<html><body>Systems Integration and Defense Transformation Supply-Side Briefing on the Future of the Defense Industry January 23, 2004 Unedited transcript prepared from a tape recording <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>10:45 a.m.</DIV></TD> <TD> <DIV class=BodyText>Registration</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>11:00</DIV></TD> <TD> <DIV class=BodyText>Opening remarks:</DIV></TD> <TD> <DIV class=BodyText>Vice Admiral Arthur Cebrowski (USN, Ret.), Pentagon Office of Force Transformation</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>11:30</DIV></TD> <TD> <DIV class=BodyText>Panelists:</DIV></TD> <TD> <DIV class=BodyText>Thomas Donnelly, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Eugene Gholz, University of Kentucky Vago Muradian, Defense News</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:15 p.m.</DIV></TD> <TD> <DIV class=BodyText>Keynote speaker:</DIV></TD> <TD> <DIV class=BodyText>Jim Albaugh, Boeing Integrated Defense Systems</DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:45</DIV></TD> <TD> <DIV class=BodyText>Adjournment</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR></TBODY></TABLE> Proceedings: MR. DONNELLY: I'd like to bring the proceedings to order. I apologize for the confusion in getting in and out. We had Ahmad Chalabi in an Iraq session just previous to this. So, as you can imagine, it's been a busy morning here at AEI. MR. MURADIAN: Name dropper. MR. DONNELLY: It was all downhill from you, Vago. [Laughter.] MR. DONNELLY: But I'm very pleased that we're going to do what we're going to do today, and we have rather a full program. I'm going to run you guys through the rules of the road really quickly and give a very brief introduction, and then we'll be on our way. This is the second in our series of briefings on the transformation of the defense industry or what defense transformation means for the defense industrial base. This is going to be, as we said last time, an ongoing project to try to educate the policy debate in Washington about what, on the surface, seem like very technical and complex matters, but at the same time are crucially important policy matters. We're going to begin with some remarks from Admiral Cebrowski, the chief of the Transformation Office in OSD. Then we're going to look a little bit more closely at the issue of systems integration and, in particular, this idea of the lead systems integrator, which is also a crucial concept in the idea of defense transformation. We'll take between each session a very short break for Q&As from the audience to the immediate speaker. The second event will be a panel discussion with Vago Muradian, editor of Defense News, and Eugene Gholz. And then, finally, we'll hear from Boeing's Jim Albaugh, who is deeply involved in the transformation of his company to try to adapt and adopt to these new concepts. As we have contended, from the start of the series, the transformation of the defense establishment has to be worked "hand in glove" with the defense industrial base, the arsenal of democracy. If military forces are changing and military technology is changing, then the industry has to be capable of responding to the customer's needs, and that relationship between customer and supplier, between government and industry, has to be one that's both consistent with proper governmental oversight, yet still allow for the accelerated integration of new technologies, new systems, new operational doctrines and new force structure. So it's a pretty big task that cannot be accomplished successfully without a defense industrial partner, along with folks in uniform and elsewhere. I'm going to introduce really very briefly Admiral Cebrowski, who is the point man in the Office of the Secretary of Defense, and was very much, while he was in the Navy, one of the leading intellectual godfathers of this idea of defense transformation. This audience knows very well who Admiral Cebrowski is, and I won't review his entire distinguished career in uniform, but I think we'll agree that the project of transformation is very much, in a day-to-day manner, under his guidance and that he's got one of the whip hands in this process. So, without any further ado, I'd like to ask Admiral Cebrowski to speak to us for about 15 minutes and give us a framework for further discussion. Admiral, the microphone is yours. ADMIRAL CEBROWSKI: Thank you, Tom. It's, of course, a pleasure to be here, as always, to talk about this important subject. I have, of course, a great mass of notes, which I won't cover, but one of the things I'd like to do by way of start is to talk a little bit about what I saw yesterday. I traveled yesterday with Deputy Secretary Wolfowitz out to the Western training ranges, what is emerging as the joint national training capability. We went to Nellis Air Force Base, we went to Twentynine Palms, and went to Fort Irwin. And one of the things that it revealed was that a funny thing happened on the way to transformation, and that is it is happening actually very much faster, I believe, than the leadership ever expected that it would. It's happening from the bottom up. It is really taking place. When I was out there in the field, I saw our stodgy, hidebound Army transforming before my eyes. They are hardly stodgy. They are hardly hidebound. They are vigorous and vital. It was a marvelous thing to watch as units appeared on what at first blush looked like a traditional battle space, and then we talked with commanders who found themselves suddenly immersed simultaneously in what looked like conventional warfare, urban warfare, civil affairs, the political aspects of the battle space, all happening simultaneously. And there was a company commander that I talked with, and I asked him what he thought of the training. And he had just come from a long tour in Iraq, in Northern Baghdad in particular. And he said it was so realistic that there were actual flashbacks. And this is marvelous. This kind of capability last year did not exist. And in just a matter of months, we see a wholesale change in not what the leadership is saying they want their people to do, but what the troops are actually doing, which was marvelous. Another thing that we couldn't help but see is to push interoperability, jointness, if you will, down to the tactical level of war, an area that had always been the purview of the services guarded jealously. Not any more. And this is, again, I'm not talking with generals when I'm saying this. I'm talking with captains and sergeants about this, and they're saying things that I had always hoped we would hear, but never thought that we would. It just turned out to be a marvelous thing. Now, that doesn't mean that we don't have problems. It doesn't mean that we don't have a long way to go because, indeed, we certainly do. It's one thing to have the desire and to take the first steps. It's quite another thing to turn it into a robust capability, but without these beginnings, you simply don't see it. Up at a larger level, what I thought I would talk about for a moment is the transformation of the role of defense in national security and, indeed, in society. This is what we frequently do not talk about. Commonly, we talk about the transformation of the force. I was asked at a conference earlier this week how it is that we can talk about transformation when there's really no evidence of it. Large numbers of generals haven't been fired, large numbers of the programs have not been cancelled, so what are you really talking about? I wondered what nation he was really looking at because it's happening in front of our very eyes, not just at the lower level, as I had mentioned, but also at far higher levels. First of all, right at the very top, at the very, very top, national security is no longer thought of as strictly a defense matter, and you say, well, of course it isn't. Well, would you have said that several years ago? Do you think you would have had a Department of Defense agreeing with that, wholesale, several years ago? Not really. They might have said it, but they wouldn't have acted like it. Now, they're acting like it. National security is really all else plus defense, and that view is now taken to heart. Another major change is that our people have always prized and wanted to be highly responsive. But when you're responsive, you're reactive. You do not have the initiative and, in the military reality of things, you tend to be punitive. The president has said, well, that's fine to have that capability, but I want you to be preventative. This is a different approach. It's an entirely different approach. It reflects a different role for defense in national security. It's a massive change. For example, if you're going to be preventative, instead of punitive, it indicates wholesale changes in intelligence. Clearly, you have to know more sooner. You have to achieve unambiguous warning earlier. This calls for different organizations, different systems, and that's where you see the Department going. The military, of course, has always been tasked to stop bad things from happening, which of course relates very much to what I had said about being responsive, but now, more and more, we think in terms of keeping the larger world system up and running, more of enforcers and systems administrators. It's only recently that people have started to define that very process into the vital national security or into the vital national interests. It is in the interests of our nation to keep the larger world system up and running. There is a role for defense in that, and so we have to do that. Certainly, one of the very big things that we've seen is we don't have people saying any more, well, the military is just for the big one and trying to define everything the way they defined war from stemming back to World War II. Instead, we have the entire spectrum of competition, military competition, to be concerned about. And ultimately what we want is our--to use Tom Friedman's term--our superempowered individuals to be able to engage their superempowered individuals and win, not sometimes, but every time. Another thing that's become clear is homeland security is not something that's taken care of just over there, that there is depth of battle space, which is very important in the concept of homeland security. And then one of the things that we perhaps only see underneath is that the sharply increased national security transaction rate around the world, combined with the globalization phenomenon, is compelling some very important changes. For example, it's compelling the civilianization of defense. It is also compelling the internationalization of defense. As armies get smaller, the number of people involved in a competition actually goes up, and they are civilians. Certainly, for example, in 9/11, almost the entirety of the engagements were civilian. And if you look at defense industry, and you open up the box, and you look inside, you see a lot of things in there that were being produced not by what we traditionally say was defense industry, but by all of the other elements of industry. And so you're seeing the civilianization of defense. You're also seeing its internationalization. If