(2006) Decline And Fall Of Defence Research

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Decline and Fall of Defence Research This section is aimed at stimulating debate on a subject of wide interest. In this issue, we look at the low, and declining, priority of defence research and technology in European countries, leading to an ever-growing gap with US technology and, in the future, with certain Asian countries. Is it as bad as it seems, and what needs to be done? This issue’s contributors - Bill Kincaid, David Lynam, Francis Tusa, Jim Ironside, Dr Jeffrey Bradford. of Communism. Figures are difficult to compare but, in terms of the percentage of the total defence budget, it has more than halved. Compare that with the US, where the by Bill Kincaid research share of the total defence budget has risen. Compare it, too, with some of the major European countries (and here we Bill Kincaid is the author of the Dinosaur unfortunately have to compare R&D series of books on UK defence equipment spending): in a period when UK R&D procurement: Dinosaur in Whitehall, spending dropped by 25%, France increased Dancing with the Dinosaur and Dinosaur hers by 24% and Germany by 35%. in Permafrost. He wonders why we are so In 1995, the Labour opposition criticised determined to eat our seed corn, thereby Conservative R&D spending in the undermining our ability in the future to following terms: design and develop defence equipment. ‘Decline in government sponsored R&D has not been compensated for by an increase in civil he UK MoD, in common with research, which has indeed decreased at an even other Western countries with the faster rate … Fears that the erosion of Britain’s exception of the US, spends a pitiful defence capability will become irreversible, and amount on defence research and that the UK industry will become no more than technology (R&T).1 The following are an “offset graveyard” with only a minor illustrative: manufacturing role in “off the shelf ” orders placed abroad, have been voiced repeatedly.’2 So what did they do when they came to • The annual US Government spend on directed energy weapons over the last 30 power in 1997? They reduced spending on years is of the same order of magnitude as research further, excluded research from the the UK’s annual spend on generation of new Smart Procurement Initiative, privatised the technology across the whole of defence. bulk of the research establishments and tried to camouflage the damage with trendy • The annual MoD spend on the generation ideas of Towers and Carpets and of new defence technology is not much Technology Centres. more than 1/2 % of the defence budget. The result is an even steeper decline in the amount of money actually spent on the • The UK’s recently-published Defence generation of new technology. Industry sees Industrial Strategy illustrates its words on the importance of research funding: R&T with figures only of research and ‘It’s no great secret that getting access to the development (R&D) which are, of course, US research and development spending budget is of a different order of magnitude. Who’s the only way to survive in the global defence fooling whom? industry.’3 I expect that would be endorsed by BAE Systems. Funding has decreased sharply since the fall

LET’S EAT OUR SEED CORN!

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Perhaps the diminished research spend would not matter so much if what we did spend produced major benefit in the defence equipment programme. But it doesn’t. The socalled ‘valley of death’ – the drop or complete cessation in expenditure once the research is completed and before the relevant equipment programme starts – means that research is rarely ‘industrialised’ before the project gets up a head of steam. Just as importantly, downstream competition usually leads to the selection of proposals which have no UK government-funded technology, the investment in which is therefore wasted. No wonder MoD bean-counters see little reason to spend more on research. It’s just not delivering. But it has got to deliver. Leaving aside the argument that we should abandon support for our defence companies and ‘buy American’ (and there is quite a strong case here), generation of cutting-edge technology is essential if industry is to compete on the world export stage and thereby produce equipment for the UK Armed Forces at reasonable prices. Without it, we shall continue to slide into industrial irrelevance. The recent Defence Industrial Strategy seems to recognise this, albeit rather belatedly, but will its implementation make much difference? But there is another reason of much greater importance as to why research and its pulling through into products has got to prosper. We have a procurement policy that makes us highly dependent on procuring equipment or upgrades for imminent operations through urgent operational requirements (UORs) – we cannot afford those requirements without a major hike in the defence budget. But successful procurement of UORs is dependent on three things: an expert MoD, a strong research base

