EX2 - for defence innovators

It's time to bring this blog to an end. 

The EX² - for defence innovators web site now contains my regular coverage of what's happening in the world of defence innovation and the tab 'Outside the Square' now contains the content that would have been published in this blog.

Look for it here: www.rumourcontrol.com.au

Thanks to everybody who's read this blog and commented on it over the years - this isn't an end, just a new direction.

Innovation - something counter-intuitive

You wouldn’t expect an oil company to be working on the leading edge of space and robotics technology, but that’s where the vision of Perth-based Woodside Petroleum has taken the company. It works with NASA and the Australian Space Agency, among other partners. 

Wait, what? But Woodside’s just an oil company! True – but it’s one that understands its business very well. It's more than 'just' an oil company.

The company produces and sells oil and Liquid Petroleum Gas (LPG) from a number of sites onshore and offshore and around the world. To do that efficiently and safely, it is turning increasingly to robotic technology deployed across continental distances (using satellite links) to manage remote production and distribution sites. And it invests in R&D into things like surface coatings, AI and hydrogen as a future fuel. More than that – it commercialises the resulting IP (if it works – sometimes it doesn’t). That makes it an innovator.

Woodside’s CEO, Peter Coleman, was interviewed in the business section of The Australian today (Friday 10 January) and had this to say about innovation.

“We conduct our own R&D we leverage that we fund through our partner universities – Monash, the University of Western Australia, Curtin and Edith Cowan. For us it’s all about using technology to solve business problems. [For example] maintenance is one of the biggest costs for an asset-intensive business like ours. The prize is substantial – in maintenance alone, there is an opportunity for a 30 per cent cost saving, which reaches hundreds of millions of dollars pretty quickly.”

Funny – he could almost be talking about managing a fleet of warships, or combat aircraft, or tanks. A 30 per cent saving is big news in anybody’s currency. However, he doesn’t disclose what the company invests annually in R&D and innovation – but it’s pretty substantial, if that’s the scale of the savings he’s hoping for.

Innovation has been described simply as ‘making a difference’ – the trick is usually to identify where making a difference can have a significant effect. Which is why Woodside is working with space and robotics specialists as well as traditional petroleum and mechanical, mining and marine engineers. It has a sense of those parts of its business where the leverage yielded by an investment in some form of innovation can deliver significant effects. And it’s not afraid to be counter-intuitive in what it does. 

Looks obvious, doesn’t it? But it’s not - there’s leadership and culture at play here, and they make a massive difference. 

This is the last in a series of posts about innovation, just to get your juices flowing at the start of the year.

Happy New Year everybody!

Innovation - from another expert

Yesterday it was Sarah Williamson, CEO of FCLT Global. Today (Friday 3 January) it’s Mr Dig Howitt, CEO of Cochlear, the Sydney-based company that does those magical hearing implants – they both agree that investment in ongoing innovation is essential and they’re both saying so to The Australian (see p.19 of today’s edition).

Dig Howitt is an interesting study. His company depends entirely on technology and operates from facilities across the globe. It invests about 12% of its revenue each year in R&D – I’ll say that again: 12%. In 2019 this amounted to $180 million. 

I’ll repeat that one more time in case you didn't understand what I'm saying: in 2019, Cochlear invested $180 million, or about 12% of its revenue, in self-funded R&D. Any other Australian companies out there matching the scale or effectiveness of this R&D investment?

Although it’s a life sciences firm its technology journey has important lessons for high-technology companies operating in the defence and other adjacent markets. Here’s a selection of what he has to say:

“We see constant innovation as a must. The primary focus of our R&D is investing in improving hearing outcomes. We also invest in integrating our products with everyday lives. Finally, we are investing in building the clinical evidence that shows …the economic and social benefits of treating hearing loss effectively.”

Multiple reviews over the past five years or so agree that Australia’s future prosperity will be driven by knowledge-intensive companies that collaborate, innovate and export, Mr Howitt says. However, he warns that Australia is not competing as actively as peer nations such as the UK and Ireland for R&D investment, advanced manufacturing and life sciences businesses. Reintroducing the RDTI (R&D Tax Incentive) legislation would help, if it passes Australia’s senate. So would a stronger incentives regime for companies doing cutting edge R&D and IP development; and so also would a more flexible regulatory framework that allows local firms to be globally competitive while protecting local consumers.

A couple of thoughts: firstly, Cochlear understands its absolute dependence on technology and the need to invest constantly in refreshing its technology base and IP; secondly, it has a global market with multiple paths to the customer, so it can build its business and generate a return in a realistic time frame. The demand is there, the paths to market exist and so opportunities continue to exist for Cochlear in the global health market.

How does that sit with Australia’s defence industry? Thoughts?

Innovation - the follow-up

My recent thoughts on innovation were well received, which is gratifying, and elicited a couple of comments; there was also some comment in today’s The Australian that caught my eye. I thought I’d offer some follow-up comment of my own.

Firstly, Heinz Zimmermann pointed out that a successful nation has innovation in all walks of life and on all levels, such as consumer, health, energy, space, communication, automotive (especially hydrogen technology), and so on. He’s absolutely right, and that’s the reason I singled out the National Innovation and Science Agenda (NISA) for comment.

NISA may be associated with Malcolm Turnbull, but that doesn’t make it bad policy – in fact, it’s extremely good policy and something that a nation that wants to be called ‘the clever country’ should be implementing and pursuing, rather than criticising. But I guess that’s the Australian way. Changing the culture will take a while, which is why policy and budgetary consistency and persistence are so important.

Peter Freed pointed out that a willingness to allow the transition of innovations into operational use is also a necessity, adding that the so-called ‘valley of death’ isn’t confined solely to the shipbuilding sector.

This goes to what Heinz was saying: we need an innovation culture in this country – in defence and also right across the economy – in which market pull is given its rightful status as a key stimulant of innovation in Australia. This isn’t to argue for an industry-led defence policy but rather for an acknowledgement that if we seek a strategic operational advantage based on in-country innovation and industry excellence, the monopsony customer in our supposedly market-led defence economy needs to play a critical role. And he starts by acknowledging both the existence and the importance of that role. Many in Canberra and the ADF get that; many more simply don’t, and look on the equipping of our defence force as simply a transactional arrangement with a bunch of overseas supplier, with brute haggling (when you get down to brass tacks) determining the price paid and ignoring the value received.