it is in the vital interests of the nation to keep the larger world system up and running, we have partners in that larger world system--those people which we call the functioning core of globalization, those people who are capable of benefitting from participating in the globalization processes. That's about two-thirds of the world's population. This is where most of the world's power and wealth is in the world. Certainly, it's the kind of people with whom we should be able to make common cause, and indeed we have to because the threats from the other one-third are so, well, they're so inimicable to our interests, and so of course we're going to make some movements in that. So, if one were to examine the service and the joint transformation road maps, as my office is tasked to do, you would see essentially the services and the joint forces discounting, if you will, the way Wall Street does, these eventualities; in other words, making the moves earlier in anticipation of the reality. And so you see subtle movements underneath in consideration of the internationalization and the civilianization of the force, the substitutions of capital for labor and the like which go on. And it's very important for us to identify some of these inevitabilities. So we say, well, okay, that's the top level that you've just been talking about. If you go down into the force itself, then, what am I going to see as changes in the honest-to-goodness capabilities that compel this? Well, an enemy that is under pressure is going to retreat to more complex terrain; you know, move, for example, from the high seas to the land, from the land to the cities and jungles, and then ultimately into the very complex social domains and political domains, and that is why fights seem to go on forever--because they can, of course, in those domains, and this forces some changes in the force. And so when one is in that kind of environment, for example, again, we'll see a change in intelligence. The value of social cultural intelligence comes to exceed that of military intelligence, and so there has to be a shift there. We're going to have to reach more for nonlethal capabilities, and so I would predict that you could, to the extent I do predictions, that there will be some increased focus on that. Because of the political and military vulnerability of forward garrisons, we should expect to see the forces begin to favor, increasingly, operational maneuver from the sea and for long ranges. What is called strategic distances. And this will require some different capabilities, different modes of lift. People won't be going to these different modes of lift and different modes of basing because they want to. They'll be going there because they're compelled to by the emerging realities. We'll see a change in logistics, and the reason why we'll see a change in logistics is because logistics is really very well-studied, very well-understood. Almost anyone who is in business has a good understanding. The business schools teach it, and there is a great focus on optimizing it because it is so expensive. It is involves such a large fraction of the effort. We're interested in efficiency. And so we use the transparency generated by the Information Age to create predictability, and optimization and efficiency, and we've done a very good job of it in the military. We have wrung about every idea you possibly can out of the business schools and out of industry to make it better. The trouble is that where the war actually takes place down there at the basic transaction level, which is the tactical level of war, that same transparency given to us by the Information Age is used to create adaptivity, unpredictability, dynamic fitness, instead of optimization, and the ultimate measures on the battlefield have to do with effectiveness, not efficiency. In other words, the supply processes from the front end run by completely different metrics than the delivery end, if you will. In other words, the front end of logistics is wholly incompatible with the front end of warfare. The metrics are different. The objectives are keenly different. Because of the increased pace of modern warfare, this dysfunction is becoming more apparent, and so there will be a change, and you will see the forces begin to move there. We're also likely to see a change or a broadened approach to space. No one can compete with us in space the way we do it. Who would want to? The fact of the matter is that our business model for space has been very, very good for us, and we've done marvelous things, and we have been enormously successful with it, but over time the landscape changes. In this particular case, the technological context has changed, which is making it possible for us to begin to move to an alternative business base. Now, it's not that you just move to it and abandoned the old one. Rather, I'm talking about broadening the business base. Cost per kilogram on orbit is a problem, and it hasn't changed a very great deal. Capability per kilogram on orbit is soaring because of advances in information technology. This makes it possible to reach for other approaches and other business models. For example, one can go to micro satellites, which then makes it possible to reach for alternative forms of lift into space. It makes it possible to exploit, for example, the concept of the shared aperture or the sparse aperture approach, where you get the ability of networking small things. And we are moving into the age of the small, the fast and the many, and it's time for us to start thinking about applying that movement to where we are in space, and it indeed can be done. So we will see. We will see that. Coming, of course, with that is going to be more machine-to-machine integration, which indeed we're going to do very well at. Again, basic structures are going to be different. When I look at the service road maps, I can already see the commitments, for example, to nonlethals, to directed energy, to seabasing, to new logistics approach. And I can see that we're well-positioned to make the next moves in some areas; for example, two tactically response of space, two whole new approaches with regard to energy, directed energy, something that we call redirected energy. The ability to redirect it turns out to be very, very powerful for us, and so those are the movements we'll see. Are there barriers? Absolutely there are barriers, and we can break them down into four parts. There are, of course, process barriers which have to do with the basic processes within the Department of Defense, acquisition requirements, program budgeting and personnel management, and we've seen movement in all four of those areas. A very large bill had gone to the Hill and much of it I believe was passed with regard to transforming the personnel management processes. We're going to see changes, and indeed we already are seeing changes in the programming budgeting approach which are going on. For that, you probably want to talk to Dov Zackheim. The FAR was cancelled, the Federal Acquisition Regulations. Of course, it all gets reformed because you have to have some kind of regulation on this, but the institution seems more open to alternatives. The second barrier we might call physical barriers--those barriers that have to do with first the speed of ADMP being able to move things. You can do very, very well with the speed of information, but the speed of information is always somehow coupled to physical reality. The information domain overlaps the physical domain, and so you have advances in the Information Age. In the information domain, we should expect to see comparable advances in the physical domain, and this again is going to compel us to changes in our approach to lift. We'd like, for example, the noncontiguous battle space. We saw some of that in Iraq. The entry fee item to the noncontiguous battle space is, of course, the network force, which gets then to the speed of information, speed of electrons, speed of photons, if you will. That is an entry fee item, but it has to be coupled into the physical domain or else you can't take advantage of what you're in the information domain, and so that's going to take us to new forms of transport that are appropriate to the battlefield. We need to take a fresh look at what the Army would call the vertical battlefield; the need, for example, for very heavy vertical lift. And because you're also talking about seabasing, anything you want to put on the battlefield for the vertical battlefield, you also have to be able to put on ships, which is then, in turn, going to drive ships, and so we're going to see some changes there. There are, of course, financial or physical barriers, and part of that has to do with the willingness to devalue things and allow them to devolve. I had a conference this morning with some of the leadership from the Swedish military, and they were talking about the prospects of a budget cut. And the person said, the Swedish officer said it's particularly difficult to take a budget cut from the top. And the temptation to say, well, the budget is the budget. It's just a pool of money. But what he's really saying is there's a top, and there's a bottom. The bottom are all of those things that are your long-term investments that you've been in or plan to be in for a very long period of time. The top, the things that's new, that's where your development is. That's where science and technology is. That's where your new ideas are. And he's sitting there, and he's saying, if we take the cut from the top, we lose our future. And this is very realistic, and we should look at that as a lesson. There's never enough money. So where do you go for it? What's the right place to go? You go to the bottom, not to the top of this. And then, lastly, there are of course cultural barriers--culture having to do with values, attitudes and beliefs. We try to take the temperature of the force for the transformation of the culture. The secretary has said that cultural change is at the heart of transformation. And many people are tempted to say, well, that's all about incentive structure. It has to do with how much you pay people, and power and position, and that's how you do it. Those are the same people who, of course, say that you're not doing transformation unless you fire generals and cancel programs. The fact of the matter is that culture is all about leadership, and that's the heart of it is leadership. So we wanted to sample for that and say, have we, in fact, made changes? Two professors at the Naval War College, over the last few years, have been doing exactly that. They've been taking samples, measured in the thousands, of military officers of all ranks asking hard questions and seeing what kinds of answers they're getting, looking for shifts in beliefs. And, for example, one of the questions had to do with the ability of an enemy to deny us our preferred way of going to war. And two years ago, when the question was asked, the body of the officer corps said, no, we don't agree with that. We don't agree that our preferred way of going will ever, within the reasonable foreseeable future, be put at risk. Two years later, it was just the opposite--just the opposite. And what