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c o n t e n t i o n @ ru s i . o rg and a thriving defence industry. We have steadily been eroding the first and we are now trying to stem the collapse of the third. As for the research base, we are starving it of money, selling off research personnel and facilities, getting rid of expertise and placing all sorts of impediments in the way of bringing research to satisfactory outcomes. We are just not taking it seriously. ‘Oh,’ they will say. ‘We just don’t have the money’. But of course they do. The amount spent on technology generation is so tiny (much less than 1% of the defence budget) that it could be doubled or trebled without much difficulty. If we then ignored downstream competition and entered into serious research partnering arrangements with the most innovative companies, we could double or treble it again. And if we are really serious about the final value-formoney outcome, we could easily find ways of mandating the best technology for winning projects. All this would revitalise our industrial base without wasteful handouts to protect jobs. It would show we are serious about innovation. We would have something to sell in the marketplace. Above all, we would cease to eat our fast-diminishing seed corn. And all within the current defence budget. Attractive? I fear MoD thinks not. For the want of a nail …? As a nation, we have a proud record of invention and innovation, but a dismal one of production and marketing. So, why on earth are we starving our innovators and bolstering our heavy-metal producers who cannot compete with those elsewhere in the world?

NOTES 1

Not to be confused with research and development (R&D), the vast bulk of which is spent on development of equipment programmes, rather than on generating new technology. Even the majority of R&T funding is spent on too many paper studies, technical advice to the equipment capability staffs and the Defence Procurement Agency (DPA), and maintaining customer awareness (I hesitate to use the term ‘intelligent customer’ status), rather than on technology generation.

2

Labour’s Approach to the Defence Industry, Strategy for a Secure Future, October 1995.

3

Sandy Morris, Analyst at ABN Ambro, The Times, 31 January 2001.

RESEARCH: WHERE NOW? David Lynam David Lynam is Director Corporate Business Development for Information Superiority and Horizontal Integration at Lockheed Martin UK Ltd. His last appointment in the UK MoD before he retired from the Army was Director of Equipment Capability (Command, Control and Information Infrastructure) in the rank of brigadier.

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welve Research Directors, seven Output Owners, six Towers of Excellence, four Defence Technology Centres, and a NITEWorks within a Defence Experimentation Centre is not so much a Christmas carol to be sung with great glee, but more a recipe for stodgy Christmas Pudding with very few shiny sixpenny pieces! The panoply of terminology, organisations and initiatives requires a PhD to understand our current defence research programme, and yet despite all of the good intentions it is widely recognised that the UK has slipped down the league in Research and Development (R&D). The most obvious culprit is the inadequate spending on research in this country. The MoD’s £400M+ defence research budget certainly pales into insignificance against many major individual industry R&D budgets, let alone that of the US which swamps it by over eight times. There are those who rightly claim that the UK can never match the US and that Europeans must do more collectively with their individually meagre funding. However, international defence research is even more fraught with bureaucracy, national agendas and hence lack of progress than even international acquisition. There are others who opine that defence only needs to undertake minimal research to keep intelligent customer status, as industry will largely provide the product as off-the-shelf entities for the much wider export market. It is this latter group that has largely held sway since the end of the Cold War and this has led to the research budget being repeatedly eroded. Whilst intelligent customer status may be the way ahead for much of the commercial technology now used in defence, it ignores the fact that most off-the-shelf military solutions are only available because overseas

