Rules for successful defence innovation

A while ago I set out what I rather grandly termed ‘Ferguson’s Rules’ for defence industry policy. They were an offshoot of work and study I had been conducting into defence industry innovation; they were stimulated by hitherto unacknowledged similarities between the defence industry landscapes of the UK in the 1930s and Australia in the early 21^st century.

The vehicle by which I explored the 1930s was the technical history of aircraft such as the Vickers Supermarine Spitfire and Hawker Hurricane, though I also examined contemporaries such as the Messerschmitt Bf109, North American P-51 Mustang and the trigger for much of the innovation they embodied, Boeing’s ground-breaking Type 247 airliner. What this short diversion showed was that history's lessons are there for the learning: the mistakes we make today are very rarely new and interesting ones. 

Returning to the central theme of my research, product innovation success, I felt it might help to distil some of my findings into some more relatively simple ‘rules’ for defence industry innovators. These are based on the two key features of the successful industry innovator that emerged from my research: Innovator Attributes; and Innovator Behaviours. Naturally the first shapes the second.

Innovator Attributes, as I define the term, are those features of an innovating company or organisation (or an individual) that are intrinsic. That is, they are an organic part of the innovator’s make-up, or which are so embedded in it that they can be changed only slowly, if at all.

Innovator Behaviours are the things the Innovator does: things that can  be learned, changed and even discarded relatively quickly or easily, for example by changing procedures, training staff or recruiting individuals with specific skills or knowledge.

The Attributes that emerged from the research aren’t really a surprise. For a company to become successful at product innovation it needs good leadership, an organisational structure that encourages and sustains cross-functional communication, and a solid core of technical mastery – including a culture that values R&D. It also needs to be outward-looking: aware of what’s happening in the marketplace and sensitive to the needs of its customers.

The Behaviours are an extension of the attributes: they mostly revolve around relationship building and gaining market knowledge, and organising internally to pursue individual opportunities. The two can be condensed into a set of 12 ‘rules’, thus:

1. Appoint a company leader who’s open to constructive change and keen to innovate
2. Organise yourself to innovate: an organic (as opposed to a mechanistic) structure enables and encourages cross-functional communications as well as creating conditions for lateral thinking and idea generation
3. Work towards technical mastery of the domain in which you’re operating: the product, the technology it embodies and the technology and expertise required to build it
4. Invest in your R&D and prototyping capabilities
5. Conduct R&D systematically, guided by your market knowledge
6. Be open to external partnerships and sources of technology and IP
7. Understand the market in which you’re operating: who the players are (customers as well as rivals, and even suppliers and sub-contractors); why they’re in the market; what’s happening with technology; what else is going to shape the size and behaviour of the market in the future?
8. Understand your market position and what (if anything) you need, or intend, to do about it
9. Be systematic in your marketing activities (which includes encouraging lateral thinkers and good ideas!)
10. Be pro-active in dealing with your customer – both determining his needs and sensitivities, and testing ideas and hypotheses on him
11. Create a cross-functional team to integrate market and technical knowledge and then develop and deliver the project
12. Appoint a leader of this team who has REAL authority to drive the project along

There’s one more: if you’re working in the Australian defence industry, and hoping that the ADF will be, or will remain, one of your customers, then you also need to sustain a good relationship with DSTO and be prepared to enter into a teaming or collaboration agreement with the organisation if circumstances require. DSTO isn't necessarily a source of useable IP (though it may become more so), but is a portal through which its partners can learn about the technical knowledge, technology needs and risk appetites of Australia's defence customer.

Each of these rules sits at the apex of a pyramid of activity and expertise. You could drill down endlessly into any one of them and find you’re also drilling into the bedrock of another – for they are mutually supporting and strengthen each other where they overlap.

Some thoughts on industry policy in Australia

Shortly before Christmas 2014, Bernard Salt wrote an excellent column in The Weekend Australian titled ‘Nation may need to look after itself’.