had happened in the meantime? In the meantime, people had been exposed to things. Leadership had made several statements about anti-access strategies and area denial approaches, and people shifted. Another question with which they strongly--very, very strongly--agreed was that within the next 20 years, a tax on information systems will be as important as the delivery of munitions. What a profound shift, and those are the kinds of things that we are seeing. Last year, in the service road maps, the services highly prized independence. This year, they highly prize interdependence. Last year, they talked about achieving jointness at the operational level of war. This year, they talk about achieving jointness at the tactical level of war. Last year, they said that transformation was for a small cutting edge of the force. This year, they say it's for the entire force. Last year, they said transformation is about our future, and this year they say transformation is about creating our future today. What a change, very profound for us. If those are the beliefs of the officer corps, if we are accurately taking the temperature of the officer corps, and that is what they believe, and that's what they value, and that's what their attitudes are, they will act on that. And over the long term, you will see dramatic changes much like the ones that I referred to. And that's really the transformation that we tried to get at from the very beginning. And that's why I say it was really a strange thing that happened on the way to transformation. With that, I'm delighted to take some of your questions, either now or later. MR. DONNELLY: Thank you very much. I am going to exercise the prerogative of the chair to ask the first question, if I may. I was very much struck by your very first comments and concluding comments that you made about the change in officer attitudes, which sort of suggest to me that, on the curve of the overall process of transformation, if we could step out of time and look back from 100 years now, even though we may have seen a huge change in the last year or so, that it does still seem that we're very much in the initial changes of the cultural transformation of the military that needs to accompany the physical transformation. But to zoom in a little bit more on the idea of the systems integrator or the lead systems integrator, who is kind of the guy who stands in the middle, if you will, you described jointness in transformation happening at the lowest tactical level that you saw at the training centers or training capabilities, as I guess we're now supposed to call them, and at the same time, just after that, you described that our expanding concept of national defense was roping in all kinds of outside bodies, and agencies, and even international participants, bringing them into the--small "d"--defense network, if I may. It seems to me that that puts a really stressful burden on whoever it is--government, industry, you name it--who is supposed to, again, sort of stand in the middle, make sure all of the connections work, make sure that joint operations are enabled at the lowest battlefield, lowest level of warfare, and if that means that making the lieutenant of the infantry platoon talk to the lieutenant or pass information with the lieutenant in the New York firehouse, that's a pretty daunting task and, again, a challenge, when we look at the industrial dimension, that certainly extends outside the traditional defense industry. So I wonder if you would sort of give us the benefit of your thoughts on how that is supposed to happen and how the industrial structures and processes need to change to enable that to happen, if I've got it right. ADMIRAL CEBROWSKI: Thank you, Tom. There's a temptation to think that when one does an integrated system that you can now think of that as a unitary thing, and it simplifies your thinking. Whereas, before you had all of these bits and pieces, and it was very complex or at least seemed to be, you could now define this thing and treat this thing as a simple unit, a black box, as you will. One of the things that has emerged in study of warfare is to beat an enemy's complex system, you require a system which is more complex than the enemy with which you're engaging. As a matter of fact, an officer that's done much of this work for me is sitting here in the group, and so perhaps afterwards you might want to engage him on the subject. The fact of the matter is that people such as terrorist groups and the like are not simple. The temptation to say, Well, you know, they're very, very simple and unsophisticated. They're just a group of rabble somehow, that's not the reality of it. The reality of it is that there is a network structure amongst these people, a certain complexity to it. And when we approach it, we have to approach it with similar complexity, and this is why you cannot say, Well, I can do counterterrorism against this horde of people--not horde--but this network of people spread out over some landscape with my wonderful, enormously complex Abrams tank. The fact of the matter is that you can look at the Abrams tank, and you can treat it as a unit, very simply, against the complexity of their entire network. And so what happens is our notion of systems integration becomes very large, very expansive to include many things. And you stop just thinking about this as a single system, and you start looking at all of its elements and the networked relationship of all of the various pieces that are in it. And so when you go to the case of the Army lieutenant talking to the lieutenant in the firehouse, what you're seeing are the consequences of the civilianization and the internationalization of national security. And if we thought that we could congratulate ourselves because we now have some actually fairly good degree of interoperability among the military services, we are only beginning because we need the same degree of shared awareness with the other agencies of government at all levels, to include the firehouse, the nongovernmental portions of the people who contribute to the national security structure, the appropriate elements of power and national security in other nations. And this is the part that makes you say that we're only beginning with transformation because these are the things that we have to do. We will be compelled to do that because this is, of course, the Information Age, and you're not going to be able to talk about the internationalization of national security if you cannot develop shared awareness. You simply won't get the trust, and trust is going to be based on habitual relations which is founded on information sharing. And so, yes, this is a hard problem. It's a very long-term problem, but it's one we're going to have to get into. MR. DONNELLY: I am told that the prerogative of time supersedes even the prerogative of the chairman. So, Vago and Eugene, you're about to get your moment of glory in front of the microphone. So, in the interests of making the process move, we're going to take just a couple of audience questions, if I may. And just for simplicity sake--Stan, you're slow off the mark--I'll take those two, and then if we go quickly, Stan, we'll get you. Again, let me emphasize that Admiral Cebrowski will be here, very graciously, for the duration of the event. So perhaps there will be an opportunity to get further comment later. Yes, please. Remember, the ground rules are tell us who you are and make sure that your question is a question and not a statement. Thank you. QUESTION: I'm Sharon Weinberger. I'm with Defense Daily. You mentioned that when you observed training that you were surprised by the level of transformation that you've already seen take place. Using that same kind of standard of judgment against the current situation in Iraq, where we're seeing some of the things that transformation was supposed to address, such asymmetric threats, the need for better intelligence, how would you judge transformation based on the current situation in Iraq and the number of deaths were seeing, based on asymmetric threats? ADMIRAL CEBROWSKI: Well, I think that we're actually doing quite well. There are a lot of people who thought, well, this theory of network-centric warfare is only applicable to high-level combat. And, in fact, the whole theory was born at very low levels of combat. For example, it came out of the American marketplace and American police forces, and then we adjusted it and adapted it to the military enterprise. And to the extent that we do that, we become increasingly successful. And so early complaints were such things as we just don't get the intelligence down to the tactical level. And what I'm essentially saying here is that you're seeing it forced down to the tactical level, and being pulled down to it, because that's indeed what the people are requiring. And so there are changes that are actually taking place out there on the battlefield. Of course, I have not visited that. I've only talked to people there, and I recommend you do the same. You probably have, to a certain extent. But in talking to people who have been there, I'm struck, once again, by the changes. We're seeing the same level of changes in the field that I was talking about at the National Training Center. MR. DONNELLY: Sir? QUESTION: Good morning. I'm Tom Squitieri, with USA Today, Admiral. A new, updated national military strategy is to be before Congress I think on February 15th. In regards to transformation, what parts of transformation may we expect to see in that? And in the meetings coming up next week among the sort of regional four stars that are going to discuss transformation, what, if anything, from those meetings do you expect to see in that report? ADMIRAL CEBROWSKI: I don't think I can answer the question. QUESTION: You don't want to answer it or you don't have the knowledge to answer it? ADMIRAL CEBROWSKI: I don't think I can formulate a good answer for you. It's a fair question, and we should expect to see some interesting things come out of both of those events, but I'm not in it on the day-to-day enough to formulate a response. Maybe that leaves time for a quick, third question, depending on what you say, Tom. MR. DONNELLY: Stan, I guess you've been saved not by the bell, but by whatever saved you. Again, I apologize. We've got a lot to do, a lot to accomplish, and I have to be the vicious moderator. Stan? QUESTION: Thank you, Tom and Admiral. Stan Crock from Business Week. Admiral, you mentioned the value of social and cultural intelligence exceeding the value of military intelligence. Does that suggest that open-source intelligence is going to take the ascendants and what are the budget implications for that? Because it presumably would be less expensive than typical intelligence. ADMIRAL CEBROWSKI: The answer to the question is, yes, social cultural intelligence is in its ascendancy, and you should see increased focus on that. It will cause a resource shift, and it is not at all clear that it is any less expensive than military intelligence just because it involves a large amount of open source. How did I do on time? MR. DONNELLY: Outstandingly well. I wish you would all join me in a round of applause for