governments have funded the research within their industries, often on a sole source basis. Then there are those who blame the spinoff of QinetiQ (formerly the bulk of the government-owned defence research and development establishments) and the way that research is now competed as a further bureaucratic nightmare, wasting the little precious resource we have. There is no doubt that, as I said in my opening statement, we do have far too many organisations and initiatives for too little money. So, whilst more money is the standard clarion call, it is most unlikely to be forthcoming in the current fiscal climate of ‘no new money’. We must, therefore, look at how to spend the money allocated more effectively and the shift required in the balance of investment. There is an acceptance that some research funding must be allocated to maintaining intelligent customer skills, and the argument further runs that this can only be achieved by undertaking actual research. But research to do what? Because if it is only to build a body of knowledge, then this is a high premium indeed. In a similar vein, research must be conducted into novel, potentially disruptive technologies such as the life sciences and nanotechnology, although I see little of this in either the Dual Technology Centres or the Towers of Excellence. Surely, though, the main value of research is to provide innovative, cutting-edge equipment for our front-line forces. However, technological invention is, as Sir Digby Jones (Director General of the Confederation of British Industries) says, ‘… only half the story, because what really counts is developing that technology into a viable product and bringing that product to market’. Kevin Smith from GKN also states: ‘The Defence Procurement Agency must realise that innovative products are the ones that sell abroad and enable us to keep ahead of our competitors. The policy of buying cheapest and off-the-shelf does not encourage R&D …’. It is this inability of research to be exploited that is the major problem, due in no small part to the Defence Procurement Agency’s risk-averse, competitive approach to acquisition. It will be interesting to see how the recent Defence Industrial Strategy affects research, but what is clear is that, if we are moving away from major platform purchase to a sustained capability, there must also be a fundamental change in the way research is handled in order to facilitate the insertion of technology. S P R I N G 2 0 0 6 RU S I D E F E N C E S Y S T E M S 1 7

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c o n t e n t i o n @ ru s i . o rg It requires industry, therefore, rather than the MoD, to undertake the bulk of research and be responsible for developing it into a piece of military equipment funded in part through a proper allocation of the prescribed 15% spend before Main Gate. But industry must be incentivised and rewarded to do so, rather than penalised by aggressive, repeated and, in many cases, unnecessary competition. Similarly, companies who are maintaining capability must be held responsible for undertaking or facilitating research on insertion of new technologies, funded through a properly resourced through-life technology insertion plan.

PAYING THE R&D PRICE? by Francis Tusa Francis Tusa is Editor of Defence Analysis, London. He argues that the UK’s low spending on ‘Blue Skies’ research is undermining the ability of UK to stay at the forefront of key military technologies.

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he arrival of the UK’s Defence Industrial Strategy ought to be bringing greater clarity to the role, and size, of research and development (R&D) within the broader defence picture. Well, that is the hope. But the concern is that the emphasis is going to continue to be on cutting funded R&D, with vague ‘hopes’ that a new environment can be created in which industry picks up the slack. The UK MoD research budget has been under constant pressure through the 1990s. It has fallen from £700M in 1994 to around £450M in 2005 – some 30% overall. And the trend looks set to continue. In fact, the National Audit Office (NAO) suggests, in its March 2004 report on Defence Research and Technology, that the funding slide will continue. But the situation as regards what is done with that £450M is actually worse than might seem to be the case. According to the NAO, more than 75% of the money devoted to research – and we must separate this from development, which receives somewhere around £2.2Bn annually – is spent on advicerelated activities. That is, not on ‘Blue Skies’ research looking for the technology for the future, but on activities much more related to the procurement of equipment (51% of the research budget is allocated to the Equipment Capability branch). And, again, the NAO seems to suggest that the split between fundamental research and advice will 1 8 RU S I D E F E N C E S Y S T E M S S P R I N G 2 0 0 6

continue to grow in favour of the latter. Is it wrong to be spending money on making sure that the right equipment is procured for the forces, and that what is being selected is deliverable? No. But the concern is that the emphasis on the very tangible – assessment phases and so forth – is taking away from the longer term. In effect, it can be argued that too much research funding is being spent on today’s affairs, when it should actually be being spent on tomorrow’s. And this could well mean that the options open for future governments and commanders will be much more limited. If the UK does not keep quite a firm grip on ‘Blue Skies’ research – something that the country has been not unsuccessful about in the past – then it will arguably lose the ability to even adapt commercial technologies to military usage, something that is seen as the Holy Grail for the future. As a point of comparison, what might be termed ‘fundamental research’ in the UK accounts for some 0.3% of the defence budget. But the nearest equivalent figure in the USA is 2.5%, a significant difference. When people bemoan the growing gap between the USA and others, they should try to think about this figure, rather than the broader and more amorphous R&D figures. This figure shows that even with the growing trend towards dual-use technologies, there is a need to increase the amount of spending on pushing the defence technology envelope. But, so the argument goes, it is going to be possible to get industry to take up the slack in far-reaching, fundamental research. But unfortunately, the argument starts and stops at this level, with precious little thought about how this is to be achieved. The real problem with trying to