He discussed the gradual loss of key national capabilities that may be seen as vital to an island nation that depends upon exports for its prosperity, and mentioned the importance of ‘retaining core capabilities for strategic reasons’. I wrote to tell him I couldn’t agree more, but I believe the issue goes well beyond the defence sector.

As a nation we are losing our ability to design and manufacture things. The economists would have us believe that we shouldn’t build anything that we can buy cheaper, but this (only relatively) sensible view seems increasingly to get mis-interpreted and re-stated incorrectly as ‘We shouldn’t build anything at all’.

A friend of mine, Peter Smith, has begun researching a doctoral thesis at the University of South Australia that partly addresses this topic. Peter has spent a lifetime in the aerospace and defence industries and recently made an excellent presentation at the University of Sydney’s 75th anniversary aeronautical engineering conference. He makes the point that government shouldn’t do for industry what industry should do for itself, but government must do for industry what industry can’t do for itself, citing the example of Canada, a country with a comparable population and level of technological development.

Government policy in Canada, which is designed to facilitate the development of a sustainable aerospace industry, has resulted in a sector that turns over $22 billion a year (Australia turns over $4 billion); employs 66,000 trained engineers and technicians (Australia employs 14,000), and exports 80% of its output (Australia exports 25%, at most). What a contrast in economic outcomes!

The University of Sydney likely has a copy of Peter’s presentation, if you’re interested.

The attitude of Australian officialdom to the manufacturing sector is extremely dry; it does not appear to be moistened by much in the way of insight or understanding. Yes, commodity-style goods such as cheap cars, consumer electronics and paper clips may best be imported from low-cost producers. But relatively high-cost producers such as Australia, Canada, Sweden and the UK can and do compete on value, not cost (though the distinction is sometimes ignored within policy-making circles), in areas such as aerospace, defence equipment, biotechnology and other high-end technical sectors.

Highly educated Australians are in demand overseas, working in these and other sectors such as Formula 1 motor racing. Why do we educate and train engineers and scientists, and complain loudly that not enough students are studying STEM subjects at school and then at university, if government policy, by a lazy or ignorant default, is to allow the manufacturing sector to wither and die in any case?

Is it government policy that the manufacturing sector should eventually fail? Do the policy makers actually understand what goes into creating and sustaining a credible industry capability, in any sector? And do they understand the benefits we as a nation will forego if our manufacturing industry is allowed to fade away? 

Peter Smith highlights the contrast between Australia’s aerospace industry policy, on the one hand, and the UK’s aerospace and high-technology industry sector policies, on the other, and finds us badly wanting, both in terms of policy development and the measurable economic benefits that flow from an enlightened policy position.

As a nation we’re not taking a mature, joined-up approach to this problem, and what debate there is in this country isn’t getting enough exposure on the air and in the public prints.

Sincere thanks to Bernard Salt for raising in a national newspaper an issue more people should consider in detail, not just comparing sound bites and the volume of the primal screams from some of the participants in what has been so far an unenlightened and unenlightening debate. 

Australian defence industry policy - some suggestions

In order to escape the many elephants in the Australian defence industry’s living room I have been doing some research into the technical history of two iconic aircraft, the Vickers Supermarine Spitfire and Hawker Hurricane.  Earlier posts describe some of the design decisions that were made in both projects, and how these were arrived at.

I’ve taken the liberty of rendering down some of the insights from this research into a dozen industry policy lessons for the monopsony customer who shapes and directs Australia’s defence market. 