Which brings me to this morning’s edition of The Australian. On page 13, under the headline “Dividends ‘a drain on performance’”, there’s an interview with a woman named Sarah Williamson, who is CEO of an American not-for-profit called FCLT Global. That stands for ‘Focussing Capital on the Long Term’ and part of the thrust of what she said related to the short-termism of many investors. They seek a short-term share price or dividend gain and ignore longer-term investments such as corporate R&D. 

The company recently published a report titled ‘Predicting Long Term Success’, which says that spending on corporate R&D can boost returns. Says Ms Williamson, ‘[The report] looks at not just the total amount of money [spent on R&D] but the productivity of the research… Companies that do well over the long term are investing in R&D. A lot of large corporates innovated very well but it is hard to see it. And investors may not give them credit for it – for example, if you are a dividend-seeking investor, you may not care about a cool piece of innovation.”

This insight isn’t new – IBISWorld and the University of Melbourne used to publish an annual R&D and Intellectual Property Scoreboard, benchmarking innovation in Australian enterprises, which pointed out exactly the same thing. My own research independently validated this also. The IBISWorld figures show a direct correlation between the amount a company invests in self-funded R&D and its overall performance and growth; my own research showed this applied also to defence innovation project success.

All this presupposes a reasonably efficient market, of course. In non-defence AI, fintech, manufacturing, bio-tech, aerospace, automotive, etc, markets are pretty efficient – companies that invest in R&D and innovation to give themselves an advantage tend to do significantly better than companies that don’t. 

But the Australian defence market is a monopsony that exists at the pleasure of the Department of Defence and ADF who are still grappling with the cultural changes necessary to be an efficient customer. It’s early days yet, in public service terms, but one of the early lessons the public service needs to internalise and act upon is that, as far as innovation in concerned, the world thinks, decides and acts much faster than it does. As I said before, many in Canberra get this, but too many don’t.

Innovation – the combat edge and the need for an innovation strategy

Why do we need to innovate, and why is innovation the bed rock of a thriving Australian defence industry? Good questions, and I’ll start answering by first asking another question: can you spot the difference between the ‘export’ version of an F-15 Eagle or Su-35 or T-80 main battle tank, and the version the manufacturer’s government buys? 

Liar!

The vast majority of differences between the ‘export’ and ’domestic’ versions of any bit of military equipment are invisible until you actually send them to war. What does that tell us? A good platform may be important (and it is!), but it’s the performance of its sensors and weapons and the effectiveness of the systems integration binding them all together that provide the combat edge operators are looking for. Which is why the Americans, Russians and Europeans keep their crown jewels to themselves, regardless of their export aspirations.

Which brings us to Australia’s defence innovation system. Being realistic, Australia will probably never design and build an entire guided weapon, nor a main battle tank, nor a manned fighter - though Boeing’s Loyal Wingman program will likely see us design and build simpler, stealthy unmanned combat aircraft. And although we build them in-country, we probably couldn’t contemplate at present designing a surface combatant entirely from scratch, nor a submarine, though that might change in 20 years’ time. 

But those platforms in themselves don’t give the ADF its combat edge, not today. The ADF gets its combat edge from a combination of leading-edge sensors and weapons, effective systems integration and good training - and the ability to change and upgrade them quickly.

This is where money invested in R&D, innovation and industry capability development can deliver the most significant return. 

In unconventional warfare against, typically, agile non-state players, the likelihood is that the ADF’s adversaries will pursue an asymmetric advantage by adopting new technologies and new tactics – look at the West’s bitter experiences in Iraq and Afghanistan. The ADF needs to be able to learn, adapt and respond – it needs to be able to develop and field both new tactics and new equipment, quickly.

In conventional warfare, the ADF might be fighting what looks like an old-fashioned, industrial-era slugging match against an adversary who fields similar weapons and equipment. Good tactics and training make a huge difference, but so does an incremental technical advantage, one that needs to be maintained and extended constantly. Every conventional war that has lasted more than a few months demonstrates this.

The cost of both defeat and victory is counted partly in human lives destroyed, and partly in the unimaginable social and infrastructure damage both sides suffer. In conventional war, the cost to the loser is usually much, much higher. In an unconventional conflict the arithmetic is more complicated: a non-state player fighting for a cause may not give a damn – and may even welcome human, social and infrastructure damage because of its propaganda value, especially if a poorly equipped conventional force’s only response to asymmetry is needless, destructive violence.

So winning is important. Therefore, so are the moral and technical means of securing victory. And that’s why a strong, responsive national R&D and industry base is so important – because a national research and industry base that understands the needs of the ADF is able to respond to those needs, and any sudden changes, very quickly. 

We’re not talking about designing and building new ships, aircraft, tanks and submarines. Those platform designs, for the most part, can’t be changed quickly or affordably. But we can enhance and change on-board sensors and weapons; we can improve combat management systems; we can improve our C4ISR systems and processes; we can improve simple things like body armour and personal weapon sights quickly; we can enhance the counter-IED capabilities we field quickly; if necessary we can completely change the way we do things and achieve an immediate and unexpected advantage. We’re talking about making the rapid, incremental changes to our operational capability that provide the ADF with a combat edge, that can save lives and prevent injuries and, we hope, deliver victory.

We can do all of this quickly, but only if we can do it in-country. If we need to depend on a foreign company in a foreign country, we get what they’re allowed to give us, whether or not we’ve asked for the right thing or not (and they may not be able to correct us if we’re asking for the wrong thing). And their delivery schedule may, or may not, reflect our own sense of urgency. 

That is why it is important to have a strong, sustainable domestic R&D and industry base. The cost of such a base can’t be counted in dollar terms alone. If that were the sole measure, we wouldn’t have a domestic industry base at all – Defence would simply buy everything we need from an overseas supplier and then wait patiently (or impatiently) for design changes and upgrades, at the pleasure of an overseas government. The ADF’s combat capability would be dictated and limited by a foreign power.

