Episode 711: The Defense Reformation, with Shyam Sankar

Tom Suncar. He is the chief technology officer for a pall Andeer, and today we are going to dive into a really robot piece of work that he's done looking at the macro Department of Defense here for the United States, and we'll have links for it in the show page. It's the Defense Reformation and it based upon something that really kind of caught my eye is I'm looking at another podcast right now that I do during my commute.

It's Dirk Hoffin's a History of the Germans podcast, and we just reached the point that we're going into the Reformation with Martin Luther, and the unbearingly describes what led Martin Luther to that point in the condition of the church. And I got to give a lot of credit here because in the kickoff, we don't have one of these slow boils where are we going here? And I just want to do a right at the masthead quote. As a nation, we are in an undeclared state of emergency.

And also in the start you had this kind of extended quote that lets you know that what you have to follow is going to be clear and right to your faith. Well extended quote, your quote. This is a Cold War two. The West has empirically lost to terrence. We must respond to this emergency to regain it. We have a peer adversary China. Near peer is a shibble of a euphemism to avoid the embarrassment of acknowledging we have peers when we were once peerless. And with that some welcome to Midraps.

And I think having the sort of fresh thinking saying things that are heretical but possibly true, enables us to have that sort of robust conversation and reform the institutions from within.

existed in the past. And that's where that's that's the starting point for accumulating all these barnacles, which is like you were right in the past and you're just wrong in the present, and that error you're letting it accumulate. And I think there's a very human reason we do that. We like predictability, we like organ we like legibility in our organizational structures. It can feel like there's thrash when

you're changing things, but that might also be needed. A lot of these things are dialectical, right Like if you have if it's all thrash and you're changing things all the time, nothing works. On the other end, if there's no thrash and you're changing nothing, nothing works.

so it's not something that was done. Okay, Well, I know who's coming into the new administration, so what can I shape for that? But we're reaching a point where some people call it you whether it's chaos is a ladder or change is an opportunity. But this is a nice moment in time where you're going to have new people with new perspectives and an open mind to look

at things new. And again, when you look at a lot of the people who are coming into the administration are advising them, there is this undercurrent of let's do a fresh look, let's do a clean sheet, let's have a different view of how we're trying to do business. Are you seeing this as one of those opportunities for you and other ones that have been looking for reforms and not just asking for it, but are saying literally, here are by eighteen points as an entering argument for discussion.

Do you see that from a timing perspective, that you

really have more of an opportunity you may have thought in January of twenty twenty four.

need right now. We need to re examine this from from top to bottom, and we need to say, well, why can't it be this way? You know, we've been I would say the critique would be, we've been overly committed to historical playbooks that don't seem to be working. And that sort of improvisational, dynamic thinking is an American strength, you know, and I mean this in the best possible way.

We're crazy as Americans, and so that willingness to reconsider, reinvent, to reorganize it is going to play to our strength. Once we hit that precipice of believing that absolute changes needed.

Laboratory first company or agency. He even beat the government to doing digital singing. Everything before then was analog. And David Packard co founder of HB he was a depth sec of Defense. So this idea that our technologists have not been involved we've just kind of forgotten it. Maybe it's a comfortable legacy of the Cold War having won the Cold War, rather that we forget the role that

the valley really played. And I'm excited as an American to see that the most dynamic parts of our economy is represented in our tech industry and the new parts of our manufacturing industry are getting involved with national security.

people with good ideas and drive to be able to accomplish. And you would think that that would be reflected throughout our government our culture, but it's not. And a lot of people don't see that. And that's okay. People have busy lives, they've got to get on. They have a lot of trust that the government's doing the right thing and I wouldn't call it un American, but maybe contra American.

You do a good job at outlining that the trillion dollars plus or minus that our nation invests in its defense, it's not reflecting the best of that American culture. One of the quotes that I think, again, people don't have a vision of this, and a lot of people who have served are very aware of this. But I think this is helpful in informing the larger public and decision makers. And here's a little bit of a quote quote Everyone including the Russians and Chinese, have given up on communism

except for Cuba and the Department of Defense. The only problem is that we make very bad commies unquote. So you combine this consolidated view of we're not going to have individual farms, were going to put all the coulocks onto the collectives with you mentioned McNamara early, and he comes up again. You have this era US auto industry approach in view of a program management that is almost

stuck in this aspect here in twenty twenty five. And what type of levers do you see that we need to get people to get hold of that can help break open this aspect and bring out some of the better parts of our culture and our environment that we can leverage into making our defense better for the dollars we're putting into it.