1. Industry capability (including R&D capability) cannot be sustained without a constant flow of work. (This was true in the 1930s and it remains true today)
2. If industry capability gets run down it will take a long time to restore. (A lesson learned the hard way in the 1930s, and now confronting in the 21^st century a customer who possibly doesn’t understand the level of control he exerts over the shape, size and capability of the industry.)
3. If a nation’s industry capability is deemed to be sufficiently important then, in the absence of an efficient market of sufficient scale, it will be necessary for the government to make certain strategic investments or adopt certain policy settings in order to maintain it. (Nobody is suggesting that Australia’s defence industry needs or deserves direct financial support. At present, however, Defence industry policy seems designed to shield the Department and the ADF from any responsibility for the industry that sustains them – Defence’s policy priority is the defence of the realm, naturally enough, not the needs of industry; a wider, more mature debate on the role and importance of industry, not just to the defence sector but nationally, is essential, and long overdue.)
4. Capacity and expertise in one industry sector are not automatically relevant in other industry sectors. (Look what happened in the 1930s when Lord Nuffield’s car people tried to build Spitfires; look what happens  today when construction and general sheet metal workers try to weld warship modules together. It takes time to develop skills and expertise, particularly in specialist fields.)
5. A group of people in overalls and a factory building with some machinery inside it do not an industry capability make unless and until they embody the technical, design and management skills and equipment necessary to design, develop and manufacture the product (or service) the market requires. (See above; also, this reflects a tendency in public discussion to ‘commodify’ industry capabilities, to treat skill, quality and innovation as implicit and imperishable and that therefore the only measure that matters is raw numbers.)
6. Customers shape the industry that supplies them. In a  technology driven monopsony a smart customer doesn’t allow his industry base to fall into a technical rut or to fall behind in a technology sense.  (This ought to be a truth universally acknowledged, but is not.)
7. A smart customer must be able to strike the appropriate balance between setting requirements that push suppliers towards technology over-reach, on the one hand, and the fulfilment of disappointingly low expectations on the other. (One could discuss this endlessly – briefly, however, the Spitfire and Hurricane projects emerged from an RAF operational requirement, F7/30, that didn’t push the industry far enough. Once challenged properly, they responded well. Mastery of this balancing act will be essential if Australia is to get what it needs from the Future Submarine Project, Sea 1000, and the Future Frigate project, Sea 5000. There is a corollary to this rule: if the customer is ambitious then he needs an acquisition strategy that recognises the risk and unknowns and is sufficiently flexible to work its way around the inevitable difficulties without becoming bogged down in arguments over contracts and contractual process.)
8. The risk appetite of an innovating company will be conditioned substantially by its existing capability (including its R&D capability).  (The Hawker Hurricane was built in the same way, in the same place, by the same people, using the same tools, processes and materials as its biplane predecessor. This was a very low-risk approach that enabled Hawker to meet the letter of the requirement with a very conservative design, but inherently self-limiting as the Hurricane had little performance growth potential. The Spitfire was designed from a clean sheet by a company that had never built an all-metal monoplane fighter before – the company’s risk appetite was very high, but it needed to be. More recently, Boeing and Northrop Grumman had a pretty healthy appetite for technical risk when they began the Wedgetail AEW&C project because they had developed similar systems before; but there was no point in them doing it unless they could improve measurably on what was already in service elsewhere and available for the RAAF to buy. They needed to take risks.)
9. The innovator’s view of what is needed to meet the customer’s needs will be shaped by the company’s existing capability. (The Hurricane took Hawker’s then-current technology base to its limits, but was considered by its manufacturer sufficient for the RAF’s needs without forcing the company to adopt a new technological trajectory. Vickers Supermarine had no relevant technology base so considered the RAF’s requirements in a more fundamental way and designed the Spitfire from a clean sheet. As a result, it was a better performer with a much longer and broader development path. One might compare the US family of MRAP vehicles developed during the 1990s and early noughties with the Australian Bushmaster. The latter was a clean-sheet design by a company that hadn't built armoured vehicles before. It pre-dated the Coalition involvement in Iraq and Afghanistan and required time-consuming development, but was an outstanding performer once in service. The MRAPs were generally crude, compromised and in some cases deeply flawed, but they were designed and built quickly and in large numbers by the existing US heavy automotive industry, in response to a rapidly emerging threat, and were good enough for the job they had to do.)
10. A company’s technological development course should be steered by its market knowledge as well as by its current technical expertise. (Another topic for endless discussion. Hawker illustrates the opposite case – to maintain its close relationship with the RAF and UK Air Ministry, it mirrored the RAF’s technological conservatism during the early-1930s and so never pushed too far ahead of its customer in technology terms. Conversely, CEA Technologies in Canberra understood the market's needs very well when it set out on the development path leading to the current Ceafar and Ceamount radars. Although treated initially with extreme suspicion by the RAN and DMO, these are the best of their kind in the world and now in service, after a lengthy, cautious development program which convinced the RAN and DMO that CEA Technologies had the correct solution.)
11. If a company lacks capability and capacity in an area required by a customer, two outcomes are possible:  a timid, incremental approach that avoids undue risk, or a ‘clean sheet’ approach that drives the company into new areas of technology and capability - and risk. (Vickers Supermarine responded to Air Ministry specification  Target F7/30 with a monstrosity called the Supermarine Type 224. It was an inelegant, timid approach to a problem the customer still hadn’t come to grips with; Hawker, for its part, offered what it called a ‘High-speed Fury’ biplane (as if there could be such a thing as a high-speed biplane!). Both companies thought again (as did the customer!); Hawker followed an incremental development path to the Hurricane, Supermarine made the giant leap to the Spitfire.)
12. The more a company depends upon technology development for its prosperity and growth, the more important it is for its management to understand that technology, not to be ignorant or dismissive of it, and not to be blinded by it. (That’s not so obvious, or widely acknowledged, that it doesn’t need to be repeated here. It applies in equal measure to the defence customer.)

