Military

I want to first thank Chairman Hunter, Ranking Minority member Meehan, and members of the subcommittee for the opportunity to testify about ways to accelerate the identification, maturation, and transition of advanced technology to our military forces. I commend the subcommittee for taking up this issue, which I believe to be one of the most important national security issues for our country. I have prepared the following remarks that I request be entered into the record:

My name is Richard W. Carroll, and I am Chairman of the Small Business Technology Coalition (SBTC). The SBTC represents hundreds of small high-technology companies across the country that have an interest in providing innovative, affordable high-tech solutions to our nation and the world.

I am also the Chief Executive Officer (CEO) of a small high-technology company called Digital System Resources, Inc. (DSR). DSR offers information technology and complex software solutions to the DoD. I started DSR in 1985 and today am very fortunate to work with nearly 500 very talented people. DSR has been widely recognized in the Navy for its role in providing rapid insertion of advanced technology for our nation's submarines. By delivering drastically new and powerful capabilities to our submarine force, thus expanding our acoustic advantage over our adversaries, we have also transformed our customer's expectations. We now deliver annual technology improvements where previous experience was closer to a decade. It is with this experience that I am able to bring forth recommendations and discuss obstacles and lessons learned with this committee.

I am also appearing before the committee to report the results of consultations with my small business colleagues from the March 22^nd, 2001 hearing on defense innovation held by this same committee. During that hearing, I was encouraged to organize the panel's recommendations for bringing innovation and affordability to the Department of Defense. To the best of my ability I have also incorporated these into my recommendations.

When I use the term "small high-technology companies", I refer to companies engaged in the use of or development of high-technology products with fewer than 500 employees. These companies are commonly referred to as the innovation sector of our economy and for good reason. This small high-technology business sector is the fastest growing segment of the commercial economy and has created the vast majority of new jobs in this nation during the preceding decade. In various studies on innovation this sector consistently outranks all others.

Consider the information technology revolution that has now changed virtually everything we do in this country. The overwhelming majority of the innovative companies that fueled this revolution started as small high-tech businesses with names like Microsoft, Intel, America On-Line, Dell, Compact, Netscape, E-bay, and on and on. These companies built upon their unique innovations causing significant transformation in their respective business sectors resulting in both a benefit to the consumer and a new paradigm for their competitors. Their successful competitors quickly re-made themselves in order to adapt and compete. Their unsuccessful competitors could not adapt and therefore are no longer around. This process of creative destruction is the phenomenon that enables rapid change in our market-driven society and would be the most powerful tool to accelerate the identification, maturation, and transition of advanced technology to our military forces. The simple use of the innovative products resulting from this process of creative destruction in the commercial sector, such as Commercial-Off-The-Shelf (COTS) technology, by defense incumbents will not transform the DoD nearly as effectively as would inspired entrepreneurs launching a direct challenge to the military industrial complex with on-going competitive alternatives.

I know the committee is well aware of the enormous challenge of rapidly transitioning innovative technology into the current defense environment. The defense market that most businesses currently face each day is as follows:

§ A highly consolidated marketplace that is risk adverse and is not structured to encourage the competition of ideas as a marketplace priority;

§ A highly institutionalized marketplace that is committed to the traditional and is slow to change; and

§ A marketplace where the increased trend toward government contract bundling is further reducing competition.

Creating an on-going competitive defense marketplace is not met by simply holding a competition. The Department of Defense holds many competitions for defense systems and services, but this does not ensure a continual competition for more innovative solutions, new ideas, and technologies. In fact, I believe that most people would agree that once the competition to decide who will build a system or provide a service ends, so does the competitive pressure to innovate.