The value of a strong, sustainable domestic R&D and industry base ought to be unarguable: it allows us the freedom to respond quickly to the contingencies that matter to us; it allows us the freedom both to choose how we respond to emergent threats and to think for ourselves about how and why those threats might emerge and what else we can and should do to address them. It allows us to think strategically and to set our own R&D and capability priorities.

If we’re going to set capability priorities, and revise them rapidly in the face of emerging threats and contingencies, we need a strategy for analysing problems quickly and then developing and delivering the smart equipment or tactics the situation demands. 

The ability to identify and solve problems and improve our circumstances significantly is called ‘innovation’. 

The strategy that delivers an innovative capacity is one that welcomes lateral thinkers and fast movers; sometimes this involves making judgement calls and picking winners. The strategy we need as a nation is one that creates and sustains the intellectual and cultural environment in which the right judgement calls are made and, if necessary, the right winners are selected. That means selecting and training people who can operate effectively and thrive in this environment – and who can live with the fact they may never be more than about 80-90 per cent right. Making a quick call that’s roughly correct has been shown repeatedly to be better than taking ages to try and be 100 per cent correct – you’ll never be exactly right, and if you take too long it won’t matter anyway: you’ll be a goner. That’s the nature of innovation: you may not be entirely right, but that doesn’t matter as long as you’re successful.

All of which leads us to where we are today: we have a defence innovation system that will spend about $1.5 billion over a decade on short- and long-range R&D and innovation and on developing Australia’s industry capacity. This forms part of a broader National Innovation and Science Agenda (NISA) which deserves far more credit than it has received for the scale and ambition of the national economic transformation it set out to achieve. 

The former Secretary of Defence Sir Arthur Tange once famously said, “Until you’re talking dollars, you’re not talking strategy.” Thanks to the NISA and the 2016 Defence White Paper and Defence Industry Policy Statement, Australia has the policy foundations and some of the budgetary tools it needs to deliver this economic transformation, but we as a nation need two things: the promise of continued funding for this transformation process, and consistency in both funding and policy. Without these, we don’t have a workable innovation and industry strategy; and without that strategy, we won’t deliver our defence and industry capability goals. 

Anticipating the unimaginable...

Last September’s drone attack on Saudi Arabia’s oil refining facilities came as a shock, but not a surprise. Something like it had been anticipated for ages.

In an age of ‘Hybrid Warfare’ we must anticipate the use of innovative, asymmetric equipment and tactics targeted on unexpected vulnerabilities. In September 2019 somebody did some very smart targeting using high-order geospatial intelligence to achieve a surgical drone and smart weapon strike on Saudi Arabia’s Abqaiq oil refinery. 

Anybody capable of lateral thinking understands that key parts of any nation’s critical infrastructure are vulnerable to asymmetric attack. The attack surface accessible by a potential adversary is huge: every part of a nation’s infrastructure has not-so-well-hidden vulnerabilities. Damage or destroy some of these and the nation’s capacity to respond to a threat is diminished severely. 

One side’s capacity to think and act faster than the other’s and to do the unexpected, perhaps with novel equipment, gives it a major advantage. Example: the 1973 Yom Kippur War – the Egyptians used massive water cannon to destroy Israeli emplacements in the sand dunes overlooking the Suez Canal and effect an innovative, rapid and highly successful water crossing. 

This is the challenge for defence innovators: who might threaten us? What does an adversary seek to achieve? How – what are the vulnerabilities he might exploit? How do you protect these? How do you ensure sufficient awareness of a threat and sufficient warning of an attack? The scope for innovation in addressing each of these points is huge. 

The ability to wage industrial-age warfare with tanks, guns, ships, bombers and masses of infantry may still be a necessary deterrent, or war-winner. But you can’t change the design of a ship, tank or bomber quickly. 

You can, however, change and enhance things like situational awareness, intelligence, command and control, logistics and the processes that deliver good-ish decisions quickly enough that you can respond to an aggressor effectively, or pre-empt a hostile action. And that aggressor could be a super power, a regional power or a non-state terrorist group. 

Good intelligence and an informed imagination can identify potential aggressors and your own vulnerabilities; innovation – research, development, experimentation, all conducted iteratively and continuously – can provide solutions. The right kit can give you a competitive advantage but, to quote a former head of DMO’s Land Systems Division, our acquisition system must also be part of our competitive advantage – a good idea is useless if it can’t be turned into something a soldier can actually use in a timely way.

This is a whole of Defence challenge: imagining how to fight a traditional battle better and, simultaneously, how to counter (or pose) a new and unimaginable asymmetric threat. The innovation process requires Defence to confide in both industry and the research sector – none of them know enough by themselves to solve the problem, but together they can add up to considerably more than the sum of their parts. 

However, Australia’s sustainable advantage lies in the collective capacity of Defence and adjacent agencies – the AFP, Border Force, ASIO and so on – firstly to identify and then assess threats and devise effective ways to respond. And then, when the unexpected happens (“Of the two courses of action open to the enemy, he will always choose the third…”), they need the institutional capacity to quickly absorb the shock of the new, understand what’s happening and respond effectively. That demands careful selection and training of leaders and the led and a flexible organisation that encourages innovative thinking.

This means that innovation isn’t a discrete process conducted by an elite (or sidelined) few. Innovation needs to involve the whole enterprise, at every level. 

The enterprise must be capable of incremental innovation: improving what we’ve got so we can do things better. And it must embrace disruptive innovation: anticipating, or inventing, completely new ways of doing things. Both require a close, trusting relationship with industry and the research sector and a nimble acquisition system. And finally, leaders and their staffs owe it to the men and women they lead, and those who pay them, to develop the capacity to be imaginative, innovative, effective and resilient. 

The whole enterprise needs to be innovative in preparing for and responding to threats and contingencies – and that means continually challenging and potentially disrupting the traditional relationships and ingrained processes which govern our defence and security. It’s an endless journey and it starts here.

They said it couldn't be done...