So what do these lessons mean for Australia? Firstly, that Australia’s defence industry faces the prospect of a decline in both overall capability and size unless it can secure for itself more work, both at home and abroad. Secondly, that the industry needs to take a much wider view of what constitutes its market – the Australian Department of Defence alone won’t be a big enough market to sustain the industry.

Thirdly, the Australian government (and not just the Department of Defence) needs to decide whether or not this country needs a manufacturing industry and, if so, what policy settings, on the one hand, and attributes of a smart customer, on the other, are required to facilitate this economically and eficiently. At present, there’s a paucity of mature, reasoned debate and both government and industry are disadvantaged as a result.

Happy New Year, by the way!

A Happy New Year to all - here's wishing everybody the very best for 2015.

Innovation and Innovativeness

Innovation at its core is the implementation of change.  The ‘Innovativeness’ of an organisation or individual is a measure of their willingness to embrace all the possibilities of change.

An innovation isn’t necessarily an invention. It is something that’s new in its context – and that could be an invention, developed and applied to some practical purpose. More often that not, however, it’s something that already exists, used or applied in a new way. For example, airline pilots now use iPads in the cockpit to display maps, flight information and checklists. This has been an important innovation in the evolution of modern airline operations, but it wasn’t necessary to re-invent the iPad to achieve this.

Some innovators are naturally restless – for them, change is a constant and the steady state represents stagnation. But most individuals and organisations are not similarly driven. They are naturally conservative and risk-averse and the prospect (not to mention the process) of change is often troubling to them. They need to learn why and how to innovate. The ‘Why’ is simple: external change happens continuously. If you don’t adapt to change you’ll die, eventually. Either you’ll be crushed by external forces, or you’ll wither because the market has changed and you didn’t adapt – you didn’t identify and pursue the opportunities created by that change process. The ‘How’ is equally simple, though ‘simple’ doesn’t mean the same thing as ‘easy’.

All that is required to be innovative is to be aware of the imperative to change, and to be able to manage the change process.

It’s that ‘Awareness’ that is crucial: Self Awareness is about the innovator’s ‘internals’ – it tells the innovator what he’s capable of, or prompts him to ask if what he’s doing is all that he can do; and it tells him what he needs to change if he wants to do more, or do something quite different.

Situational Awareness is all about the ‘externals’: what is happening externally that may force a change, or that might present an opportunity? What is happing with technology, or the economy, or market conditions, or customer behaviour?