I know there are some people who view the success of my company's Multi-Purpose Processor (MPP) program with the Navy submarine fleet as an aberration - a unique set of circumstances where a small business developed a very successful military system. Let me state emphatically that I do not believe this to be true. DSR took technologies and techniques that were readily available and demonstrated in the commercial sector and adapted them to a defense application in an innovative way. As Chairman of the Small Business Technology Coalition, I consistently come in contact with small high-tech businesses that have creative ideas for solving defense problems rapidly and affordably. What was extraordinary in our case was having the benefit of Navy leadership on the program that was willing to embrace change and break from the status quo. The Submarine Force took a chance on change. They created an on-going competitive environment with the threat of competing alternatives. Creative destruction occurred. Successful incumbents transformed themselves and unsuccessful ones were left behind. Conflicts-of-interest in the selection process were neutralized. Innovation flourished and the result was a system with 200 times the processing capability where the design and development of the system cost one-tenth and the production cost one-thirtieth of the legacy system it replaced. In addition, a rapid technology insertion process that keeps competitive alternatives available, and updates capabilities each year, was put in place so that the system becomes virtually ageless.

This success would not have been possible without a submarine force leadership that was willing to engage creative destruction by taking technological risks, aggressively pursuing ways to rapidly transition technology, encouraging on-going competitive alternatives, and removing conflicts-of-interest. Institutionalizing these tactics is the foundation for the recommendations I have to offer this committee.

I cannot stress the importance of creating a truly competitive defense marketplace. It is my profound belief that the best way to bring innovation, affordability, and rapid transition of technology into defense systems is to create more viable competing alternatives. Competition promotes innovative solutions, forces contractors to identify ways to reduce costs, and lends a sense of urgency to defense programs. My vision for the Department of Defense acquisition environment would be the following:

§ All DoD contractors would feel under continual competitive pressure to deliver the highest performance, most innovative, most affordable, and most capable systems; A lapse of one to two years would result in a loss of significant market share.

§ DoD prime integrators would feel under continual competitive pressure to outsource subsystems and components to the most capable companies. To do otherwise would result in a loss of significant market share; and

§ Competitive alternatives would exist for many DoD development and production programs.

Taking into consideration the limited ability the DoD will have to foster competing alternatives I have the following recommendations for enabling creative destruction in the department. My recommendations are as follows:

§ Create a Domestic Comparative Test Program similar in nature to the Foreign Comparative Test Program that would allow incumbent providers to be challenged by competitors with alternative systems. This would require an impartial panel to assess the merit of the challenge and if it turns out that the challenging technological solution is more desirable, it can displace the current solution.

§ Fund the rapid transition of Small Business Innovation Research (SBIR) Technologies into Defense Acquisition Programs and institutionalize it as an effective way of creating competitive alternatives. Build on the program DoD proposed as a result of the DoD Authorization Act of 1999 by requiring all program managers to budget for incorporation of SBIR technologies. Provide matching funds as incentives for program managers to initiate alternatives. Until program managers have personal experience with the benefits of competing alternatives they may need incentives.

§ Accelerate the "Challenge" Program acquisition doctrine designed as a result of the DoD Authorization Act of 2000. This acquisition approach is designed to foster competition among alternative technological approaches through competitive outsourcing from DoD Prime Contractors. In this approach, large prime contractors are encouraged to competitively outsource subsystems and components, creating competing environments under their prime contractor umbrella. Once the prime contract is awarded, the subcontractor industrial base is empowered to enforce the originally proposed outsourcing plan, and finally;

§ Balance the government's interest as the impartial evaluator of new technologies and as a researcher, developer, or provider of new technologies. Don't burden our world-class government research institutions with the impossible tasks of evaluating their competition.

In closing, I want to commend the committee for holding this hearing. Given our aging military systems, constrained budgets, and changing war fighting environment, the question of how to accelerate the identification, maturation, and transition of advanced technology to our military forces is absolutely critical. I would like to close by reflecting on a part of Defense Secretary Rumsfeld's testimony to the Senate Armed Services Committee on June 21^st, 2001, and I quote "The new threats are on the horizon. And with the speed of change today - where technology is advancing not in decades but in months and years - we cannot afford to wait until they have emerged before we prepare to meet them. After the new threats emerge, this opportunity may not be available. The risks of transformation could be much greater then - perhaps unacceptably so".

Again, thank you for the opportunity to testify. I look forward to answering any questions you may have.

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