very much on the efficiency of the supply side. How do you produce, you know, how do you manage the production You don't actually have the same complexity of problem, and that ended up hurting American auto companies in the seventies when we started facing Japanese competition. We basically as America had to throw away the McNamara playbook in Detroit

in order to make our auto companies competitive again. But the Department didn't do that, you know, we stuck with the McNamara playbook, and the legacy of ppbe to the present day. And so to my point about organizing and reorganizing, look, that might have been the right way to approach things in the fifties and sixties. Although I think smart folks

like Eric Lafgan would say even then it wasn't a good approach and it was fatally flawed with systems analysis, but it certainly isn't the right way today. And I think when we look at the era, when we think about big things that we've done, like ICBMs or the submarine launch ballistic missiles, we had a lot a lot more inner service rivalry, We had a lot more competition within government, and I think it really is a legacy

of having won the Cold War. That and a desire for a peace dividend, which is very reasonable, but it's pushed us towards this consolidated approach, a unitary effort. You know, duplication is bad, but of course if you look at the American economy, we have lots of companies competing all the time. We have duplication all the time, and we

think that gives us the fitness, the survival function. And I would offer you as an example, Europe has created zero companies from scratch over the last fifty years, worth one hundred million dollars one hundred billion, sorry, one hundred billion dollars or more. America has created all of her trillion dollar companies from scratch in the last fifty years, the relative performance there is astronomical. We're not even in

the same league. And I think a lot of that comes down to our American culture and our willingness to I would say it's founder led You know, of all the nations in the world, we call them the founding fathers for a reason. We understand that there's something special about founders. This is not a random group of people in seventeen seventy six who just happened to pull this off. The people really mattered, and each of their individual contributions

really mattered. And when you look at World War Two or the early Cold War, but today we might think about it as Northrop Grumman, but it was Jack Northrop, it was Leroy Grumman. It wasn't Lockheed Martin, it was Glenn Martin. It was William Bowing. And when you look at the present the most functioning parts of our economy, it's Elon Musk, you know, Mark and Dreesen is. You see,

those founders have now migrated to technology. So I'm not sure there's something special about Silicon Valley per se, but I do think there's something special about the American founder, Letter Frontier, founder letter approach.

comfortable path. You know, like, these very creative people are often pretty disagreeable. They're there. It requires a lot of human management to keep the band together, to get the right person in the right role, and realizing as leaders that's part of our job Rickover did not survive thirty years as the head of the Navy nuclear program, subprogram, reactor program just because people wanted them there. Zumbwaldt actually said, the Navy has three enemies, the Soviet Union, the Air Force,

and Admiral Rickover. So it it actually took many, many acts of Congress to keep him in place, and his tenure finally expired when Congress decided his time was up.

up until the very moment that the Minuteman worked. As soon as it worked, it was Hall's time. And I think there's something very real politique about that, where Shreiver was optimizing on the primacy of winning. There's only one person who could get it here. There are other people who can get it to the next phase, and all of our difficult, found driven personalities will at some point, you know, their time will come. I think anyone who's built a business sees that over and over as well.

But it starts with sorry, it's a long answer your question, but it starts with the commitment to realizing that part of our job as leadership is to protect these really unique humans, to cultivate them and protect them. We don't want to lose them when they're always when they look up and they just see a boorg or a machine that's going to grind them mouth, that's going to treat their career as a bingo card of experiences to kind

of fill out. Versus like these really they're almost like artists like deeply, profoundly creative humans who have the skill set to do something for a decade and in doing so fundamentally and asymmetrically impact our capability as as a nation.

the recurring things that we see in your discussions in your eighteen thesis is people matter, individual people. Finding those people and like you said, protecting them matters. And there's also constantly updating what works best for today. And when you look at two of the large frameworks that not just people, but the process and policies the DD runs on, it's almost comical when you look at and again as I try to emphasize the people, these are created by humans,

They can be changed by humans. These these are not acts of nature. Here you have dopma, the Defense Officer Personnel Management Act. It's from nineteen eighties. Goldwater Nichols is nineteen teen eighty six. It's you know, big Hair Neon post disco America is running things in twenty twenty five. And to change these it requires not just people like

you've done. Here's some ideas, here's some outlines, but it requires people at the House of Representatives in the Senate and both parties to say, hey, I want to be part of joining the twenty first century. Twenty five years too late, let's get to work on it. Are you finding good partners in the Senate and the House that are willing to be this generation's Goldwater in Nickels and perhaps look at bringing the Jimmy Carter theory of personnel management into the modern age.

not the same thing. And if if you spend too much time trying to quot unquote fix the system, you're going to get bogged out in trench warfare and lose all your maneuver room but what we need are some early efforts that are actually working, that generate momentum and show us a path of alternative ways that we could be organizing. I think it would be very bold to say that we should reorganize the whole department, because I kind of feel like the opposite of one mistakes another mistake.