‘outsource’ Blue Skies research is that if government shows that it has no interest in keeping research under way in a particular area, where is the interest for industry to pick up the slack? If the MoD doesn’t see the need to do it, why should industry do it? There is obviously no return. The problem is that Blue Skies research is, by its nature, inherently risky, so there have to be exceedingly pressing reasons why industry would want to do it. The talk within the MoD seems to be more favourable to industry making profits: but will the walk match the talk, and will the returns make it worth industry’s while to work on longterm research programmes? And if the profit levels needed to get industry involvement are rather high, then wouldn’t it be cheaper to have kept the capability in-house in the first place? This argument could well go into the thorny topic of the partial – and possibly total – privatisation of QinetiQ, and then why the UK seems to see a smaller and smaller role for in-house research capabilities. And that debate will still rage in many quarters. But perhaps what needs to be considered is how the UK can raise its Blue Skies research funding to a level that will keep the UK defence system – in some official quarters now being called ‘Team Defence’ – at the forefront of key military technologies, both today and tomorrow.

AMPLIFYING INDUSTRIAL RESEARCH AND DEVELOPMENT by Jim Ironside Jim Ironside is Chief Scientist of General Dynamics, UK. Here he describes the advantages of a UK process that links MoD, industry and academia in identifying new ideas and concepts and carrying these through into industrial products, to the advantage of all.

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ew knowledge is an expensive commodity. The high return potential, with high failure risk, conflicts with risk-averse industrial cultures. Industries must overcome distaste for risk to pursue new knowledge, but paradoxically with the lowest possible risk to outcome and cost. Few industry research and development (R&D) departments carry out true research, in the Cambridge dictionary sense: ‘detailed study of a subject, especially in order to

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discover (new) information or reach a (new) understanding’. Relatively near-term concerns drive industry culture – meeting tight schedules, controlling costs, preventing stock prices from being adversely affected by unfounded rumours of doom generated by misunderstanding and industrial rivalry. Research requires ‘going where no one has gone before’, and thus is neither predictable in, nor comfortable with, a process- and resultsdriven industrial mentality. Megacorporations or specialist R&D companies can view it as an acceptable risk if 20 out of 1000 ideas are successful. A moderate-size company may have trouble betting the future on none out of ten. Start-up companies usually ‘productise’ bright ideas that their founders have identified in prior lives, but still with high failure rates. Development, when ‘… something grows or changes and becomes more advanced’, turns laboratory proof-of-concept into saleable items. Development has both a product at the end and a programme to get there; appropriate processes help, although whether customer or internally funded, the process is much the same.