The two feed each other. The level of the innovator’s Situational Awareness determines his ability to expose and identify threats and opportunities; the level of the innovator’s Self Awareness will determine the nature of his response.

Challenge: Response; New Challenge: New Response. It’s an iterative process made fruitful if the innovator is sufficiently self-aware and has made a sufficient investment in his situational-awareness. Knowledge resulting from Situational Awareness will stimulate insights in Self Awareness, and vice versa.

The exact nature of any response to emerging insights - the opportunities and threats, essentially – resulting from the Innovator’s Self Awareness and Situational Awareness will be conditioned, and possibly determined, by the innovator’s Technical Mastery. 

No person or organisation exists in a vacuum: whether we’re talking about a charity, a government department, an elite sportsman, a star entertainer or a manufacturing company, the innovator’s activities almost always centre around a specialist domain that it must understand intimately – this is Technical Mastery.

In the case of an elite sportsman, for example, the domain is his chosen sport: its laws, the skills and physical and mental attributes required for success. In the case of a government department there might be more than one central domain: the portfolio itself – defence, perhaps, or housing, or health – and the arcane processes and the checks and balances of the parliamentary system. For the manufacturer it is the technology at the heart of his market, the technology embodied in his products and services, the manufacturing techniques that create saleable products and services, and the supporting and enabling technologies that allow the players in this market to survive and flourish.

A person or organisation wanting to be innovative needs a systematic approach to nurturing and if necessary growing Self Awareness, Situational Awareness and Technical Mastery. In a practical sense, the leaders and the internal culture they help create will determine how welcome and valued each attribute is within the organisation. Good managers will also create the internal processes and mechanisms and nurture the skills and specialist expertise necessary to exploit the insights they gather.

This ability to maintain an organisation’s openness to change, on the one hand, while managing its everyday activities as efficiently and economically as possible, while also developing timely responses to threats and opportunities, is a function of managerial and leadership excellence – call it Professional Mastery. This embraces business management, administration, human resources (recruitment and retention of the right people with the rights skills, and training where appropriate) and strategic planning. This applies to the lone innovator as much as it does to a large, complex organisation.

So, it can be seen that an innovator requires each of these four attributes in order to have any chance of sustained success: Self Awareness, Situational Awareness, Professional Mastery and Technical Mastery. Each informs and is shaped by the others. None of these four features of the successful innovator can survive in isolation, and none of them would be very useful if they could: they would lack either a purpose – in the case of the first three – or direction, in the case of the fourth. Their mutual dependence can be shown in a simple diagram.

The four attributes of an innovative organisation

Their relative importance will wax and wane as an organisation passes through the business cycle. All are essential, but Professional Mastery will help determine where the balance needs to be struck at any one time.

AWD difficulties

I've just been reading the summary of the ANAO report on the Air Warfare Destroyer (AWD) project, along with Cameron Stewart's comments on the report in today's 'The Australian' (7 march 2014).

I agree with Cameron that adverse perceptions of the AWD project and of Australian industry's capabilities could impact severely on the Future Submarine project, Sea 1000. But I don't resile from the central thrust of my previous post (see below): the new submarine will be a developmental project and should be treated as such in a contractual sense. It shouldn't be compared with, and crtainly not treated like, the AWD project.

From what I have read so far in the ANAO report on the AWD project, this became a bit of a developmental project as well, at least so far as design variations to suit Australian standards and design rules are concerned. That sort of thing doesn't help, particularly when the contracting methodology is based on a fixed-price contract.

Furthermore, the process of transferring production technology and know-how from Navantia to the Australian shipyards contracted to build the hull and superstructure blocks seems to have embodied the same difficulties that Vickers Supermarine encountered in the 1930s when outsourcing the manufacture of wings for the Spitfire (see my post from last year). These difficulties weren't hard to predict if you knew something about shipbuilding and understood the subtle but quite significant detail design changes required to suit RAN requirements.

If we as a nation want to sustain and grow a naval construction industry, there is no substitute for actually building ships and submarines to build the technical and management skills required for the industry to prosper.

