Study Examines Why U.S. Defense Sector Fails to Reap Benefits of Information Technology

New Haven, Conn., April 18, 2006— The U.S. defense sector is not experiencing economic gains from the use of information technology (IT) like civilian sectors. The result, say the authors of the new paper “Bringing Defense into the Information Economy,” is that national security is becoming more costly and national strategy isn't aligned with America's technological and economic strengths as it was in World War II and the Cold War.

The study's conclusions: In the commercial economy companies use IT to do more with less. In defense, they do more with more. In U.S. defense there are no cost reductions from IT as in the commercial sector.

“Until defense joins the larger IT economy, the costs of national security will continue to grow or requirements will go unmet if, as seems likely, defense spending levels off,” said Professor Paul Bracken of the Yale School of Management who co-authored the paper with David C. Gompert, Senior Fellow at the RAND Corporation.

In the economy at large, investments in IT lead to better performance at a lower cost. In contrast, the defense sector, despite being IT-rich, pays more to get better capabilities. For example, each new generation of combat aircraft or naval vessel outperforms its predecessor but also costs much more.

“If the price-performance of IT is improving dramatically, and the amount of IT in military capabilities is growing rapidly, then defense should be able to get greater capabilities at a lower cost. As far as we can see, it isn’t,” said Bracken.

In the paper, Bracken and Gompert examine four hypotheses for why defense is not following the pattern of the IT economy. They reject the notion popular among military personnel that “defense is different”—its unique and complex systems for extreme operating environments cost more, as well as the explanation that “it just takes time”—IT investment in defense will pay off eventually. The authors argue that the defense’s exploitation of IT is hampered by the combination of an insular, powerful, and sheltered defense industry structure that does not transmit IT-related economies to military customers, and an intimidating acquisitions system that deters non-defense firms, including top IT firms that could bring competition, innovation, and economies.

Bracken and Gompert call for a new defense economics in which the Department of Defense follows the lead of the national economy. They suggest a number of remedies including ending principal agency by unlocking the hold that several major firms, or lead system integrators (LSIs), have on prime contracts; favoring smaller defense contractors that participate in and therefore are able to convey innovation and economies from wider markets; and lowering entry barriers to attract leading IT firms and others into the defense market.

According to the authors, the defense sector’s ability to capitalize on the economies of IT has strategic importance in the same way that the economics of industrial mobilization did in World War II or the economics of nuclear deterrence did in the Cold War. “IT offers a technological-economic strategy for national security in the 21st century. It provides a strategic option that does not depend on simply shoveling national resources into defense, which is hardly strategic,” said Bracken.

Citation: Bringing Defense into the Information Economy by Paul Bracken and David C. Gompert, National Defense University Center for Technology and National Security Policy, 2006.