges posed by Moscow and Beijing. Most of that strategy's content is secret, but one element is clear enough: the Pentagon wants novel solutions to emerging near-peer threats, and it wants them fast.

Policymakers in both the Obama and Trump administrations have repeatedly stated non-traditional military suppliers are a vital part of the Pentagon's effort to get ahead of overseas rivals and stay there. “Non-traditional” has a specific legal definition in defense acquisition policy that potentially allows suppliers to bypass burdensome regulations when offering commercial products from outside traditional military channels.

In more common-sense usage, non-traditional simply means any company capable of offering the military a better mousetrap that doesn't usually do business with the five-sided building. That includes a majority of tech companies in places like Austin, Boston and Silicon Valley, especially startups with cutting-edge ideas. It may also include larger industrial companies like General Motors that are re-entering the military market after a long absence.

The challenge facing policymakers is how to leverage the skills and intellectual property of these non-traditional players without suffocating them under a blanket of bureaucratic requirements that contribute little to finding novel solutions. One way to tap the dynamism of commercial enterprises is to partner them with longtime military contractors who can assume most of the burden for negotiating the bureaucratic landscape.

Here is how two companies, Raytheon and BAE Systems, have stepped up to the challenge.

Raytheon. Massachusetts-based Raytheon has been a major military contractor since it pioneered radar during World War Two. It is in the process of merging with United Technologies, an aerospace conglomerate that has long managed to operate successfully in military and commercial markets (both companies contribute to my think tank).

Raytheon executives say the pace of change and the expectations of military customers have changed radically in recent years. It is not uncommon for military customers to seek new ways of sensing, processing or communicating that must be delivered within months rather than years. This emerging dynamic has led the company to rethink who it partners with in producing such solutions, and how to interact with them.

Raytheon has a cultural affinity for diversity, which may help it to think outside the box about who its partners should be. Although not all of the non-traditional suppliers with whom it teams are Silicon Valley startups, a majority have not previously offered defense products as part of their portfolios.

The role the company has fashioned for itself in partnering with such enterprises is to act as a translator between the fluid world of commercial innovation and the rule-based environment of military acquisition. Raytheon has always been driven by its engineering culture, so the company knows how to identify promising technologies that can be assimilated into cutting-edge combat systems. But it also knows the ins and outs of a baroque acquisition system that outsiders frequently find impenetrable.

Raytheon seeks to leverage the energy of non-traditional sources while remaining in compliance with relevant government standards. For instance, there needs to be effective communication between the company and commercial sources, but the ability of the partner to observe the intricacies of sensitive projects must be tightly constrained. The tension of being a valued supplier but not accustomed to working in a classified environment must be managed.

Non-traditional partners provide Raytheon with base technologies that potentially enable unique military capabilities, and they often can generate novel solutions to technical challenges quickly, thanks to their entrepreneurial cultures. Raytheon configures and integrates these inputs for military customers while translating the needs of those customers into terms the non-traditional supplier can understand.

BAE Systems. The military electronics unit of another major defense contractor, BAE Systems, Inc., is headquartered across the border from Raytheon's home state in Nashua, New Hampshire. BAE concentrates on many of the same technologies Raytheon does such as sensors, signal processing and secure communications—which isn't surprising, since the core of its electronics operation was founded after World War Two by former Raytheon employees. BAE is a consulting client, which has given me some insight into how the company views non-traditional suppliers.

In addition to pursuing partnering initiatives such as those at Raytheon, BAE Systems has fashioned an internal mechanism for leveraging the technology of entrepreneurial startups by helping them to finance their businesses. That mechanism is called FAST Labs, and as the name implies it was conceived to help generate novel solutions to military challenges quickly.

Beyond determining whether the company should manufacture key technology inputs internally or go outside, FAST Labs continuously scouts for promising innovations that are emerging from U.S. startups. When it finds ideas with high potential, it seeks to build trusted partnerships with the enterprises, venture capital investors, universities and government agencies aimed at speeding the pace of innovation. For example, BAE has sponsored technology accelerators at places like MIT.

Most of the startups FAST Labs assists are commercial companies with “dual-use” technologies potentially applicable to military purposes. Although the company has a significant commercial electronics business, the focus of FAST Labs is mainly on meeting the demands of military customers. It takes its cues as to what might be most worthy of support from agencies like the Air Force Research Lab and the Defense Advanced Research Projects Agency.

FAST Labs seems to be a unique business model within the U.S. defense sector. Because the electronics technologies on which the Nashua operation concentrates are fungible across diverse markets, BAE Systems has benchmarked FAST Labs against renowned commercial R&D centers such as the old Bell Labs. It is an unusual approach to military innovation, but like executives at Raytheon, BAE execs say the usual approach to developing warfighting systems just doesn't cut it anymore with their Pentagon customer.

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