Admiral Cebrowski-- [Applause.] MR. DONNELLY: --who again will be here to join in the general conversation later. But now I'm going to turn to Eugene Gholz, from the University of Kentucky, a very distinguished academic, for I hope somewhat of a pleasantly contrarian view and a slide show to go along with it, and then Vago will take the floor immediately after Eugene, and then we'll do another brief Q&A session before Mr. Albaugh speaks. Eugene, the floor is yours. MR. GHOLZ: Thanks very much, Tom. I'm a humble academic in the slide show department, at least. I don't know if I'm sufficiently humble to my students. They may disagree, but I have text slides. No whiz-bang, but I think they might help clarify a few things. Tom asked me to talk a little bit focusing on kind of a careful definition of what systems integration is, as opposed to how it's bandied about quite a bit sort of casually. We understand that systems integration is very important. But what is it and what implications does that have for this kind of new acquisition model of a lead systems integrator or it's a new renewed acquisition model because we've actually tried this twice before in history not that recently with not particularly good results, for a number of reasons. So my skeptical view--I have a lot of skeptical views. My skeptical view today is going to be kind of focused on lead systems integration as the way that we need to go forward, if we're interested in going forward with transformation. There might be other ways to better do transformation starting from the core definition of systems integration. I should say several of the slides and a lot of my remarks are drawn from a chapter I recently published in a book. There's all kinds of more detail than a 10-minute talk, but there's a book that just came out called, "The Business of Systems Integration." It has chapters on a bunch of different kinds of business. I wrote the chapter on the defense business. So check it out if you are interested in more. I have to advertise, I guess. Anyway. Systems integration. The idea, I think as Admiral Cebrowski said a little bit in focusing in the Q&A, he was talking about where did this idea of transformation come from, and he was drawing on business analogies quite a bit. And so we've seen something going on in the business world with communications and information technology, and there's become a question of can the military get a lot better or can it achieve new goals that it couldn't do so well before if we draw on this information technology to reorganize-- [Tape change.] MR. GHOLZ: --information technology. But really what it is, is we're using information technology to extend an approach to defense that the United States has had for a very long time, which is basically the systems approach to defense. The idea of a system is that you have a bunch of heterogeneous components, that each contribute a small part of the complete picture, and that by cooperating together, they can achieve more. Sort of the sum of the parts is greater than each of the parts individually could contribute. So an old example that I like to talk about is combined arms. We've known for a long time that if you put a bunch of tanks out there by themselves, they often run into trouble from infantry guys that they can't see very well. We get behind them and ruin the tankers' day. So what do you? You bring some infantry guys along, and you bring some artillery to suppress anti-tank specialist forces on the other side, and they cooperate together, and the whole is much more combat effective than the sum of the parts. Now, old-style system military operations were somewhat limited because they were very closely located geographically. They presented rich targets to everyone else. Infantry don't live very long in a heavily armored environment nearby. So you have a lot of problems actually pulling this off. And the idea is that with better communications technology and better information technology, we can spread these forces out and make them less vulnerable. And we can take advantage of better sensor technology to get multi-spectral sensing, that we can combine different kinds of sensors, looking from different angles, and different directions, and different wavelengths, of getting sensor information through better information technology and processing technology to get a much better picture of the battle space and fight much better. So I'm not sure, and I don't think I've told you anything terribly new about what transformation is, except to say that it focuses on something that we've always tried to do, but we're hoping to get a lot better at by using communications and information technologies. Now, what does that mean for buying systems or changing systems? Well, the important thing that it means is we're buying systems--we need to buy systems for transformation for distributing the force that are actually quite similar to the kinds of systems we've bought in the past. We've always wanted higher bandwidth communications, more robust communications, jam-resistant communications. We've always wanted to protect our forces by distributing them, to get better sensor information by using multi-spectral sensors with good data fusion, right? That's what the defense industry is expert in providing is all of those parts, right? And we're trying to get better on the same trajectory of technology that the defense industry has always been working towards getting better at. We just want to use it in a different way. Transformation involves all kinds of cultural shifts, and operational shifts, and new doctrine for the military. But from the perspective of selling stuff to the military, we just want to get better at the stuff we've always been doing and take the next step in linking it up. There are a couple of ways that it would actually turn out to be different that end up having to do with systems integration, and they're dependent on what we decide to do with systems integration. So I want to be clear, first, about what systems integration is. So the thing that people tend to confuse it with, when they casually discuss systems integration, is one component of systems integration, which is interoperability. If you want a bunch of components of an overall system, heterogeneous components, components that do different things, to work together and cooperate, they have to be able to talk to each other. And so there is a big technical component to this. You need communications to match up from each component in the system. If the system gets broader, if it includes civilians, if it includes more joint forces, more different kinds of sensors, unmanned sensors, all of those things, you need to set your interoperability standards and get your technical ducks in a row. Now, note, this is not the whole spread of what interoperability is about because there are nontechnical and nonsystems questions of interoperability, questions of doctrine, and tactics, and practicing and training how you're going to do this. So interoperability and systems integration, if you think in terms of ven diagrams, this is part of all systems integration, and interoperability overlaps systems integration and contributes to it, but there's this other part that's not systems integration, which is what the military does. They learn to--they practice combined arms. Another key component of systems integration is the more heterogeneous your system gets, the more difficult your overall project management path gets. And you need someone who specializes in the capability of managing projects, getting your scheduling ducks in a row because what's coming on-line when, and how it's going to link up, and backward compatibility becomes a much bigger problem, getting a better handle on projecting costs of highly complex systems, right? Because we have this budgeting problem. So we need people who have sort of updated, new parametric models of how to project costs. We have these great organizations in the Pentagon and in civilian government that have developed pretty good models to project, say, the cost of a new aircraft program, and they make cost and schedule projections, and then they report one cost and schedule projection out of a range, and lots of projects come in over budget and schedules slip, but we have a model for projecting that. But as you get a more complicated system with different kinds of components, it gets much harder to project, to adapt your parametric models, to do the budgeting problem and the planning problem. And one big component of systems integration is being able to control or get the best handle you can on that really complicated business of deciding what you're going to make, and how long it's going to take, and when it's going to be ready, and how much you're going to spend. That tends to become a big factor. Interoperability tends to become a big factor in systems when the system is deployed. You have to figure out how to make the system work. Project management is a big factor on how you get to that system, the actual production of the system in budgeting for the production. Where we are in the transformation process, from the perspective of the industry, is we're starting to make products or design products that are going to get us the full up-network-centric warfare vision. And for that, what's actually the most important and the hardest part of systems integration, which is actually systems engineering, basically. It's defining the components of the system. What is each component going to do by itself, and what is it going to get from the network? What is going to get communicated across the system? How do we need to use that bandwidth? Do we send process data or raw data? Who needs to talk to whom in order to get that multi-spectral sensing image to get the best data fusion that we can, to get the best common battle space picture, which we can then use to influence how the soldiers react and how we fight the war. And we're very much at the phase now where, for transformation, we want to start buying the new systems, racing to start buying the new systems, but we don't have a good handle yet on these kinds of trade studies on what information needs to go or how do you trade off a little bit of robustness in communications for a little bit of speed in communications? We have very hard choices. Some of them are military choices, some of them are technical choices and, frankly, some of them are political choices because we have, as Admiral Cebrowski pointed out, certain fiscal constraints and certain operational constraints. How much are we going to commit up front to this planning versus to current war fighting, current operations around the world or other kinds of recapitalization of the force with current systems. So, when you actually apply this in the defense industry, the systems integration, what does the defense industry contribute to this? There are a number of different kinds of systems integration. There are different versions of this. As I said, the defense industry is full of systems. So we have people in these companies that are specialists in integrating components of systems, and now we're transitioning to what Admiral Owens, in his phrase--Admiral Owens' phrase