Oh, by the way: Andrew Davies from ASPI posted a blog recently on ASPI's 'The Strategist' about COTS versus developmental naval projects and I have half a mind to respond to it directly. His basic argument, that the ADF is better off buying an off the shelf solution than if it buys a 'bespoke' design, works if you accept a linear relationship between expenditure and effective capability. Unfortunately, this isn't necessarily the case: choosing to spend 20% less on your submarines, for example, by acquiring an off the shelf design won't necessarily give you 20% less capability. Capability isn't a commodity - you don't buy it by the yard or pound. If you consider the user requirement to be met when you arrive at a certain pre-defined threshold of operational capability, then anything below that threshold is by definition 'incapable' and therefore useless. Paying 80% of the price of a fully capable submarine is no saving if the submarine you get instead is not capable. In fact, it represents a waste of money. You're better off either paying the price for the capability you need (and managing a highly complex developmental project, with all the challenges that involves), or not spending the money at all. (Of course, it helps if the user requirement is properly thought out.)

Discussions on cost and capability need to acknowledge this fundamental truth before they can lead anywhere useful.

Re-defining defence project success

There’s a widely held view in Australia that defence projects are almost invariably doomed to failure: they’ll run late, they’ll cost more than expected and the equipment won’t work -  or at least not as well as it should.

I don’t happen to agree, and the Defence Materiel Organisation (DMO) has figures that challenge this view also. But I’m concerned that the expectations raised (or, more accurately, lowered) by this view will have a malign shaping effect on a number of future defence projects, not the least of them being the Future Submarine – Project Sea 1000.

I contend that an important reason why defence industry, the DMO and defence acquisition in general are held in low regard by many in Defence, Parliament and the general public, is the failure to understand properly why a handful of high-profile projects went badly wrong. Added to this has been an unrealistic appraisal of other complex developmental projects which have delivered remarkable capability despite being branded at various point as failures or, just as damningly, ‘troubled’. In my opinion that unrealistic appraisal has its roots, in turn, in a contracting philosophy that demonstrates a complete mis-understanding of developmental high-technology projects.

Two of the best known examples of unsuccessful projects are the original combat system for the Collins-class submarine and the SH-2G(A) Super Seasprite project. Both were abject failures and have become a lens through which many in Defence and Government and most of the general public view defence acquisition. The trouble is, they are a distorting lens and Defence has not been able (some would say it hasn’t even tried as yet) to resolve the picture.

There are plenty of projects that went well: the acquisition of the Super Hornet, C-17 and M1 Abrams main battle tank, for example. However, they were all acquired off the shelf, with the minimum of change from the relevant US specification. By international defence standards they were no more challenging, really, than buying a new car.

What about developmental projects? Anzac-class frigate, anybody? An unsung success story – and especially in the case of Saab Australia’s 9LV Mk3 combat management system, which worked perfectly from the outset. And, yes, this was a developmental system despite being based on an architecture developed originally by the Swedish parent company. That combat management system has been evolved and developed incrementally to the point where, as an unambiguously Australian product, it now controls one of the most sophisticated tactical maritime air and missile defence systems in the world.

What about the Wedgetail Airborne Early Warning & Control (AEW&C) system? Or the Bushmaster Protected Mobility Vehicle (PMV)? Or the Jindalee Operational Radar Network? These have delivered outstanding operational capabilities, in spite of severe difficulties during their development stages.

One of the things these ultimately successful projects have in common with the unsuccessful ones, in my view, is the contracting philosophy. All were highly risky, complex developmental projects acquired under a single fixed-price contract. In each case, from what I as an outsider could gather, the customer focussed on the contract and not on the project outcome, to the detriment of the project and, ultimately, to his own reputation. You might say that simply concentrating on delivery of the contract will result in delivery of the required operational outcome, but I would argue this is not so, especially in a technologically risky developmental project.