You're not going to quite get this right. What we're really missing is the ability to have the human discretion for saying this program needs to be run differently. You know, first principle, I'm thinking about it, this is the right setup for it. I need someone to be around longer, and I think you can if you look at naval reactors, there's a reason that the person in charge sticks around there for eight years.

we need to give our officers more discretion. You know, I guess very frustrated when I hear this axiomatic line that you know, it's like, well, we've shown this is what I hear from general officers. You know, we've shown that.

You know, we're not always the best stewards of the tax payer money. We really need all this oversight. I'm all for oversight. That's part of the role, that's how the system works. But this sort of self flagellation, I don't really believe it. When you're doing these really hard things, you can't expect them all to work out. There's there's a price to pay for your own experience and getting up the curve. There's a need for you to learn

from your mistakes. What we The real oversight comes from betting on the right people are you know, do you have the right people in the role? Great? You know you're probably not gonna be able to do much better than that, and the journey is what it's going to be. I love the anecdote of Admiral Rayburn when he was building the submarine launch blistic missiles. First of all, he had four competing programs. He had Congress breathing down his neck,

he had other admirals breathing down his neck. You know, show me the gant chart of gansharks, like, how is this program going? Tell me when it's going to deliver? And he created something called per peert, the latest in decision sciences and analysis. It was, you know, use Monte Carlo simulation to tell you how long these things were going to take. And this was in the sixties, right, so it's actually kind of hard. You didn't really have modern computers then. But it was all a smoke screen,

you know. It was a way of giving false comfort to the overseers. And what he was really doing is protecting the engineers to do the messy zero to one work that actually was very hard to predict and who knew when or if it would deliver, and it did,

of course deliver. We got Polaris from that. I mean, I think maybe an unfortunate legacy for him, as his smoke screen was so good that people thought that pert is what led to the success, and they subsequently institutionalized that as a way of running all future programs.

of that cell. Can you push innovation by creating an innovative group or is it just something you have to wait for the right people to pop up at the right time.

making the right music. You have the right members, it all sounds great and it works for three years, and so you know, the expansive view would be, maybe you need lots of innovation selves. There's no monopoly on innovation. It's not like you do the O and m over here and these these people have the only right to think about how we're going to innovate and do things better in the future, like we need to create enough

surface area that innovation can bubble up. You know, maybe another way of thinking about it is our system as it's currently designed, is so well designed to handle any problem that can be thought through and solved deductively top down.

It is horrible at anything that requires induction or bottoms up iteration. And that sort of inductive bottoms up iteration is first of all a fundamental American strength. And secondly, it is messy and chaotic. That's the reality of it. And that's why I think these institutions we should plan for them to be a little more ephemeral, the innovation organizations, and we should expect that innovation can come from anywhere.

And a big part of a leader's role is seeing the green shoots and then betting big, helping that scale, creating the space, protecting them from the antibodies, protecting the talent so they have the room to run to do this. And you know, when I look at the most if you look at Jasock and how they work, they absolutely practice a right like rank means much less the outcomes really matter. You will move people around the collaboration is

structurally very flat. And the reason I keep coming back it's not just a platitude to keep calling this in American strength. I have a longer exegesis on this. But you know, one of the things America is best at in the world is software by a yawning margin. There really is. Number two is very very distant. Think about the fact that there are zero Chinese or Indian enterprise software company needs that are competitive on the world stage. That tells you that software is not just about IQ.

I mean, look, they're smart people everywhere. You would expect a much more kind of evenly distributed set of companies and capabilities if it was just about intelligence. It's about culture. And when people look at Silicon Valley they kind of sometimes think, oh, maybe we imported this culture from Israel or India, And it is true we imported it, but we imported it from Iowa. It came from Bob Nois, a famous Iowan co founder of Intel, co inventor of

the transistor. It's deeply rooted in a willingness to play positive some games, a high trust atmosphere, open communication, all harm hallmarks of the Midwestern culture. I mean the very term open door policy is something that Noise coined. And I think there's a way in which we don't even understand how all of American tech is actually a descendant

of Noise and a descendant of this Midwestern culture. And that is very sticky because if you're the Singaporeans and you come and visit Silicon Valley, you see Stanford, you think maybe I need a world class research diversity. You see Sandhill Road and you think maybe I need a venture capital ecosystem. You probably need those things, but you're totally actually missing the root cause of what's enabling all

this stuff to take hold where it's taking hold. And by the way, if you do figure it out, it's the one thing you don't want to copy. As a Singaporean. You're pretty happy with your culture. You're not trying to be Midwestern. And so this has led to a pretty

enduring advantage for us. I don't want us to let rest on our laurels about it, but I think you could very easily reason by analogy to see how that same approach, that same sort of mentality applied to innovation bottoms up with a lack of hierarchy, plays to our strengths.

it's not American in its format. And when you look back at something we mentioned earlier on in the discussion was Bill Perry's Big Supper, I mean last supper where we took all the huge numbers of businesses that were involved in defense and as as opposed to letting there be creative destruction, let there be the creative friction in the competition of the free market getting everybody to consolidate.