I've been reading through my old copy of a book by the celebrated science fiction author, Arthur C Clarke. One his non-fiction books is titled 'Profiles of the Future'. First published in 1962, Clarke updated it for a second edition in 1972; my copy dates from 1976.

In this book Clarke takes the Mickey mercilessly from a bunch of eminent scientists who said some things were impossible. They were wrong, of course, but their reputations made it extremely difficult for pioneers and visionaries to convince their fellow men (and more importantly their governments) that something was possible, useful and even necessary. In a defence market dominated by a monopsony power, Clarke's history lesson has sobering implications.

See if you can match the quotations below with the list of eminent scientists at the end of this post.

1. "Aerial flight is one of that class of problems with which men will never have to cope... Flight by machines heavier than air is unpractical and insignificant if not utterly impossible."

2. "The popular mind often pictures gigantic flying machines speeding across the Atlantic and carrying innumerable passengers in a way analogous to our modern steamships... It seems safe to say that such ideas must be wholly visionary"

3. "By the year 1980 the [passenger-carrying] aeroplane will have reached the limits of its development: a speed of 110-130 miles per hour; a range of about 600 miles; a payload of about 4 tons; and a total weight of about 20 tons." This prediction was made in 1929.

4. "There has been a great deal said about a 3,000 mile high-angle rocket. In my opinion such a thing is impossible for many years... I don't think anyone in the world knows how to do such a thing and I feel confident that it will not be done for a very long period of time to come." This was written in December 1945, mark you!

It's probably worth recalling Clarke's first law: "When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is probably wrong." Clarke's third law is worth keeping in mind, too: "Any sufficiently advanced technology is indistinguishable from magic."

So what does this mean for innovators? It can mean one of two things: firstly, that the Innovator really is a crackpot peddling an impossible idea (and that's quite possible); or secondly, that the innovator has a genuinely disruptive idea based on insights about need and demand (and feasibility) that have escaped, or simply not engaged, the interest of an entrenched gatekeeper or master of the conventional wisdom.

Looking at history, it's clear that many brilliant ideas and insights have languished, often for decades, because the conventional wisdom (or vested interests) wouldn't allow them to flourish and grow. Part of the Innovator's challenge, then, is to sell the very idea as well as the more practical implementation. Think about the 19th century London doctor, John Snow, who first identified the mechanism by which cholera was transmitted. Or Ignasz Semmelweis, whose pioneering observations and research in 19th century Vienna demonstrated that you could reduce the incidence of puerperal fever, or postpartum infection of mothers, by 90%. Both were ridiculed by the medical establishment of their time, but they were both spot-on and we today owe a massive amount to their persistence and courage.

So it seems that innovators need skills in communication and persuasion, and powerful friends and sponsors who can support them - which is entirely consistent with the literature on innovation, but that's another story.

Sources of the Quotations - did you get them right?
A. William H Pickering, US astronomer - early 20th century
B. Nevil Shute (NS Norway), aircraft designer and novelist
C. Prof. Simon Newcomb, US Navy Professor of Mathematics - late 1800s
D. Dr Vannevar Bush, Director Office of Scientific Research and Development

Do you know how to use that thing?

Simple question: if you could afford, say, an F-35 but your tactics, techniques and procedures were all still firmly rooted in the old Mirage III era, would you be significantly better off buying the new jet? 

Let’s turn that around: if you’re operating a 4^th generation fighter and need to bite chunks out of a thoroughly modern air force, but can’t afford to buy 5^th generation aircraft, what do you do?

You might find that a well-flown 4^th generation fighter will defeat a badly flown 5^th generation fighter. And that may be because the Tactics, Techniques and Procedures (TTPs) and enabling technologies you adopt give you an operational advantage. 

That tells us there’s no point in buying new kit unless you understand what you’re able to do with it, and change your TTPs accordingly. This is one of the challenges for innovators, and it’s not specifically a Defence problem – it’s general.

Expanding the topic slightly, the competitiveness of an organisation derives partly from its equipment (F-35s, M1A1 Abrams, etc) or products (price, quality, capability), and partly from its leadership and management. 

The most obvious example is the Battle of Britain. The Luftwaffe’s Messerschmitt Bf109s, and the tactics of their pilots, were superior to those of the Hurricane squadrons they encountered in battle; the Spitfire was a match for the Bf109 but the Royal Air Force was short of these, so on paper the force imbalance was significantly in the Luftwaffe’s favour. 

But the RAF leadership had invested pre-war in several game-changing innovations. As well as its aircraft, it enjoyed superior situational awareness, thanks to radar and a new command and control system that made best use of the knowledge and assets available to it. These, together, made possible a winning strategy. 

It was the intangibles that proved decisive: strategy, situational awareness, command and control, and tactics. These were disruptive innovations that changed air fighting for generations. And they were enterprise-level innovations: the RAF changed itself to exploit them. 

When assessing supposedly innovative products many commentators mistakenly ignore those intangibles and their contextual relevance and focus purely on the performance of the equipment in question. 

Incremental innovation can give you an increase in performance, and so a combat edge in an existing environment, without your needing to change fundamentally what you do. Think Spitfire over Hurricane, or M1A1 Abrams over Leopard 1.

Disruptive innovation, on the other hand, enables (or forces) you to completely change how you do things. Think terrorist IEDs and the effect these had on Coalition tactics and equipment in Iraq and Afghanistan. Think F-22, F-35 and AEW&C and their game-changing effect on how air battles are fought. Think dismounted combat in Afghanistan and the emergence of Diggerworks.

Think Boeing’s Loyal Wingman – what do stealth, autonomous systems and AI, in partnership with a manned combat aircraft, allow you do that you couldn’t before?  Imagine the fun smart kids from the RAAF, industry and the universities will have working out how you can use that killer combination of technologies to completely change the nature of air warfare. That’s disruptive, enterprise-level innovation.

One of America’s innovation gurus, Clayton Christensen, points out that disruptive innovations create new markets (The Innovator’s Dilemma; Google it). The new markets behave and reward players differently. Established players lack the agility, smarts and structures to be competitive in these new markets, even if they have access to the same technology.