The Collins-class combat system was acquired under a very prescriptive fixed price contract that tried to anticipate what was technically possible. It became clear as the project progressed that the combat system specified in the contract could not be built, and certainly couldn’t deliver the functionality required. Did Defence change the contract? No. Even when the project was at its nadir, and a new direction should have been sought urgently, the then-head of Defence acquisition told a Senate committee (and I paraphrase somewhat): “The Commonwealth is protected by a fixed-price contract and we are holding the contractor’s feet to the fire to ensure he gives us what he promised.”

The Commonwealth was not protected by this fixed-price contract: it was imprisoned, and it swallowed the key so that it couldn’t escape. Eventually, sanity was imposed and a replacement combat system was ordered, but not everybody learned the lesson.

The Wedgetail AEW&C system, likewise, was acquired under a single, fixed-price contract signed in 2000, with first delivery of an all-new, developmental system scheduled for 2006. It was not until 2010, when the project was running four years late and the Wedgetail’s MESA radar was still failing to deliver the performance specified in the contract, that the Commonwealth took the radar trials data to the Lincoln Laboratory at MIT and asked if the performance specified in the contract (and promised by the contractor, it must be said) was even possible. Had the Wedgetail project been trying inadvertently to step outside the boundaries of the laws of physics?

Quite apart from the fact this question should have been asked before the contract was even signed, it was clear at this point that in spite of its shortcomings the Wedgetail system had magnificent potential and was in fact delivering performance well beyond anything else that was available on the market, then or now. And yet Wedgetail was pilloried. Because it wasn’t delivering 100% of what the contract specified (never mind that nobody even knew if that was physically possible), it was treated within Canberra as a near-disaster.

A fundamental problem with all of the projects named above is the same: firstly, a fixed-price contract for a risky, complex developmental project; and, secondly, a contracting and project management philosophy that seems to ignore the reality of technical and schedule risk and focuses instead purely on delivery of the contract.

Why is this a problem? Because in a developmental project you cannot predict exactly what the technology will deliver, nor when, nor exactly what it will cost. Not only will the customer receive the capability later than he anticipated, he probably won't receive exactly what he asked for in the first place, and he's likely to be paying more than he expected. Unless he could anticipate this, and make allowances for it in his original justification for embarking on the project, the customer is going to be disappointed and probably quite angry.

His relationship with the contractor will almost certainly be damaged – possibly beyond repair. And his reputation will suffer also: not only will the customer be blamed (fairly or unfairly) for the project’s difficulties, the equipment in question will start life with an undeserved reputation which will dog its early career (think F-111 and Collins-class submarine) and which it may never be able to shake off (think Collins-class submarine).

It’s impossible for the parties to sign a fixed-price developmental contract with any confidence at all. An inflexible contract which specifies in advance the deliverables, schedule and cost of a developmental project isn’t worth the paper it is written on. Any customer who insists on such a contract simply doesn’t understand his own business, and he will be punished for it.

The trouble is, when there is only one customer, and only one source of income for the defence industry as a whole, the companies competing for this work will accept (sometimes against their better judgement) the terms and conditions and contractual regime imposed by the customer simply in order to win the work.

The messy reality of developmental technology is that you can’t predict exactly what technical performance you will receive, nor when, and the contract regime must be flexible enough to accommodate that uncertainty. And it must also be flexible enough to allow a bit of a trade-off in ultimate performance in some areas if the financial or schedule cost of achieving that is too great, as well as sacrificing ‘desirable’ features to ensure there’s sufficient money to pay for ‘essential’ features, if these prove harder to achieve.

Of course, it helps if both the customer and the supplier have a realistic understanding of what technology costs and what’s actually achievable at a given price: setting realistic expectations is the first step towards defining success. That’s the product of technological mastery: the understanding of what technology can achieve, how it is developing and evolving, and what the risks, costs and likely benefits of pursuing a particular development path might be. A customer who doesn’t understand what he’s asking for, and how much he ought to be paying for it, is almost certain to be disappointed.