And it's created a situation that you bring up a lot that I don't think is really understood, and that is the weird impact it has between the people supplying goods and those that are purchasing the good and that is monopsony and how monosomy monopsony has become almost the standard practice on how we get the material and the process to providing national defense.

came up with would not be affordable. And as Americans, we believe in the free market, so we should be finding ways to approximate free market principles inside a defense to leverage the forces of innovation that we see powering

American hegemony commercially every chance we possibly get. Now, just to back up a little bit, the reason I think you could say, well, it's always been a monopsony, and I think just the very structure of the American economy as we entered World War two, as we entered the early Cold War was very different. I don't think we had a defense industrial base. We had an American industrial

base when the Berlin Wall fell. I mean Chrysler made cars and missiles, Ford made satellites until nineteen ninety, General Mills, the Cereal Company, made torpedoes and artillery. So if we look at that, what you really see is I think too much is probably said about dual use companies. Look at a missile of single use and lethality matters, and we're going to have a need for many, many single use things that actually scare our adversaries. But we did have

dual purpose companies everything. You know, why did General Mills have a mechanics division that did these things? Well, they were producing equipment to process cereals. You know, that is a mechanical. Everything they learned about doing that, all the price performance, all the innovation, all that demand signal helped them produce lethality for America's national defense. That's the same thing with Chrysler. Everything they learned about building a car

enabled to build missiles better, faster, cheaper. We've lost a lot. So I think the last Supper, this mass consolidation from fifty one primes down to five. Really people look at it, and I think they probably take away a true statement that is not the most impactful. They look at it and say, oh, this led to a lack of competition in the industrial base, and at this point, the government

lost pricing power, the government lost options. I think that kind of happened, but I think it's closer to the margin. What really happened is that consolidation bred conformity. You know, we exited the era of Leroy Grumman and began the era of kind of big, faceless corporations who were just you know, I don't want to trivialize it, because these are great, patriotic companies, but there was no one who had the weight of a founder to really make bold decisions,

invest in innovation, to push back against the customers. I don't think it's an accident that SpaceX and Pounter have both had to sue the government. We have to go a long way back in time to look at that those things happening where you have a deep conviction and what is right for the nation, and you're going to fight for those things. And so then now we live in a world where we don't get to benefit that

much from the commercial innovation towards national security. Like we used to live in a world where every car, every camera, every cereal box we bought as Americans actually subsidize and enhance our national security. That doesn't happen anymore. And sadly, I think if we just look at this competitively, the Chinese have figured this out. They learn from our history. You know, the Chinese primes only twenty seven percent of their revenue comes from the PLA. The rest comes from

commercial sales. You know, the cheap crap we buy on Amazon as Americans is actually subsidizing lethality against US service members in a future fight.

for the company, and a lot of other things. How do we, how do we this is another one of those how do we How do we encourage more founders to be that cutsy, to not worry about what Wall Street thinks?

want to pick winners. We don't want to pick winners. When we were trying to build out the titanium supply chain in the fifties, the government made very strategic investments deep down in the supply chain to enable aerospace companies to subsequently succeed. It wasn't a direct subsidy, but they financed the necessary R and D that enabled titanium to

come to mass scale and change our national security. So I think we need a more kind of realistic take on that interaction between industry and government on these things, and for these founders to continue showing up, we just

need to make sure some of them succeed. It's very much power law, and I think the mistake we kind of make esthetically, especially in DC, as we think about peanut butter spreading the capital around, which just gives you a class of living zombies like these companies can't reach scale. None of them are that successful. None of their investors are able to say we should invest more capital here because it's working. Because we've just evenly distributed the funds.