The same goes for warfare and conflict, or competition between nations and blocs (look back at this year’s ASPI International Conference: War in 2025). New players are developing different threats and employing them in novel ways. While traditional state v state warfare still demands old-fashioned, industrial-era deterrent and defence capabilities, Political Warfare, Hybrid Warfare, ‘Grey Zone’ operations and brazen cyber assault demand a different set of TTPs – they force disruptive, enterprise-level innovation upon us. 

This is the challenge facing defence sector innovators: improving significantly what you’ve got takes innovation and hard work, but may not change fundamentally what you do. Disruptive innovation is more fundamental than just new technology – it means imagining (or adapting to) a very different reality and some very different outcomes. It means creating the mental freedom for this to happen in the first place. 

It means Defence, the universities and industry looking inside each other’s heads as well as inside their own, and ignoring conventional wisdom and vested interests. 

Innovation: You're not a snowflake

So, you’re in the defence industry. That means you’re unique, right? Wrong!

It’s easy to assume the defence industry is unique: you’ve got sexy, high-tech equipment that only government employees are allowed to operate (legally, at least); wicked operational requirements; (almost) impossibly high standards for quality and precision; and stuff that’s not only dangerous in itself, it’s actually designed to kill other people. 

Wait a moment, though: we’re talking about high-technology engineered products and services. What’s so different about the design and engineering processes that deliver, say, a jet fighter and an airliner? Or a main battle tank and a high-performance sports car? Or a mine-hunting submersible and a remotely operated container terminal? 

When you look at the hardware, the services and the organisations that create and deliver them, the defence industry isn’t actually that different from any other high-technology sector, whether it’s bio-technology, software, AI, machine tools, offshore oil and gas, advanced manufacturing or cyber security. It’s not the technologies that are different – it’s the markets, and the way they operate.

Is that a good or a bad thing? Actually, in some ways it’s a good thing. It means the defence sector, which is surprisingly poorly studied and documented, can learn from the non-defence sector, which has been studied and analysed exhaustively.

If you want to be a successful defence equipment manufacturer, you need to embody the attributes and behaviours of successful manufacturers of machine tools, or medical equipment, or airliners, or ATMs.

And that applies to innovation, as well: the drive to innovate, the techniques for unlocking the innovativeness in your organisation and the tools you use to make your innovations relevant and effective are just the same. Google ‘industrial innovation’: you’ll learn lots about non-defence companies that you can apply directly to your work in the defence sector.

Adjacent Markets

That market thing’s a bit of a killer, though, isn’t it? What exactly are the differences between Defence and just about all of the other markets, and do they matter?

The obvious difference is that Defence is a monopsony – it’s the only domestic customer for your goods and services, so its acquisition and sustainment budgets and policies absolutely define the size and behaviour of the market, including its appetite for Innovation, and the barriers to entry. It's not like Australia Post is going to buy Land 400 vehicles.

Defence is also monopolistic. It’s reasonable to talk about a 30% or 50% or 70% share of the national market for MRI machines, or 3-axis milling machines, or diabetes blood testers. And there’s usually constant demand to stimulate the incremental and disruptive innovation that keeps products and companies competitive. 

But when you’re talking advanced jet trainers or infantry fighting vehicles your market share is typically either 100 per cent, or zero. And you won’t get a chance to re-compete for 30 years, by which time user requirements and technology will have changed beyond recognition – both you and the customer are forced to think disruptively. 

Thirdly, Defence does anything really important in secret. Defence’s need and appetite for innovation is determined by a community of expert practitioners whose perceptions of threats, opportunities and needs are based partially on knowledge and assumptions that aren’t necessarily made public. Hypersonics is a good example. 

None of this really matters if you have privileged access to your allies’ equipment and intelligence, and can afford not to worry about the local industry base. But now that the health and innovativeness of our industry base is an issue for Defence, industry policy needs to address both the quantity and quality of work cycling through Australian industry. 

Local firms must innovate to satisfy a demanding and choosy customer and Defence industry policy needs to help create a business environment and culture in which innovation flourishes.

This train of logic has led us to where we are today. Our defence industry policy now embraces innovation, and Defence and the ADF are trying to create an innovation culture that can both meet the ADF’s needs and help industry and the research sector. 

The big challenge is to overlay this innovation culture on a conservative, risk-averse acquisition and enterprise management system. At its core, when billions of dollars are at stake, that system probably won’t change much – innovators need to understand that, and how the system works. Why? Because that’s how this market works.

For all that Defence is trying to close the gap that’s traditionally existed between itself and industry, it’s still up to industry to understand better how Defence works, both in acquisition and innovation, in order to prosper in this market. And to apply the abundant lessons from the non-defence market.

Creating an innovation culture

Thanks once again to ADM and its Editor, Katherine Ziesing, for giving me the space for another short column in ADM's September edition on defence innovation - this time looking at the innovation culture. I'd like to shout out to Defence's Chief Information Oficer Group (CIOG), whose Directorate of Innovation has done some deep thinking on this and come up with a definition of an Innovation Culture that would serve many different types of organisation. Thanks also to CIOG for the OK to share their insights.

Supporting an innovation culture

INTRO: Hey, you’re going to ‘Innovate’, and grow an ‘Innovation Culture’. Great! But what does that actually mean?

Gregor FergusonSydney

There’s not a Defence-wide definition of an ‘innovation culture’, any more than there is an industry-wide one. Don’t say I told you, but the Director Innovation in CIOG has developed a really good definition that I think is worth sharing. It lists the four Key Innovation Values of Collaboration; Learning - fostering a culture of learning over just knowing, or not;Passion - believing in what you’re doing; and Impact - what effect, what changes, will result from implementing an innovation? (If they’re not worth the effort, then the ‘innovation’ may not be very innovative.) 

Importantly, it acknowledges the imperfection of reality and the value of timing: innovation requires us to be timely, not perfect, in our solutions. Any soldier, or salesman, would agree.

How does the culture manifest itself in an organisation? Again, CIOG has thought about this. It acknowledges the risk and uncertainty that are part of the innovation process, and the need to manage failure – both actual and incipient – and learn from it; it acknowledges the vital role of a committed leader, and of champions in both the innovating organisations and their customers. 