was "the system of systems." We're trying to expand and distribute capabilities more and more, and that's called architecture systems integration in this slide. it's defining the overall architecture of our equipment. So we have different companies that have different kinds of capabilities. Some people have core competencies in putting together a complicated, say, a munition, right? So you have a warhead sensor, and you have an explosive, and you have a propulsion element, and you need to pack them into something that looks like a missile. And this is a very complicated task that involves certain kind of engineering, and there are trade studies that go within that. Then, there are other companies that are expert at hooking up various components into platforms. In fact, that's where currently the primary intersection between military acquisition and the defense industry is, is it's selling platforms because the defense industry is extremely good and extremely responsive at making platforms for the military. And they integrate these things by hooking together aerodynamics capabilities, and aero structures with engines, with sensors, with radars, and avionics, and they pull together the airplane. But what we really need for transformation at this point is this broader architecture systems definition. And we have certain technical advisers who currently have some capabilities in this area, but the platform makers are trying to take over their job, right? So we're seeing the lead systems integrators want to do not just making platforms, and the thing that they're incredibly good at, at pulling together the platform, but they think because they're good at making a platform, they're also good at deciding what should be in each platform and what they should get from the network, trying to expand their job, which of course threatens companies that started out doing this. MITRE is a good example. MITRE got into this business in the 1950s, late '50s and early '60s, to do exactly this kind of task for air defense. MITRE came into existence for the SAGE Air Defense System. They were going to be in the business of balancing what should be in the core computer, what should be distributed to the various air bases, how do you decide whether to attack an air threat with a missile versus an interceptor aircraft. And the way that MITRE, why they got good at doing this is they didn't make anything. In fact, they split off from Lincoln Lab because they wanted that independence so they could make the trades that they needed to make without--there was no specific information of malfeasance of any company, but it kind of looked bad. It risked a scandal. It made the other contractors complain when one contractor was in a position where it could both decide what went into the system and then also build the system. So we developed these three different kinds of distinct entities, but now one entity is trying to grow. Here's sort of where we are. Traditionally, actually, the people who have done systems integration, who figured out how to integrate combined arms, has been the military services and the government. But the military services and the government have a problem as you get more technically sophisticated in doing this, which is, especially in the last few years, with a lot of privatization, they've kind of committed suicide in their technical capabilities. We still have these labs like the SPAWAR Systems Center. They've got some very capable technical people, but they're really in the fleet support business, and this is because their salary levels aren't right. They're not very flexible in their hiring. And really it's because the war fighters don't like them. This is just to be blunt. War fighters think guys who are in the military should be war fighters and not technicians, not lab guys, and the lab guys they perceive as slow and nonresponsive. This is why the prime contractors are getting into this business. It's the war fighters understand that when you give a contract to the primes, the primes are really good and really responsive. The prime contractors will do what you say. They'll salute quickly, and they'll take your money, and they'll make your product. Try to give a contract to SPAWAR, and they've got reasons why it will take a while. They've got other jobs. It's hard to push around civil servants, and the military guys don't trust them. So they want to go to Boeing for this job. And that's one of the reasons this trend is happening, to get more systems integration by lead systems integrators. I have to get out of this talk quickly. So I'm just going to add two more-- PARTICIPANT: [Off microphone.] And [inaudible] out of the room. MR. GHOLZ: That's right. I'm not making friends. [Laughter.] MR. GHOLZ: I never make friends. I said I'm a skeptic. I'm going to say two more things about why this trend is happening and why it might be a little dangerous that it happens. The other reason why military services are going to the lead systems integrator model is because they think it will help them with the politics. And what you see is it's the weak organizations that want the lead systems integrators. The Air Force, they're a strong organization, and they're not looking for lead systems integrators. The Navy, pretty strong organization, they don't have any lead systems integration-style contracts. Who is it? It's the Coast Guard on Deep Water, it's the Army on FCS. And what happened? What's the history of this? Well, the Army thought they could go alone with their usual political network of contractors to get the systems that they wanted. The Army was heavily committed to a system called Crusader, which we all know what happened to that system. It turned out the lobbying network to support the existing system, the Army gets pushed around all of the time. And when the Army said we should have Crusader, somebody else told them that's not with the program, and the system got cancelled. So how did they respond to this? They say, Well, we need to get stronger contractor support. We need a bigger program. We need--UDLP, not a strong enough political kick to get our goals through. What we need is we need those contractors that work for the strong organizations. We need Boeing. And so they reach out, and they expand their political coalition. They didn't kill UDLP. They expanded the political coalition. UDLP just got, I don't know, close to a billion dollars, they got a big share of a billion dollars of contracts on building FCS. All we've done is we've added another layer on top. The lead systems integrator is a way to broaden the political coalition and make weak organizations stronger. And of course this makes it expensive. Lead systems integrators are an expensive way to do business. The last thing I'll say is, I already mentioned there's the potential for conflicts of interest in the lead systems integrator model. We've done this twice before, and that's why we split off these FFRDC-style organizations. People perceive FFRDCs as very expensive and maybe they're not as technically focused as they used to be because all of our FFRDCs are old. So maybe the answer--and maybe this is hopefully a provocative point--but the answer, if we want better technical advice on what the system for transformation should look like, and we don't like our current FFRDCs for some reason--we think they're trapped in old think. We don't like MITRE and Aerospace Corporation for this job--maybe it's time to think about setting up a network FFRDC, someone to serve, whether it's the OFT or the assistant secretary of Defense for what used to be called C3I--I can't remember Stenbit's current title--or where it should fit in the hierarchy isn't clear, but we need a technical specialist to do these trade studies and to define the system for transformation us, one that doesn't kind of, even if there's no real malfeasance, one that doesn't look bad and lead to complaints. What we want is a smooth political coalition that implements transformation quickly, aggressively, effectively, and capitalizes on the technical capabilities of the current platform-makers without getting them into a job that they're not very well-suited for. MR. DONNELLY: Eugene, thank you very much. I [audio break] we were going to have a debate here and a discussion and not a cheerleading session, and I feel that I've accomplished that with your presentation. I have only one wisecrack to make, and that is, from a transformational point of view, would you rather have an integration culture so to speak that continues to buy tactical aircraft that were on the books 20 years ago? I mean, a good thing about the Army is that they have, for a variety of reasons, that they killed stuff, and they stopped doing the wrong things. Whether they've started doing the right things yet is an open proposition, but if part of transformation is to stop doing the wrong things, maybe that's an issue we should talk about. Vago? MR. MURADIAN: Why thank you, Tom. It's good to see that when somebody cuts you, you still bleed green. [Laughter.] MR. MURADIAN: As Noel Coward once observed, "When you're as shallow as a puddle, you try to take up as much space as you can." [Laughter.] MR. MURADIAN: I'm also more than somewhat disappointed that Eugene is the one who mentioned SAGE. That was going to be one of the things that I was going to talk about; you know, Polaris, DEW Line--boo on you. It's fascinated to cover all of this stuff now because of the confluence of all of the factors that we're facing across the industry. You have a transformational drive which is an extension of what we've always taught to do, which is to be better at the fundamental business of war fighting. You have sort of fascinating trends in overall systems are going down, and individual system performance is going up. Platforms, to a great degree, have sort of maxed out, in terms of their capability. You begin to look at one airplane, how many bombs they can carry. It's not clear that I need to send a thousand bombers against a city to destroy it. I can, one of these days very soon, be able to put 300 bombs on one B-2, and that airplane is going to be able to accomplish a considerable amount, but for the industry that poses a series of very, very difficult challenges. Throughout the 1950s, and sort of what you would see as the golden age of systems integration, you had a lot of stuff going on, and you began to interknit systems in a process that sort of began I guess with the advent of wireless telegraphy. I mean, you started to--well, it didn't actually. As just sort of an historical point, "Master and Commander," one of the best movies ever made, which I urge everybody to go and see, actually illustrates an era that many people don't think about in terms of some of the complexities on the platform level of systems integration. If you go to Admiralty Dock 2 in Portsmouth, and you see the Victory, it was built in 1759. It is an enormous ship that was manned by 3,000 people, but was the superweapon of its day. I mean, a wealthy country like Britain could only afford a dozen of these massive ships, as well as the logistical structure to do it, and then the engineering challenge associated with the drawing of the raw