Nothing quite works. But that's not how Silicon Valley works. Right, for every ten investments, maybe one succeeds. You know, your

most successful investment as a venture capitalist needs to return the whole fund, And so you expect a few of these things to be really big successes and the rest of them not to work out. And I think that's more authentic to how innovation actually works. Like we're not looking for private equity businesses. We're looking for venture scale zero to one innovations, and the department is getting more

educated about that. I think, you know, having said that five years ago, ten years ago, people looked at me like I was crazy. Now I think people realize it. But it's a big ship to turn.

kind of goes along with your rickover Emboyd pre nineteen eighty no surprise there. Innovators is somebody that Mark and I have talked about many times on the show over the years that I should have a little votive candle with his picture in the corner. That's Rue Adromaier, who was responsible for developing AEGIS and his phrase build a little, test,

a little, learn a lot. And I see in what SpaceX and Elon Musk has done where he'll put up these big, beautiful starships and tell people ahead of the time, this is going to explode at some point, but we want it to that freedom to fail. It's like, no, I want it to fail. So I can find out what the cause was and then we can improve it. When you look over the DoD side of the house, we'll go back to the seventies again. The first airframe of the F fourteen, during one of its test flights,

had I believe was a hydraulic failure. It doesn't matter, but it's on video that thing it crashed. Same thing with the first hole of Valkyrie, and those were used as excuses to kill They almost killed the F fourteen program of it. So it's like a completely different worldview. And some people will say, well, we've never had that in the military. Well, actually we have an individual like Radwellmeier.

barnacles over time. Every time something went wrong in a program, there's a new rule do this do that it slows the whole thing down. But maybe even much worse than slowing us down. It means that we can't hit the exceptional outcomes anymore. You know, could we build the U two in thirteen months? You know, I mean, clearly we can. There's nothing about the physics of the universe that say that we can't. But we would have to really go back to first principles and how we think about this.

People love. Another example of this that I love is people love to critique David Packard's five thousand series as this hugely bureaucratic approach to procurement. It's two thousand pages long, but when he wrote it it was seven pages long. That doesn't seem that bad. So think about the rate of barnacle accumulation. I calculated out it's about seven It's eleven percent annual compounded growth in pages. And so you just think about we need to kind of have a

willingness to re explore and re examine these things. And if we're sticking on the religious theme, maybe I'll offer something that might be just to you know, I've already been heretical enough. I might add to my own heresy around this one of the concepts that's really missing from the Western canon. As someone who was raised by Hindu parents. In Hinduism, there's actually a god of destruction. There's a god of creation, a god of existence, a god of destruction.

So destract the need for reinvention is institutionalized. It's not viewed as oh, something must have gone horribly wrong, therefore we must burn into the ground. It's it's part of the cycle in the Western canon that you know that's supposed to be the end, like when that when that day comes, everything's kind of done. And I think a greater willingness that we should our institutions will be enduring because we're constantly willing to reinvent them is actually the path I believe in.

lost these days. People in some of these organizations, they are so wrapped up and deciding whether things should be twisted to the left or to the right that they forget about why are we twisting it at all?

And I you know, like some of the greatest innovations we've ever come up with technically are because someone wanted to a junior engineer wanted to prove to a senior engineer that there was a better way of doing it. Now, that can lead to a little bit of interpersonal strife and discord, and but I think that's the reality of innovation. And if you are set up in a way to view that as insubordination, you're going to you're going to push out the creative personalities and you're going to get

what you're incentivizing. But if you view as Jefferson said, you know, from time to time a little rebellion is a good thing. We need to we need to just be open minded to.

the combatant commanders. And you had a really interesting idea that I was kind of mad that I had never thought of all the ranted I've done about co com reform, and now I actually have something because a lot of times people come to be like, okay, you say co com reform, what do you want? And I'd blake and I'm a couple of times like something that we don't

have right now. But you have an idea of and you mentioned earlier about free market principles and how you can bring that into an institution like the US military, that there is a way that we could use the COCOMs to leverage the positive aspects of free market competition and kind of flush that out a little bit.

And I think there might be cleverer ways of integrating supply and demand, which is kind of the beating heart of any institution or business, and so in particular, instead of trying to have a consolidated view of what the services should be building for an abstract set of any contingency, any theater, any operation, maybe we should be enabling more differentiated signal to come from the COCOMs and then giving them the ability to strategically introduce competition. Hey, I want

to buy this from the Navy. I really believe in the program they're doing. Or actually it's not clear between the Navy and the Air Force who's going to deliver on this, and I want to be able to allocate my resources across these programs, or maybe I need my own internal R and D effort to go after this. And I think we should embrace the fact that sentcom

is not indo pay coom. They're going to have different needs, and actually we're optimizing our national security and the lethality of our force by allowing ourselves to express that differentiation across the combat commanders rather than trying to reject it and turn it into a unitary Soviet style signal. There, I think probably the most flushed out thinking around this.