There’s a circular argument here: does introducing an innovation culture change an organisation, or do you need to change an organisation in order for an innovation culture to flourish? A bit of both, in my view. The key is a leadership that’s invested in the innovation process and the outcomes it can deliver. In practical terms, CIOG reckons an innovation culture enables or provides:

·     Access to Safe Spaces: both virtual and physical, to take calculated risks and explore

·     Time Autonomy: Time allocated for innovation and experimentation without being micromanaged

·     Recognition: Leaders recognising the contribution of innovators 

·     Collaboration: Working outside silos for effective innovation.

·     Multidisciplinary: Diversity of thought and experience for individuals and teams 

·     Playful Discovery: fostering creativity through gamified processes or tactile exploration.

·     Champions: Role models for innovation, including organisation leaders, who are invested in furthering the innovation agenda.

·     Future Thinking: Ensuring that the future is a key consideration in the present-day problem-solving process. 

This is a good cultural blueprint for any organisation looking to enhance its business processes, efficiency and competitiveness. Helpfully, some Australian universities have explored this cultural space in depth – industry can learn from them, if it chooses. 

The literature on innovation throws up some persistent lessons: supportive leadership is one; being a subject matter expert on what you’re doing is another; and customer knowledge is a third.

Leadership is absolutely vital: it’s leaders who (should) set the tone of the organisation and the expectations of its customers and staff; who (should) introduce an innovation culture into an organisation and sustain it; and who (should) arrange things so that innovators can help the organisation (a manufacturing company, an air force, a law firm, or a pizza shop) to flourish. If they decide to innovate, good leaders can bring the organisation with them; if they don’t choose to innovate or, worse, choose notto innovate, the organisation is likely to stagnate. 

But it’s important to look outside the organisation. Customer knowledge is the product of customer engagement. For companies producing goods or services in a highly competitive market, the more they understand their customers and end users, the better. 

Defence is working the engagement issue as a customer, but is understandably reticent about revealing apparent weaknesses and pain points, even to trusted industry players. But Defence’s innovation processes do acknowledge that engagement is important, not least because Defence leaders don’t always know what they don’t know and nor do industry and academic leaders, so they all need to be open to each other’s insights.

For many SMEs the customer might be Defence, and the end-user a member of the ADF, but the customer’s more likely to be a bigger company higher up the supply chain. Regardless, a smart supplier invests in understanding its customers; and smart, innovative customers take the trouble to understand the market they’re in and how a smart, innovative supplier can help them. They encourage and welcome useful engagement.

That means transparency and trust, two things that Australia’s business culture hasn’t always encouraged; for some reason, Australian industry and academia haven’t always embraced collaboration, and the Defence acquisition system’s need for probity doesn’t help because it deliberately maintains an arm’s length relationship with industry. All players need to learn how to trust. Remember the ‘collaboration’ bit earlier? You don’t collaborate without trust, and you don’t innovate if you can’t collaborate. That’s the cultural reality.

Making yourself ready to innovate

Australian Defence Magazine published the second of my innovation columns in August. Its title was 'How prepared are you to innovate?' and it's about the structure that an organisation needs if it is to be innovative and responsive to what's happening around it. It's reproduced below, with a couple of minor additions.

Thanks to ADM Editor Katherine Ziesing once again for the opportunity.

How prepared are you to innovate?

INTRO: Facilitators ready? Bean bags primed? Whiteboards clean, bright and slightly oiled? Stop! As you were! 

Gregor FergusonSydney

‘Innovation’ is almost a buzz-word: it’s one of those things that’s hard to define, to the point that trying to create a single definition to cover all circumstances is simply pointless. 

Understanding that Innovation is about change is important. Creating an Innovation Culture is important. Engaged leadership is really important. But how do you configure an organisation to exploit that innovation culture and leadership? 

The organisation that you run or work for is (or should be) configured for the business you’re in. You might be manufacturing a product (guided missiles, or sugary cakes), or delivering a service (as an MSP contractor, or delivering flowers, or running a government department), or running an air force. 

The business you’re in will determine your structure and size, but to be innovative you need also to honour the principles of leadership, subject matter expertise and customer awareness as well as the willingness to pursue and embrace change.

Whatever your business, the same four fundamentals apply: Self-Awareness; Situational Awareness; Professional Mastery; and Business Mastery (or Leadership).

Self Awareness is about the innovator’s ‘internals’ – what he’s capable of, and what he needs to change if he wants to do more, or do something quite different. It’s an internal quality control system and it’s vital.

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

The two feed each other. The innovator’s Situational Awareness determines his ability to expose and identify threats and opportunities; the innovator’s Self Awareness will shape his ability to respond. 

The actual response to those opportunities and threats will be conditioned, and possibly determined, by the innovator’s Professional 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 in which he is (or should be) the subject matter expert – this is Professional Mastery. 

For the ADF it is the ability to generate and apply military power at the behest of the elected government (its ‘customer’): every aspect of training men and women and operating equipment to the highest levels of proficiency. For the manufacturer, it is the technology embodied in his products and services that make them saleable, and the manufacturing techniques and enabling technologies that allow the players in this market to survive and flourish. 

The relevance of your Professional Mastery, and the professional and technical standards you need to achieve, are informed by your Situational Awareness and Self Awareness. The organisation’s 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 is the bedrock of enterprise-level innovation and it’s what Business Mastery is all about: the 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. This embraces business management, administration, human resources and strategic planning. And innovation. This applies to the lone innovator as much as it does to a large, complex organisation.

The mutual dependence of Self Awareness, Situational Awareness, Professional Mastery and Business Mastery can be shown in a simple diagram:

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

Don’t laugh, but the ADF gets this and Defence as a whole is slowly catching up. What government organisations struggle with, however, is an innovation culture at odds with a conservative, hierarchical tradition of top-down management and caution over policy development and the expenditure of public funds. Industry and academia enjoy a freedom that public organisations don’t, so have fewer impediments to embracing innovation – if their leadership and culture allow.