materials, the metallurgy required, et cetera. It was just sort of a fascinating thing that, you know, it is a tremendous technological achievement for its age. In fact, there's a funny quip in it. When Jack Aubrey's ship, the Surprise is chasing the Ashron, which is a captured American ship that's based on the Constitution, and they can't figure out how on earth this 44-gun ship can be as blisteringly fast as it is until one of the crewmen says, "Oh, well, I saw it being manufactured in Boston, and here's the look of the underside of the hull," and he's absolutely flabbergasted that the technological age in which we live, is sort of his line, which I think is kind of fascinating. Fast forward a bit from that. It's something that systems integration is integral to weapons development. It always has been. It's the interlacing of these systems amongst each other at the same time that we've had sort of an explosion in commercial technologies that sort of brought kind of a "Moore's Law" approach to things, where you are now trying to upgrade the platforms that you have, and you're sort of racing to figure out how am I going to knit all of this stuff together and not get into the kind of a position where it's bridge painting? You know, by the time you get to the end of the bridge, you've got to come back, and you've got to start repainting the bridge, and you sort of get into this little bit of a loop and try to figure out, okay, well how do I break out of it? What are the things I do culturally and otherwise to sort of propel this thing forward? As a natural extension of obviously the consolidation, both in budgets, personnel, you have now these Titanic defense contractors that, from a competitive standpoint, it proves to be a very, very challenging environment. In fact, you could say, in many respects, it's the death of competition and the management of a monopoly, so you actually have sort of a privatized arsenal system that you sort of try to wrestle with a bit. That kind of an approach then takes you to sort of the LSI route or under the sort of guise acquisition reform. Look, the reality is we just cut the federal acquisition or the DOD acquisition work force so the Pentagon couldn't be in the business of managing individual subcontracts and sub-sub competitions. So you started evolving this idea of the total systems procurement, which again we've tried numerous times, with questionable success. The LSI is sort of the latest iteration, a third iteration, a third coming of that. And I think it presents an enormous variety of--underlying that, also, in Heidi's absence--and she apologizes for not being able to make this because she has a very bad cold. She has strep throat--but to bring the markets into this, the markets have changed. And the markets view in the last 20 or 30 years of the defense industry has fundamentally changed. I mean, where once 30 years ago you had a handful of companies that, you know, where funds then were focused exclusively on defense stocks and defense companies, and everybody was focused on, wow, look, did you see the great technology Lockheed has, and these people understood that there were all sorts of a variety of challenges, and these guys aren't massive earnings or margin generators, but sort of stable, very defensive investment planning. Well, of a sudden you saw the nature of the investment base changing, and so you saw the companies, in fact, start to advertise themselves as things they weren't. It's sort of unusual that these massive companies that deal with technologies that are absolutely stunning and discard more than even the most cutting-edge companies that you can think of on the commercial sector don't trade at those multiples, frankly, and can't generate those kind of returns. And what did we see in the post-consolidation era, but advertised claims of performance that were not met. And so that, fundamentally, was sort of another shaking thing, and everybody was sort of figuring out how do we deal with that over the long term because, obviously, in this kind of a competitive market, you have to attract the capital. If you're not attracting capital, then you're in trouble. Where all of this I think takes us is a place that I think is more than somewhat uncomfortable for everybody. And I think that the next three to five years are going to be really very, very interesting to watch about what the future of this industry is going to be. The reality is, no matter how horizontal somebody has tried to be, there is still a lot of verticality in the capabilities within these companies. And when you're vesting a total systems procurement sort of a thing onto one contractor, you're going to be faced with uncomfortable choices, and there's going to be a time where the g is just going to say, I don't like where I'm ending up. I would use the Aerial Common Sensor as sort of an interesting thing to watch. You've got two contractors, Lockheed and Northrop, who are competing for this program. They have picked the platform themselves. Lockheed has teamed with Embraer and Northrop has teamed with Gulfstream. And it sort of becomes very, very interesting because those two airplanes are really quite different. One is a regional jet, and one is a business jet. One is much higher flying, faster, longer endurance. The other one is a less-expensive airplane. But at the end of the day--and I'm not trying to prejudge it, and I'm not saying one is better than the other, but I'm just merely asking the question, let's hypothetically say that Lockheed has a significantly better sensor package, but it's made it to an airplane that may not be able to go as high, and therefore not see as much, and one would assume that it's trying to get the maximum sensor value out of it. Whereas, Northrop is on an airplane that flies much higher, faster, et cetera. It's an interesting trade-off that we're now faced with because, going back 20 years ago, the government would have said, Okay, well, look. Let's have a competition. Let's figure out what's the best airplane. Okay. This is the best airplane. Let's figure out what's the best sensor package on it. And in a way, you're sort of fueling competitions there. You're managing that. With all due respect to Jim, I think most of the people in this industry are ethical people who are committed to national security. Otherwise they would have gone and started making toys or shoes or something else. At the end of the day, it's very, very difficult to manage these sort of relationships, where you're the prime, you're having your internal divisions compete for a certain set of work. And in Jim's case, if I recall correctly, it's something like 26 of--Boeing has only won one of twenty-some-odd internal competitions in a future combat system. Well, you know, a number of other companies have tried this. Lockheed tried this, and after a while, the reality is sometimes, for political or other reasons, your internal divisions are losing, and at some point, the CFO of that division is going to come to you and be like, Okay, now, you know those stretch goals? I ain't even close to the stretch goals, and I know you're base goal, and I ain't going to make that one either. And now all of a sudden you've got to start breaking your contractual arrangements with folks and starting to direct business internally. Because it's not clean, folks are going to make all sorts of allegations. There's obviously the heightened and political dynamic that always goes with any sort of weapons contract. So it's going to be very, very interesting to see whether or not certain notions that companies have to, you know, well, now, I'm in the ship-building business, and now I'm going to supply the radars and the systems that go onto those ships is really, at some point, I think going to come to a head, and we're really going to see where we end up I think in the next three to five years. But this generalized notion that people have that these barriers between commercial and military are going to collapse, and Microsoft is going to become the world's leading defense contractor, to me, are ridiculous. At the end of the day, there will have to be a Hephaetus for the Zeus, who is going to be hammering out the arrows that he's going to be throwing at Hades. At the end of the day, you're going to have to deal with that, as I will have to deal with this. The last thing that Tom so eloquently derailed me on in my rapid-fire soliloquy will have to be saved for another time. MR. DONNELLY: What amazing discretion, Vago. MR. MURADIAN: I just don't like the cattle prod. That's all. MR. DONNELLY: Believe me, you can learn because I have. [Laughter.] MR. MURADIAN: I'm an editor. I know. MR. DONNELLY: It is clear that there is much more to this subject than our session today will allow us, but I think we should go directly to Jim Albaugh's talk because, after listening to Eugene and Vago, why anybody would want to be Jim is a pretty good question. [Laughter.] MR. DONNELLY: I promise everybody that we will do another session on this topic. Both of these presentations have been quite outstanding, and we've just begun to scratch the surface, but we will postpone questions until the very end to give Jim the maximum time for what he has to say, whether it's a rebuttal. Please welcome Jim Albaugh to the podium. [Applause.] MR. ALBAUGH: Thank you, Tom. MR. DONNELLY: For the record, it's in the congressional record. Pardon me. That was a cattle prod aimed at me. Now, Jim, it's up to you. MR. ALBAUGH: I'm in an enviable position in that I have an opportunity to maybe address some of the comments that were made earlier, and I think there are many subjects that we agree on and a few that we don't. One of the things that I won't agree to, though, Eugene, is the fact that the weak armed services go the LSI route while the others don't. And if asked the question later, I will not respond. Let me just go on the record to say that. MR. ALBAUGH: First of all, let me say that the concept of LSI is relatively new. I think it's very important, and it's a very viable operating model and one that has real advantages in bringing the necessary capabilities to the armed services. And I think the question that has been raised today is why do we need to have the LSI concept? I think you need to start with the customer, and certainly our customer is the Department of Defense, and the Secretary of Defense said that the first few years of the 21st century have taught us that the future is full of open and hidden dangers, and certainly Admiral Cebrowski talked about that. We don't know what the true face of the adversary is going to be or their exact method of engagement. One thing we do know, though, is the conflicts of the 21st century will be very different than the ones of the 20th century. The future demands that we move towards a capabilities-based approach and a joint force that will be fully integrated, expeditionary in nature, networked, decentralized, adaptable, and able to achieve decision superiority and be very lethal. And I think that summarizes many of the things that the admiral said earlier this morning. In short, we no longer live in a predictable environment, where specific threats drive detailed requirements. We