I really heard from Derrek Tunier, who's the leader of the Space Development Agency, a version of Goldwater Nickel reformed, and he really he should speak for himself because it's all his thinking here, and I think it's quite genius. But maybe we allow the COCOMs to start owning some of the palm process. What if they own twenty five percent of the budget and the ability to program the money for twenty five percent of the budget, How would they allocate it differently? How could they own some of

that signal? How would that change the incentives for what the services are going to produce and respond to based on not just the captive ability for them to decide what to build, but also based on what the field is essentially asking for. And then over time, you could, you know, maybe twenty five grows, maybe it doesn't, but it provides you this dialectical piece. You know, you wouldn't

move all the budget to the COCOMs. I don't think they're going to build the aircraft carrier, but I think having none of it there is is and just currently we're kind of just putting duct tape over problems. By trying to give them urgent operational needs funds, there's a more strategic role for them to play there that introduces real competition inside of government.

to tell people what he's doing. And I keep wondering about how many other people higher low level, I mean co coms are down to the to the PFC. But you know, we had those those need for m wraps in Afghanistan and dan Iraq because of the IEDs, and it took a long time to convince DoD apparently that we ought to have vehicles like that. Well, where do we failed? Where we failed the ultimate consumer in the military way with the guy who's gonna as the point end of the stick.

into a long term future. And what we were competing against were the programs of record, right, we were competing against the services led efforts, and the war fighter was voting. They were saying, no, what's going to give me maximum lethality and give me the greatest chances of coming home? Is this thing over here? And I think a lot of the programs of record, their attempt to fight us was not like, hey, I'm going to make my product better. It was I'm going to use policy. But this is

the program of record. You know, this thing has no long term funding. You don't want to bet on that. It was, you know, fear, uncertainty and doubt. And that's where I think we have the most opportunity to really leverage the free market principles of saying no, let's just compete on product, because that is what is going to give a compounding advantage to our warfighters across theaters, across roles every single day.

of people who establish policies. But one of the things that we've seen evolve when we went down to the five primes is cost plus contracting and how what seems on paper to be logical has a lot of warping functions on how we pay for develop and even pitch different weapons systems.

worry about it. Let's just let's just get to work. The problem is that that makes a lot of sense and kind of this emergency retooling sort of approach. It can make a lot of sense when there's a lot of fundamental risk and what you're doing. But then the continuation of that is it creates all the wrong incentives. Like the two industries that really use cost plus today

are the DoD and home remodeling general contractors. And I don't know if any of you have done a whole home remodel, but I think as a consumer you would say that's not a great model. The incentives are all wrong. Somehow, the cost keeps growing and as a consequence, the plus keeps growing as well. And the fundamental incentive is to when you have a firm fixed price, is to build a product and to figure out how to make that product better, faster, and cheaper, which is the you know,

the basis of our commercial economy here. And you see this with with a company like SpaceX, where you know, I grew up in the shadow of the Space coast. I love the Space Shuttle. I love being woken up to Saturday Saturday morning cartoons with the double sonic booms every now and then. But it took fifty thousand dollars a kilogram to get to orbit with the Shuttle, and with Starship heavy reuse, we're looking at ten to twenty

bucks a kilogram. I mean, that sort of price performance improvement which has really happened over the last two, you know, fifteen years, is astonishing. And we in the cost plus model locked us into a very narrow range. That meant like the price wasn't moving that much. Okay, maybe you guys are twenty thousand dollars a kilogram, but we were not going to see the fundamental innovation that was possible. And the cost thinking, you know, it leads us to

valuing effort spent as opposed to value delivered. And so NASA's own cost estimates for the Falcon was that it would cost four billion dollars to build Elon. Did it for four hundred million, and in a true cost plus paradigm, you're just going to penalize the on you say, well, your cost was lower, your plus should be lower. In fact, the fact that you did it for four hundred million

means your plus should be much bigger. There's value that you created that we should all be able to share now as a con sequence of doing this, and that then drives more capital into the ecosystem. It brings more founders, it brings more innovation. It becomes a flywheel that is unstoppable. And I think that's that's probably the long term consequence of costs plus that people don't realize it. It is a break on the flywheel. It is part of what

drives there's no leverage in your business. You can never get leverage of your fixed costs, so it drives the innovators out of the industry.

of innovation and the adoption of innovation. And I'd say, when we started our commercial business almost two decades ago, I would see, you know, people would sometimes say, okay, I need a couple quarters to get the money, never even a year. Really. But now our commercial companies have the fiscal agility to find the money inside of a quarter. They've improved their own budgeting and planning processes. They view the budget almost through a lens of dev secops like, yeah,

I can move money around. I have some agility. I'm gonna not do this so I can do this. I can make trade offs like when I made this budget, this capability didn't exist the world has changed, chat GPT happened, whatever the case might be. In the department, Not only are we not talking about quarters, we're talking about two years. In a very systematic approach to doing this that biases

massively towards central planning. It is kind of the starting input to the fight it right, a five year centralized plan. But I find that strange because doctrinally we believe that you know, plans, nope, plan survive first contact. Even if the act of planning is invaluable, Well, a budget is a plan. Why would we ever believe that something we conceived of two years ago ought to be correct today, or that you know what we call the president's budget.