Defence Innovation - catching on

I've been writing a series of columns for Australian Defence Magazine on innovation in the defence community - not sector, but community - that word's important because successful innovation doesn't happen in isolation: it needs effective engagement between the innovator and the end-user, so industry needs Defence if it is to innovate successfully while Defence needs to understand what it needs to do and how industry and research sector innovators can help it achieve that. This is a community wide challenge.

 The ADM columns can be found here: https://www.australiandefence.com.au

Meanwhile, here's the first of those columns, published back in July - my thanks to ADM's Editor,  Katherine Ziesing, for allowing me the space and freedom to write this.

Defence innovation catching on 

INTRO: Defence is serious about innovation. Industry needs to share the journey, and help where necessary.

Gregor FergusonSydney

The 2016 Defence White Paper and Defence Industry Policy Statement broke new ground in Australia by enshrining industry as a Fundamental Input to Capability, and by committing to an ongoing investment in defence industry innovation and development. 

The DIPS quotes the then-Chief of Army, now CDF, General Angus Campbell: “Our operations in Afghanistan, and elsewhere over recent years, remind us that if we don’t innovate we won’t sustain an advantage over a future adversary – war can be very Darwinian.” 

The DWP is blunt: “The Government’s approach to Australian defence industry and innovation policy aims to maximise the defence capability necessary to achieve the Government’s defence strategy supported by an internationally competitive and innovative Australian industrial base. The focus will be on the small to medium enterprises that are the incubators for advanced defence capability in Australia.” 

There’s logic behind Defence’s embrace of industry policy and innovation: the high-technology defence sector delivers a very high pay-off for both Defence and industry innovators.

So what is innovation? There’s no Defence-endorsed official definition as yet. The Aerospace Maritime Defence and Security Foundation of Australia, organiser of the Pacific 2019 Innovation Awards, says ‘An innovation can be defined very broadly as a new idea that gets adopted and used; it’s an all-new product or service that solves an identified problem or saves somebody a lot of money, or that creates an opportunity for the user to do something important that he couldn’t before.’

Different parts of Defence are running with this broad definition. The three services, DST and the Chief Information Officer’s Group, CIOG, are heavily focussed on technology capability innovation and so this definition shapes their interface with industry. The rest of the organisation, however, also has a mandate to be more efficient, an innovation push encouraged by Defence’s First Principles Reform program. 

But there’s a definite limit to what innovators can change and achieve in any of the public agencies and departments. Public service regulations and guidelines on spending taxpayers’ money are rightly determined by probity and caution. This is famously antithetical to successful innovation, which is all about embracing risk and exploring uncertainties while pursuing a better outcome, faster. 

One answer to this contradiction lies in programs such as the RAAF’s Plan Jericho. This ‘seeds’ promising technologies and projects and so de-risks them significantly while helping the RAAF plan its own future direction before serious money gets spent on acquiring new equipment. Recent ‘smart buyer’ changes within Defence mean this approach might deliver a better outcome faster and without sacrificing probity – look at Project Land 19 Ph.7B. 

Defence’s stated policy goal is to develop “an internationally competitive and innovative Australian industrial base”. Its challenge is to foster innovation by the SMEs, in particular, and then determine a mechanism for ensuring the results are incorporated efficiently into capital equipment acquisition, upgrade and sustainment programs. The Defence Innovation Hub and Next Generation Technologies Fund (NGTF) are paths on that journey.

Industry R&D and innovation is essential to develop new products and services; industry also needs to refresh business skills and processes regularly to become more efficient and competitive, domestically and in export markets. Situational awareness is vital: industry needs to understand in some detail what Defence users need, as well as its own strengths and weaknesses in the market - Defence must be part of this process. Many SMEs already do this instinctively, calling it creativity, lateral thinking or continuous improvement and not realizing (or caring) that this is part of the innovation process.

Australia’s defence industry is abnormally polarised between a small number of foreign-owned prime contractors and a large number of indigenous SMEs. A policy focus on the SMEs’ capacity for agility and innovation is understandable. But big, hairy, ambitious projects need lots of money and people. Designing new combat aircraft, warships and submarines requires massive R&D investment by prime contractors and government research agencies. 

That’s why SMEs are lower-tier players: their contributions are vital, but they are necessarily in niche technology areas. This means their customers are often other companies higher up the supply chain. Innovation for the SMEs is as much about developing their technology and product base as it is about making them more competitive and sustainable as businesses. 

Defence and government have a key role here. There’s a collective win-win if Australia gets this right. ADM will explore this theme further next month

Australian shipbuilding - worth the effort?

So Australia’s naval construction program is risky. No sh*t Sherlock! Why did nobody say anything before?

With a decision imminent on which of the three bidders will build Australia’s Future Frigates, the majority of people who are fairly close to Australia’s shipbuilding plan have always accepted that it’s a risky venture that’s going to cause a lot of short-term pain. Are the rewards worth the pain? Let’s think about that for a moment.

Are we going to buy those submarines, frigates and patrol boats anyway? Yes. So if we don’t build them ourselves, and if we don’t insist on the highest reasonable level of Australian industry involvement, then most of the money we plan to spend will go overseas. 

But that’s supposed to be okay: the economists argue that we get the benefits of another’s efficiency. Some other country’s shipyards and equipment suppliers have been building ships for ages, so they’re good at it, so we don’t need to be good at it – we’ll just buy stuff from them. 

Really? Are we really going to spend $90 billions-worth of Australian taxpayers’ money enriching the taxpayers in another country?

What if we want to build that stuff ourselves? Well, the argument goes that we haven’t done much so we’re not good at it. So because we’re not good at it, we shouldn’t do it – it’s cheaper and easier to get it done by somebody else overseas (whatever ‘it’ happens to be - in this case ships and submarines; but the argument seems to be applied universally by pundits in Australia). But you don’t become good at something unless you practice. 

And what happens if you practice? You get better. At the end of the day, you might be better and cheaper than an offshore supplier; or you might be about the same, all things considered; or you might be slightly worse. The ANZAC frigate, Huon-class minehunter and AWD projects demonstrated that we actually get very good very quickly at building ships in this country – world-class, in fact. That’s the benefit of the learning curve effect, and it applies across other sectors of the defence industry as well as the wider economy. Yes, market volumes matter, which is why exporting and diversification are both so important. Guess what? The Commonwealth is trying to encourage defence companies to do both.