cannot afford extended development and acquisition programs that are obsoleted by the speed of technology change or no longer suited to the face of the enemy. We need capabilities against uncertain and changing threats, capabilities that require more than a single platform or a single system than what they can provide, and we need them in a much quicker fashion than we've had in the past. Fundamental capabilities are needed like integrated command and control, like mobility precision engagement, and global situational awareness--all things that comes with systems-to-systems. In the lexicon of today, we need network-centric operations, and the power of the networks are truly awesome, and there many examples of that. By sharing data, by sharing knowledge, by sharing capabilities, you get a tremendous force multiplier over old and new systems. I like to think of the ground-based mid-course missile defense program as really the first true systems-to-systems program. There, the contractor took many different disparate systems, none of which were designed to do the missile defense mission. And by tying those together with a communication system and by writing command and control software, they were able to provide a capability, a networked system that could intercept a re-entry vehicle in space at speeds extremely high. Again, the power of the network, the power of sharing information, the power of sharing capabilities. And of note, the contractor that did that program built none of the hardware. So what did they do? They were the systems integrator. They provided the architecture, design, the development and enforcement. They managed multiple complex interface requirements. They incorporated multiple systems and/or platforms into a single macro system. All of this was done with close coordination of the customer and, in many cases, the customer was on the integrated product development teams. Now, given that statement of work, what is the role of the lead system integrator? It means assigning an industry lead total systems integration and systems optimization responsibility. It also means assigning that contractor with the responsibility for resource allocation, subcontractor allocation, implementation and coordination and program management, and for bringing the best of industry contractors from around the world, for bringing government labs and educational institutions to the program. And I think that list that I just ticked off there is pretty consistent with what Eugene said earlier. But where I would differ with Eugene is it is not about products. It's about capabilities, and our job is to make sure that we bring the best combination of products, of censors, of software to provide the optimum solution for our customer. My view is that too many companies have gotten in trouble with the approach or perpetuating the products that have made them successful in the past. I think only in the future contractors will survive if they truly are capabilities driven. Fundamentally, the LSI model is a style of operation. It is not a contract type. It focuses on optimization at the systems level versus the platform level. It does not favor any particular technology or platform. It enables trades of risk, cost and capability, and it opens competition at multiple work levels, giving small and large companies from around the world the opportunity to compete. In doing so, it encourages, indeed, demands, best of industry solutions and innovation. Partitioning work via the LSI approach also allows graceful upgrade without revamping the entire program. It also drives perpetual innovation through spiral development. In the past, we have upgraded hardware. In the future, we can upgrade systems by improving the network, by improving software, and by changes in the mix of platforms. Let me use again the ground-based mid-course program as an example. By adding additional sensors to that program, we were able to improve our ability to do an intercept, we were able to improve the time lines, and we were able to improve the amount of land area protected. Now, on FCS, which was referred to by Vago, the Boeing Company did not bid any hardware at all. The proposal that we turned in was one where we bid a network, and we talked about how we would do trades in order to bring the best of industry. Now, my view is that, in the future, companies that have a strategy of just bringing the best of their company, bringing the best of Boeing, the best of Lockheed, the best of Raytheon, and the best of Northrop Grumman will lose. The companies that will win will be those that bring the best of industry, and that was our strategy. On FCS, Boeing, along with the Army, looked at multiple systems, components and decision aids, along with their maturity levels. We did that after we were selected. And based on that assessment, we jointly determined the optimal program to provide the most effective operational capabilities to our customer. As technology changes, the mix will change. Admiral Cebrowski talked about the individual soldier, and really that's what it's all about. When I talk about what can happen with transformation, what will happen in a future combat system, what it really means is, in the future, no soldier will ever be alone. In the past, the soldiers have had the capability that they brought. They've had the information they brought with them or the information that they might get over a radio. In the future, those soldiers will have the capabilities of a platoon across the river. They'll have the capability of an F-18 flying in from a carrier. It'll have the knowledge that's being gathered by overhead intelligence, satellites. It'll have the knowledge of being gathered by a UAV. It's a huge force multiplier. Some argued that the LSI approach limits options and places an unfair amount of authority in the LSI contractor versus the U.S. government, and certainly the comment on objectivity has been raised and was raised on the panel, and I'm certain that some in the audience probably have that same concern as well. But, in reality, by holding the LSI responsible for performance at the systems capability level, the construct drives objectivity and fairness. Now, let me just touch on the Future Combat System program again. We were charged by the Army to let 26 different subcontracts, and we took 800 people, and we put them inside a firewall, and they reviewed some 600 proposals, and they let 26 contracts. There were no protests, no protests to the GAO, no protests to the Army, there were no protests to the Hill. We received one letter of concern which was dropped the next day. I think it's a very good example of how an objective review of all of the different proposals will provide the customer with the optimum mix. Now, of note, and Vago mentioned it, within the Boeing Company, we had quite a number of proposals that we submitted to the lead system integrator. Only one was selected, and that one that was selected had to undergo a very rigorous review by the Army. And at the end of the day, it was a great result. It was a great result for the FCS program, a great result for the Army, and I think a great result for industry. On the matter of why industry is in this role and not the government, let me just offer a couple of considerations. First, the acquisition process and culture makes it very difficult for government to act as an effective systems integrator; Second, systems integration is not a core mission of the government, and it is of industry. Industry brings the necessary engineering resources to do the systems integration on big, large, complex, large-scale systems integration programs. In the past, I think that we defined what we needed based on requirements based on threats. Again, in the future it's going to be based on capabilities, and I think in the past what has happened with the government is they took systems that were procured in silos and then, after the fact, they tried to integrate these at a systems level. It didn't work. What we're trying to do now is again define the capabilities and then define the best mix of products or programs. Now, this isn't to say that the contractors don't have limitations-- we do. But with the strong partnership between the LSI and its customer, with clear expectations and flexibility based on trust and a sense of shared destiny, the LSI approach is powerful and effective. And just to make the determination between a TSPR, a total systems prime responsible, contractor and an LSI, they're very different. I think on some of these TSPR contracts, what happened was the government walked away from their responsibilities, their responsibilities for oversight and the responsibilities for controlling the baseline. And when they came back and looked at these programs, after a year or two, they found out that they weren't getting the product that they needed. On the LSI approach, the government is embedded with the contractor. No decisions are made without the government and no models are used to make a determination without those models being deemed appropriate by the customer. In summary, transformation has come to mean many things, but most of all, it's a new way of thinking about how our armed forces fight. It is also a mind-set open to new trades and new ways of doing business. Secretary of Defense Rumsfeld has been clear in his view that our new world reality requires that we change. The LSI operating approach is a change driven by necessity and one that has immense positive and constructive potential. Thank you very much, and I really do look forward to the questions now. MR. DONNELLY: And we're going to have to keep the questions brief. But since everybody has been so patient for nearly two hours, we'll do a couple. We'll do Pat and then we'll do this gentleman here. Pat, do we have a microphone? And if I could ask also could we get a chair for Admiral Cebrowski to join the panel in case he wants to comment on any of the questions. QUESTION: Thank you. Pat Towell, CSBA. For Professor Gholz, let me try an argument for industry, although not the iron-benders, to play the LSI role, and it goes back to Bill Perry's proposition that the key technologies here are being driven by the commercial sector--IT--the commercial sector and not by industry any more. I harken back 25 years ago. My father-in-law was the chief FLAK [ph] for a major program. His employer was IBM, and the program was LAM-3 [ph]. You had the LSI equivalent at that time, not the air frame builder, but sort of the enter of the network, at least for that little piece of system. I wonder if that doesn't argue for keeping industry, a particular sector of industry, not perhaps Mr. Albaugh's, but some of the others, because they are the people in the heart of the driving the pacing technology. MR. GHOLZ: That's a very reasonable question. You could put, in fact, we've tried this sort of thing before recently, and in the distant past, of having the idea is that now that IT or electronics, people think that's the dominant component of the new systems. Let's just make the platforms into trucks and put the electronics guys in charge. This has tended to have a couple of problems in the past, and you can sort of I think