I've heard so many times people love saying I support the president's budget because they have to say that that's the that would you would be an insurrectionist if you didn't support the president's budget. But the only thing I believe to be true is there's no way that the president's budget can be right. You know, the second it's made,

it's got to be wrong. The world is changing around us, and so how do we how do we improve our ability to adjust our plan to meet the reality of the world we're at and I think a lot of that comes down to discretion. So first it's recognizing there is no physical physics limitation of the universe. That means it has to take two years to do these things, and that these are all man made, self imposed constraints. And then secondly it starts with with then empowering people

with the discretion and the credit. You know, you have to credibility wait these things, like we have the right leaders, this is the person that we should give more discretion to. We should enable them to make bets and follow their intuition and move money around. And I know that's particularly hard because it's not just the Department. There's an inner there's a complex interplay between the Department and Congress to make that happen. But I'm quite confident that we can make it happen.

of my back. And I just wanted to give you a chance, please to flesh this out, because the more I read it, the more I went, Okay, I need to do my own little clean sheet look at it. And that was point fourteen. Productivity is more lethal than weapons stock piles. And I won't do a full quote, I'll do a partial quote of it for you know. Point fourteen we quote, we obsessed about stockpiles with stockpiles are irrelevant. Our munitions delivery to Ukraine were Cold War

error kits sitting on shelves collecting dust. While decades of innovation occurred, the consumption of ten years of production in ten weeks of fighting in Ukraine demonstrated that the rate of production was the actual weapon all along. Unquote, talk to me a little bit about how I'm missing the big story with my obsession about stockpiles and empty magazines.

got the stockpile. And I think we should look at that and say, ooh, that's not a really big deterrent that actually the deterrent comes from the ability to quickly produce the stockpile. And this is also I think partly the legacy of the peace dividend, which is like, oh, we can't afford to keep running these production lines, or let's do more live virtual constructive exercises, so we don't expend our munitions because these munitions are very expensive and

it takes a long time to make. It's two years to build an LRASM, eight years to build a Patriot battery. Oh, you should just conserve these things, but let's have comfort that they're in the depot. And I think that's probably the mistake because what we should be saying is, Wow, how could I make the l RASM in one year? How could I make it in one month. What are the investments I need to make? How do I change the design? How do I emphasize the design for manufacturability?

And it's the constant. It's the fact that you are constantly producing innovation. I'm not sure I'm going to steal this from Arthur Herman, but I'm not sure innovation is actually possible without production. Production is the prerequisite to then driving the innovation. My favorite example of this is the LLM, This the Large Language Model. Where did the transformer architecture even come from? Well, it came from Google. They put out a paper in twenty seventeen. It's called Attention is

All You Need? What motivated them to do that research They wanted a three percent super incremental improvement in Google Translate, and that investment led to a revolution, an American revolution, I'll note as well, but that I don't think you get that in an academic research lab. It is because they were producing things that they were able to innovate on how they were going to produce things. And I think we've kind of dialed down all of our production

lines to minimum sustainment rates. You know, we've kind of then whether you need to believe it because it's the only world we could win or not. It's like, well, all conflicts are going to be relatively short. We think we have enough. You know, if we think we might have eight days of weapons on hand for a China fight, you know, what's the right number. I think it's closer to eight hundred days than eight days, but even more than the absolute number. The question is really what is

the cycle time to produce? How do we start thinking about that production latency as part of the kill chain.

the comment you made a discretion in the sense that we somebody asked them to make those decisions. How much do we need and how much discretion do they have to make those choices? I mean, I was thinking about this because it reminded me of the old saying back in the day when US Navy captains couldn't talk to the Washington d C. They would be given orders to go to X spot and act in the best interests in the United States. That was their orders. They didn't

they didn't have they didn't have SATCOM. And I'm thinking, well, what happened to us that this instant communications has screwed us up? To the point where nobody does anything nowadays without checking with home base. And I remember reading in the book Up the Organization, one of my favorite management books, that he talks about delegating a lot of these decisions down low. You know, he doesn't the CEO does not need to be involved in deciding whether the cups in

the cafeteria are breaking to be green or brownie. You know, we need to we need to. I think we need to give. We have to trust people, and you know they're going to make mistakes, but you still have to trust them. And I think that was one of your your points on the budget. You could just move money around, but you know, allow for mistakes, but let people have a chance.