If you’re doing the job – building submarines and warships, or something else – in-country, and reaping the economic benefits that flow from designing, building, testing and maintaining stuff, and developing the industry-wide skills that can be applied to other projects and industries, you may be considerably better off. Especially if you then avoid, in down-stream phases, the financial and reputational costs of repeatedly starting up an industrial enterprise to build a few ships and then allowing it to shut down again, only for the process to be repeated. Each time you do that you almost guarantee delays and over-runs, not to mention quality issues, resulting from trying to mobilise an under-utilised, under-skilled and inexperienced work-force and customer. (Let’s not forget the customer plays a role in all this too.)

People who argue for the status quo tend to look narrowly at a specific project, ignoring the wider context. Yes, it’s expensive to either buy or build a submarine or a fleet of warships, but designing as much of them as possible in-country, building them in-country and designing and building in-country as much as possible of the equipment that goes into them can generate significant spinoff benefits beyond the project itself. No, there are many things we shouldn’t even contemplate trying to do ourselves, but that still leaves plenty that we can do, and the better and more efficient we get, the more of this stuff we can credibly claim for ourselves.

In a small-ish country with a small-ish population individual industry sectors generally aren’t big enough to support all of the specialist capabilities needed for self-reliance, let alone self-sufficiency in that specific sector – think of things like specialist metal coatings; specialist surface treatments; high-speed titanium machining; manufacture of high-end electronic chips; manufacture of high-strength metal alloys or carbon-fibre composites; highly specialised welding techniques; high-end industrial robotics, to name just a few. While an individual industry sector may not be able to sustain all of these capabilities in-country, a group of sectors with overlapping technologies and markets might – but they depend on each other to thrive. 

Even a struggling industry sector may still help underpin a technology pillar providing essential support to a bunch of other industry sectors. Without it those other sectors become less competitive. That’s the broader context that many commentators and policy makers ignore.

Conversely, if you invest in a new sector, or in reviving an existing one, you create spin-offs that benefit every adjacent industry sector. In this case we’re talking about manufacturing – that’s the smart stuff that people do with low-tech commodities such as iron ore, bauxite, titanium ore, coal and natural gas. And when they’ve done that clever bit, traditionally they have sold the resulting products back to the source of the coal, gas and ores – us.

So what’s the problem with investing in a new national shipbuilding plan? Andrew Davies in ASPI’s ‘The Strategist’ blog, said the process is a ‘shambles’. It’s certainly untidy but that, I suspect, is because the Government is having to make up six years of lost ground when the Labor governments of Kevin Rudd and Julia Gillard refused to make a single decision or invest a single dollar in building submarines and ships for the Navy. 

Now, we as a nation are trying to make up for lost time by building up enough momentum to clear the so-called ‘valley of death’ that’s resulted from those years of inactivity, and the picture isn’t pretty. Apart from the understandable concerns over the submarine and future frigate contracts, both of which are massive and will run for decades, there seem to be other areas of concern.

One of them is the decision to split the build of the Navy’s 12 Offshore Patrol vessels: two will be built in Adelaide by ASC, the remaining 10 in Fremantle by CIVMEC. Yes, that looks untidy and inefficient, but it has a couple of benefits: firstly, CIVMEC (or AMSEG, as it is now called) still gets a 10-ship build program at its Henderson yard – that’s important because it helps them develop management, engineering and construction skills and infrastructure which can then be turned efficiently to other projects. Secondly, it helps maintain engineering and shipbuilding skills at ASC that would otherwise be lost pending the start of the Future Frigate build. Remember how Australia’s shipbuilding industry atrophied after the finish of the ANZAC frigate program, and the costs and delays that resulted when we started re-mobilising the national workforce to build the first AWD? That’s the sort of problem the Government is trying to avoid here. Yes, it’s untidy and inefficient, but down-stream this approach ought to pay dividends. Read p.47 of the Naval Shipbuilding Plan: 

“The Government announced on 18 April 2016, that naval shipbuilding in Australia will be centred on two yards: Osborne Naval Shipyard in South Australia for major surface combatants and submarines; and Henderson Maritime Precinct in Western Australia for construction of minor naval vessels. This consolidation will focus investment, industry and workforce in an effective and efficient manner.”

That’s the intent: getting there will be a bit like making an omelette, leaving a mess in the kitchen and plenty of broken eggshells. Sorry, but given where we’re coming from that’s probably unavoidable.

This whole shipbuilding plan is about husbanding and growing efficient naval construction resources. The nine future frigates will be built in Port Adelaide in the same yard where ASC built the Navy’s AWDs. That yard is now in the Commonwealth’s hands but the workforce – from project managers and design engineers to welders and shipwrights – will still be there. 

Of course, we don’t know exactly what the submarines and frigates will cost us. The Future Submarine design hasn’t been finalised as yet. And the Future Frigate hasn’t even been selected yet, so we don’t know what the program will cost, nor what industrial arrangements will be put in place to build those ships. Meanwhile, the commentariat are already talking about ‘cost blowouts’ and ‘delays’. Really? 

As for the future of ASC, let’s wait and see what transpires after the Sea 5000 decision is made. My personal suspicion is that the Future Frigate program will have a rapid and significant bearing on ASC's future, but that’s just me. We don’t have room to discuss it here and I suspect I’d only be speculating wildly in any case.

Andrew Davies’s celebrated ‘shambles’ will start to resolve itself once the Sea 5000 decision is made and technical and schedule risk factors can be identified and quantified properly; the process will advance still further once the Future Submarine design is completed. Things are messy, which public servants and policy analysts hate passionately, but we always knew that would be the case. What’s different today is that we have defence industry policy being shaped by a strategic outlook, rather than a succession of narrow, transactional decisions devoid of any broader context. Does that make the rewards worth the pain? If we as a nation can reap the rewards of thinking strategically and becoming more pro-active globally, then yes it does in my opinion.