College London and Cambridge) partners. Under a 50%–50% MoD to Industry/ University cost-sharing formula, and with most research done in lower-overhead University environments, the risk/payoff balance tips towards research. Both MoD and industry benefit from multiplication of shared funding and shared intellectual property rights (IPR). Forty individual true research projects in eclectic areas have been initiated, mostly in partner universities, but some at industrial partners. After almost three years, the industrial partners are anxious to take individually promising approaches further towards exploitation. Currently, over 50 potential military and civil exploitation opportunities are being pursued. For the next three years of the DIF DTC contract, emphasis includes ideas to practise pull-through. ‘Clusters’ will link several research projects into a coherent potential application. Clusters will be industrially led, to ensure a view to eventual delivery, and because industry has resources and experience to lead such a team to a common goal. About half of the second-phase DTC resources will go to new ideas; the other half A Model Transition Process will further the evolution of current ideas If industry is not great at research, whence within a cluster framework. We expect the killer ideas? Fortunately, there are large research efforts, while still pushing the institutions anxious to generate new ideas and boundaries of knowledge, to be tested against concepts – the universities. Traditionally not each other within this unifying cluster, and will driven by near-term corporate imperatives strive to answer real questions posing most (although this advantage could well be downstream risk. Clusters will not result in destroyed by moves to Full Economic Costing), immediate product, but they will result in the daily passion of their innovative staff is to complementary and synergistic ideas that can understand and push intellectual frontiers. be carried forward, under normal industrial However, university ideas cannot generate development processes, to deliverable systems competitive advantage until extracted from for end-users. academia through processes ensuring that, in Conclusion real as well as in university life, they work Industry is weak at basic research, but good better than competitive alternatives. at pulling research results through to products Furthermore, it is usually a synthesis of new or systems. Understanding differences and ideas rather than a single idea that provides linking players can engage the national intellect that ‘killer app’. We must bridge the yawning in creating solutions today to the problems of gap between brilliant idea and product sale. Industrial and Government stakeholders tomorrow. The maturing DTC concept is linking can support academia developing new ideas the best characteristics of university research breaking bonds with the past. The Defence Technology Centre Programme – for which environments with the best of industrial development environments, forming a General Dynamics UK Limited leads the synergistic relationship, developing genuinely Data and Information Fusion theme (DIF new ideas and concepts and taking them DTC) – spearheads a novel process for this forward to industrial exploitation. This model transition. The DIF DTC comprises three can enable industries, even of modest size, to industrial (GD UK, Qinetiq, and BT) and influence and exploit research in a positive and eight university (Bristol, Cardiff, Cranfield, de Montfort, Surrey, Southampton, Imperial profitable way.

DEFENCE R&D: POINTERS FROM THE CIVIL SECTOR Jeffrey Bradford Jeffrey Bradford is Group Business Development Manager at Babcock International Group plc. He looks at the civil sector for models that could influence the UK MoD’s approach to research and development. ‘If we knew what it was we were doing, it would not be called research, would it?’ – Einstein

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he UK defence acquisition community has been engaged in understanding how other industries approach the process of integrating research & development (R&D) and harnessing innovation to best effect. For example, a recent report by the UK’s National Audit Office looked beyond the defence sector to identify lessons in ‘best practice’. In R&D there is a wide variety of experience of how different industrial sectors approach the challenge. Further, the large numbers cited serve to obscure the debate – such as, for example, the declining $2Bn spend in R&D by the Oil majors or the $62.8Bn spend on R&D by the US DOD. A look at trends of R&D spending by the UK MoD offers a starting point for looking at the approach and resources devoted by other industrial sectors. As a percentage of total spending, R&D investment equates to an average of 9.9% over the decade 1993/94– 2002/03, or some £2.5Bn per annum (adjusted). Whilst a positive effort, the percentage does not account for the drag of central costs such as pensions (cf. a private sector organization would bear the full costs of these). In the decade considered, R&D funding was split 25:75 between research and development. This identifies that pure research funding equated to some £670M across all lines of development, across all environments – land, sea and air – per annum. Potentially, this division could be beneficial as defence acquisition moves away from a platformcentric acquisition model towards a platformenhancement-centric model as a result of the Defence Industrial Strategy. Scarce resources can be tailored to identifying those things that enhance existing capability for upgrade and adaptation – a process that would fit well with the UK’s historical experience. S P R I N G 2 0 0 6 RU S I D E F E N C E S Y S T E M S 1 9

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The Department for Trade & Industry (DTI) recently released its latest ‘R&D scoreboard’ reviewing investment by several hundred companies. Utilising this I will consider three sectors – automotive, pharmaceuticals and mobile telecommunications.