There’s another issue also: a fixed-price contract seems to go with an ‘all or nothing’ mentality on the customer’s part: the way this plays out in Australian defence acquisition is if you don’t get 100% of what you’ve contracted for, then essentially you have nothing. This is wrong. Worse - it is stupid.

Developmental projects need to be contracted in successive phases so that risks can be identified and then mitigated progressively, and so that expectations of cost, capability and schedule can be calibrated accurately, and recalibrated if necessary, for each step. This approach manages risk and cost and allows the development trajectory to be adjusted to reflect emerging reality; it also allows capability to be introduced incrementally, rather than in a single ‘big bang’. Users get their hands on equipment and start learning how to use it (and maybe even take it to war) while development is still under way, with enhancements following in successive phases. Think Spitfire and Hurricane in World War 2 – during their first 18 months in service both aircraft grew significantly in operational capability, and both were subject to constant upgrades thereafter.

Under the flawed contracting philosophy I’ve described, imposing a ‘big bang’ approach based on a single, fixed-price contract and then delaying delivery and service entry until the (possibly quite arbitrary and unrealistic) terms of the contract are finally satisfied often means that the operator is denied useable capability and an early opportunity to train and develop procedures and doctrine. Furthermore, the development process in turn is denied the benefits of user feedback. And, of course, the project is considered a failure, or at risk of failure – in today’s terms that means it is placed on the Projects of Concern list, the DMO and contractor are pilloried for under-performance and the reputations of all concerned, and the confidence of the Government and general public in the wider defence enterprise, are damaged.

It is this track record of perceived failure that has undermined the confidence of the public, many in defence and the wider defence ‘commentariat’ in Australia’s ability to develop and deliver complex, risky and technologically challenging projects.

Luckily, there have been recent projects that inspire confidence. The Anzac frigate Anti-Ship Missile Defence (ASMD) upgrade stands out as a text-book example of how a complex, high-risk, high-technology project can be developed and delivered successfully. The project ran through several phases, each one developing the capability and retiring the risk incrementally and setting achievable performance, schedule and financial goals for the next - and calibrating expectations accurately for these things also, and in some cases canvasing the possibility of cancellation if certain goals weren't, or couldn't, be met. The ground-breaking CEAFAR and CEAMOUNT radars were developed and built by an Australian company, CEA Technologies; the ship and its combat management system was modified extensively by BAE Systems Australia and Saab Systems Australia to accommodate the new sensor suite (and other enhancements and additions, of course). The project as a whole was managed by Defence, and it really is a credit to all of these organisations.

Of course, there is a difference between the Anzac upgrade and the development of an all-new submarine. The point is that a flexible and realistic approach has been shown to manage risks and expectations and protect Defence and Industry from the uninformed comment and premature judgements that hang over such projects like a Sword of Damocles. It has shown that success can and should be defined in terms of a capability outcome, not the possibly arbitrary terms of an inflexible contract, and can be achieved and celebrated.

The challenge for Defence and the Government is to recreate these conditions on the submarine project: to create the conditions for success, not to create a ‘defensive’ contracting regime that focuses solely on the process and automatically provides multiple reasons for them, or others, to make a false declaration of failure.

The Future Submarine project will undoubtedly encounter technical challenges and disappointments. These are an indivisible part of ambitious developmental projects and Australian industry is not immune to them. Australia’s defence industry has demonstrated before that it can cope with highly demanding, complex technology development problems – the resilience and flexibility that get a project through the inevitable difficulties is partly a function of the technical expertise, ingenuity and management skills of the industry players and partly a function of the quality and flexibility of the acquisition process and the people administering it. In particular, the contracting process needs to be based on a realistic understanding of operational capability and of the enduring challenges of developmental projects: technology, technical and financial risks. This will demand a high level of technical, professional and commercial mastery on the part of the customer.

If the customer rises to this challenge and creates the conditions for success, and is prepared to defend the process in the face of uninformed or malign comment and criticism, then building the Future Submarine in Australia is a realistic and achievable proposition.