bulb went off in his head. But I understand how difficult of a position that is for him to explain back to the oversight. But I think that there's a fundamental truism in that. I certainly look at the journey of any of our most innovative companies. That's a big part you are. The capital you're deploying is about the first revative of learning, and the company with the highest

first derivative of learning is the one that wins. So when we think about the lethality of our fighting force and our ability to draw our adversary, that is that is it. It is the first derivative. It's not where are we today? It is you know, how how quickly are we improving? And that's a second point, which is kind of a corollary to the productivity is more important

than the stockpile. When you look at the weapon obsolescence life cycle in Ukraine with the dynamic electronic warfare environment, you know drones might only be useful for two to four weeks before you have to actually rebuild your drone to survive the environment. You look at how the drop off in the efficacy of precision guide ammunitions. They're what you have to take away from that is, oh, it's not what the weapon does today, it's actually our ability

to change the weapon and how it works. And you know, how do we think about the weapon as a malleable capability and how many how much practice are we getting at changing our TTPs and how these things actually function, updating the software to make these things work when we need to use them in anger.

NAFIT ninety eight as in nineteen ninety eight. And when I when I was a manpower person twenty years ago, if I needed to go into Millington and where we do our manpower and I wanted to check on where billets were going, what things were needed, what were the priorities. I had to do a doss dial into a Unix database just out of curiosity. Earlier this year, I put out a call to my people, It's like, hey, are we still using this old Unix database? And the answer

is I got yes. And then and yesterday our previous mid rat show Brian Clark over at Hudson. He mentioned to me something that I looked up last night is Pallenteered back in twenty twenty one had their contract exte ended for their foundry software for the Royal Navy. You know, we think we have challenges Royal Navy, it really has some challenges and they are just a big fan of what software is enable to do for them, especially in their manpower arena. You know this big problem we have,

this multifaceted attack. How do you see that not just Paletair, but the industry in general can find a more receptive attitude to people understanding what you talked about, where you have the physical material weapon our device far unit, but it's to software that you're able to update and put in there a greater appreciation of how we can leverage what really is this nation's superpower skill and that's in software.

co locate the research with the production. It's a whole methodology and there's a whole school of founders that have come out of his world that show us that actually America is good at manufacturing. It's just said that that knowledge is not evenly distributed amongst our legacy manufacturing base, and that is principally it's a software driven approach. The second piece of this is to reindustrialize as a nation, which I deeply believe we need to do. We need

to do so by giving American workers superpowers. We certainly have a lot of experience helping like Panasonic Energy. They build every battery in the Tesla Reno gigafactory. The employees prior to working on this exquisite Japanese equipment, they were working in casinos. So how do you give these American workers the kind of AI iron Man suit that enables them to be as effective or even more effective than

a level four Japanese engineer. And I think that's going to be a big part of how we You know this is David Slingshot. You know, we were the best in mass production at the beginning of World War Two. Unfortunately, our adversary is today and we're going to need an asymmetric approach to get back to that. Now. There is a more direct aspect with software, which I think actually gets to the last thesis, which is that war fighters

fight with guns and get. And it's a little cheeky way of saying what I've noticed is that the most effective, most lethal general officers. I think they wouldn't really like me saying this, but they have the mentality of a product manager. They don't think software is something for the nerds in the corner. They think software something I, the general officer, use to run my combatant command. I have

opinions of how the pixel should be laid out. I'm going to give my feedback directly to my pit crew, to my engineers, and I'm going to tell them how to tweak this thing so that tomorrow and they come back, I'm more lethal and engaging, and so I'm picking the Kambat commander there. I think you could have the exact

same thing for your a doss manpower based example. And I think this is one of the paradoxes of technology, which is the sort of anodyne removed view is something like the technology is going to make the human less important. And that's because somehow technology makes the media and human more capable. That's true, but it actually makes the very

best human way more capable. And so the determinative outcomes in the battlespace or in the in the free market are going to come from the very best person being kind of wrapped in the very best software, and so small differences in the leadership are going to be compounded massively and finding and thinking about our general officer corps and the from a perspective of yes, you have all these capabilities, you need, all these skills you need to

be able to do. One of them is actually being a product manager having an opinion on the malle You know, it's the most malleable weapons system you have, and you can you can change it all the time. One of my real world examples around that is the Afghan Neo. You know, we push ninety thousand software upgrades a week to our fleet when the neo happened. When crisis happens, the historical view is you code freeze. Oh, no, crisis

is happening. It's too risky, you can't change anything. Well, there was no concept in the DoD war fighting system of having a passenger manifest you know. The whole thing was really about, actually, oh my gosh, we need to actually push more code in the crisis because the signal is coming in harder and the first derivative really matters

here right now, let's accelerate change. It's like it's like punctuated equilibrium, and that I think is a very powerful lesson that we need to be practicing for exactly that.