Automotive – Shared Challenge: Project Management The DTI identified automobile industry R&D investment as £1.1Bn in 2004, below half the Department’s £2.6Bn. However, in comparison to the leadingedge research underpinning defence requirements, much of the basic technology underpinning the motor car is over a century old – the ‘Model-T’ produced by Ford was made in 1910. Development of the automobile is evolutionary in nature although the vast sums involved in designing, development and marketing a relatively simple product require strong project management skills – failure to meet promised launch dates will harm or even destroy a company’s prospects as certainly as failure to deploy a combat system in time for an urgent operational need will put forces at risk. The result of falling R&D investment by the automotive majors has pushed R&D efforts further down the supply chain. One report suggests that suppliers’ share of R&D activity is likely to increase from 40% to 60% by 2010 against a backdrop of a rapid increase in importance of electronics in automobiles (from 10% in the 1970s to 40% by 2010) and low R&D spend by the majors (4% of sales since 1998).

Pharmaceuticals – Shared challenge: Harnessing R&D The pharmaceutical sector’s challenge differs from the automotive sector’s. The DTI identified that GlaxoSmithKline alone invested £2.7Bn in R&D – more than the entire MoD investment. The pharmaceuticals sector is comprised of several massive corporations (Glaxo-SmithKline has a market capitalisation of £87Bn) that have global manufacturing and distribution networks. Whilst they perform some R&D, the pharmaceutical giants could be seen as being conservative – licensing or acquiring smaller companies that are performing research into breakthrough therapies and having the mass to apply ‘industrial scale’ 2 0 RU S I D E F E N C E S Y S T E M S S P R I N G 2 0 0 6

research processes to the making of a product from the innovative idea.

Mobile Telecommunications – Shared Challenge: Product Life Cycle As in the defence environment, the mobile telecommunications field is grappling with very fast rates of technological change, driven by electronics and software development cycles of less than two years – mirroring Moore’s law. The response within the mobile telecoms field has been to invest simultaneously in multiple R&D pathways,

glance, the automotive model. However, the requirements for ‘refreshing’ platforms in order to maintain the customer’s interest in their utility sit at odds with the lengthy in-service dates planned for legacy and future platforms. Considering the ‘high science’ issues, it could be suggested that the impending privatisation of part of the defence research establishment could lead to a division of labour as witnessed in the pharmaceuticals sector. However, in pursuing this model the MoD would have to develop robust processes for handling intellectual property rights (IPR) and understanding the market value for ideas that conform to the requirements of public sector accountability. It is clear that defence research, as with research in other industries, has reacted to short-term pressures coupled with changing commercial models to push responsibility for the conduct and resourcing of defence research elsewhere into the value chain. The challenge for defence, as in other industries, is to ensure access to the devolved research when it counts – it could be suggested that commerce can rely on supply to get access, but the more complex field of international security politics might require more careful consideration.

SOURCES while also bringing many different products to market – some of which will be commercially less successful than others – relying on a rapid refresh rate and mirroring, in certain ways, the concept of ‘spiral development’. However, the mobile operators spend relatively little on R&D, favouring marketing. The DTI R&D scoreboard cites Vodafone as investing £171M in R&D – less than 5% of that by the MoD, despite possessing a market capitalisation comparable to GlaxoSmithKline. The mobile telephone manufacturers are making a capability trade-off with their customers to incrementally provide progressive improvements in technology more quickly, and convincing consumers to upgrade their telephones faster to take advantage of advanced functionality such as picture messaging, Bluetooth and cameras.

National Audit Office, HC30, Driving the Successful Delivery of Major Defence Projects: Effective Project Control is a Key Factor in Successful Projects, The Stationery Office, London, 2005. ‘Cut in R&D spending poses threat to world oil supplies’, The Times, London, 23 September 2005. ‘R&D in the FY2004 Department of Defense Budget’, Kei Koizumi, AAAS Report XXVIII: Research and Development. Defence Statistics (editions 1998 through 2005), Table 1.7, MoD Research & Development Expenditure Outturn, The Stationery Office, London. The 2004 R&D Scoreboard: The Top 700 UK and 700 International Companies by R&D Investment, Department for Trade & Industry, London. Note: For consistency the original numbers have been modified using the HM Treasury Historical CPI prices data set.

Models for Defence R&D

PR Newswire, ‘Roland Berger study says cost pressure

In terms of defence R&D, the heavier weighting on development favours, at first

on automotive R&D will increase’, www.prnewswire.com 21 July 2005.