see why it kind of makes sense that it would have problems. Companies have a limit to the number of core competencies they can pull off, the things that they're really good at. They need that focus and that core mission. Making electronics is a hard business. It's a different business. Writing software is difficult. Wiring electronics is difficult. It's a different business than setting requirements, and just because you're good, just as the platform-makers, let's say, could be very good at metal bending or aerodynamics or preventing ships from capsizing, that doesn't make them good at doing trade-offs. You have the same issue with electronic makers. Just because they're good at electronics, doesn't make them good at defining the system. You can pick--there's so many defense contracts that you can pick anecdotal examples of things that make trouble for any model basically. Recently, we had put Raytheon in charge of LPD-17. They didn't make too many ships, and it turned out they had a lot of trouble running the LPD-17 contract. Now, the story is, well, they've learned how to do it, and they'll do better next time. I sort of hope not because I don't think there should be a next time, but we don't know how well they've learned, but we know they had trouble last time. I would say that putting electronics guys in charge doesn't get you out of the appearance of conflicts. And I want the stress, this is appearance of conflicts. And it's people complaining. It's not that there really have been problems. I mean, even in the battle days of the scandals that we had in the past, there was never ever an allegation or evidence that somebody really did cook the contract. It just looked bad, and people complained, and it disrupted programs, and you don't want to make trouble when you're in a very political business, and a business where you're really pushing the technological envelope. You should be looking for ways to make it smooth. And so that's why you should follow up on our innovation we had in the past, have these specialty contractors who can do the system definition and help out with the oversight role because the government, as Jim Albaugh pointed out, the government is not very good at it. It's better to have a specialist. MR. : Could I comment on that, Tom? MR. DONNELLY: Yes, please, go ahead. MR. : I agree totally with Eugene that every contractor can't be good at everything, and I think that is precisely my argument for the need for a lead system integrator--somebody that can go out and bring the best of industry. As I mentioned, those contractors that only bring the best that they have within their organization will not win because they will not bring and have access to all of the technology available. I think the other point I'd like to make, and that is that the lead system integrator does not set the requirements in a vacuum. There are operational requirements, documents that come from the customer, the operational side of the house. And then, as we define and flow down requirements to the subcontractors, our customer is intimately involved in everything that we send out. It is a shared role. It is not one that is done in a vacuum. MR. DONNELLY: There was a gentleman here who had a question. QUESTION: Philip Dine, St. Louis Post Dispatch, for Jim. A lot of what you said closely mirrors what Donald Rumsfeld says about transformation. Not everybody in Congress, and not even everybody in the Pentagon, agrees with the focus on or at least the particular mode of transformation now in favor. What happens if we get a new administration, new Secretary of Defense and there is a different view of things? How flexible is Boeing? MR. ALBAUGH: Well, first of all, we have tried, and we always try to align ourselves with the thinking of our customer. I'm a big believer in transformation because I've seen the power of networking. I've seen the power of sharing the capabilities, sharing the power of knowledge. Admiral Cebrowski talked about what he saw when he was out in the California desert this week. We've seen it in Iraq. We've seen it in Afghanistan. My view is there won't be a turning back. It's really all about providing our war fighter the best capability, and a network capability is one that's going to bring them home safely and will allow us to protect ourselves and our allies. I don't see any or don't have any sense that this is something that's driven by one party or the other. I think it's just practical evolution of how we do warfare. MR. DONNELLY: I would like to ask Admiral Cebrowski to comment. [Tape change.] QUESTION: --the Department would undertake the systems integration by itself of a major system, such as, say, Joint Strike Fighter or FCS or something like that. But that seems to be what we're doing with the most powerful platform that we have, which is our information structure. I was wondering if you would care to comment on how you might approach that issue. MR. ALBAUGH: Yes, just a couple of things on that. First of all, an F-15 and F-18, what we've asked contractors to do is integrate subsystems. What we're being asked to do, as a lead system integrator, is to integrate systems and have them work together. Now, you talk about the most powerful system being the network. I can tell you how we are trying to approach that. It cannot be a network that is Boeing's network. It has to be a network that belongs to the industry, and it has to be a network that is endorsed by the Department of Defense. And what we are trying to do, working with the rest of industry in the United States, is to form a consortium to share a joint information and communications architecture that we will all agree to use on programs that are new and also on upgrades of older platforms. And, again, we need to do that in conjunction with our customer. That's our approach. QUESTION: I would like to throw a "twitty" question into that mix, which both of you guys can comment on. To everybody who owns a Microsoft-based PC, that has both positive and negative connotations, one thing I've always wondered is why isn't Microsoft more in the defense business? And if we need somebody to create a common information architecture that will be useful across, again, not only defense systems, but civilian systems, maybe we should start entirely with a blank sheet of paper, but I would like you to tell me why I'm wacky on this. MR. ALBAUGH: Well, I think, to a large degree, we have started with a blank sheet of paper. If you look at the information and communications architecture that we have put together and that we are talking to the rest of industry about, it uses, for the most part, commercial, off-the-shelf software. Much of it is based on software that's written by Microsoft. What we want to do is make the information sharing something that's standard, and then the competition will be one level up from that. It will be on the machine-to-machine interface and about driving the capabilities, and I think that's consistent with what the admiral said earlier this morning. MR. : I don't really see Microsoft doesn't seem to have the appearances of a systems integrator. It looks much more like a product firm that someone else would integrate. MR. : Maybe we could try the apple people. MR. DONNELLY: Go ahead, Vago. MR. MURADIAN: The problem, Jim, despite the tremendous appeal and the wisdom of what your saying is that nobody really trusts you. [Laughter.] MR. MURADIAN: That's true for anybody. You guys go to Conquistadors[?] and do all of this other kind of stuff, and at the end of the day you guys fundamentally don't totally trust you guys to do that. And so the question becomes then, you know, how did the Internet develop? I mean, you know, ARPA did it, but it just sort of happened, and now I take a Dell, and I plug it into the wall, and I can get on the AEI website later and read about this thing. And so is this a directed kind of a thing that has to happen or I'm just asking the question because I know that that's kind of a successful model that is an architecture that everybody globally uses and taps into. MR. ALBAUGH: It has to be an architecture that everybody agrees on. It has to be an architecture that's not owned by any one company. It has to be an architecture that's managed by the consortium, and it will only be successful if we can do that. Now, one of two ways. We can approach it two ways. We can wait for the government to dictate what that architecture is going to look like or we, as an industry, can take it upon ourselves, working with our customer, to define what that architecture will look like and then manage it as a consortium where everybody has input into what it looks like. MR. : I don't want to get too much into managing it as a consortium in private companies because you stress over and over again that you want to work with the government. That's your phrase, which is really the key here is companies like Microsoft are not suited to this business and aren't in this business because most of their business is not the government. The government is Microsoft's biggest customer at 3.5 percent or something like that of their business, and they are never going to pay attention to customizing to what the government wants. Microsoft has a very small operation that's their Government Systems Operation. It's headed by a retired admiral. It's basically him and three or four other guys, and they're not interested in being bigger than that. And the trouble is, with transformation or with new technologies that the government wants to use, there is this kind of very intimate relationship of understanding what the government wants to do with it, and you have to have people who are full time, basically, paying attention to every word that's coming out of the customer's mouth about how they think they're going to use it, and how it's going to change, keeping up with the jargon and going back and forth and telling them this new jargon or this new doctrine you have is not grounded in technical reality, and there has to be that relationship that Microsoft is never ever going to have. That's the specialty of companies like Boeing, and that's why Boeing needs to do this. Can I say one more thing and then give it to you? MR. : One more thing. MR. : I'm a microphone hog. I'm sorry. The last thing to say, though, is that the problem of designating companies in advance or letting them create this cooperative organization on their own is, again, it's not just a trust problem that Vaga raised, which is a good one, but it's also the appearance of chumminess. One of the other things the government has is sort of social goals about wanting to let more people in and change the, you know, you have small business things that you want to get involved, and you want to get ideas from start-ups, and the government has a special way of dealing with them and bringing in their input. And it's very hard for outsiders to get their input into industry cliques if you put the industry in charge of deciding who's in and who's out of the standards definition. And it's one of these other political constraints. It's probably, from an efficiency perspective or a war-fighting perspective, it's dumb, right? But it is actually the political system we have, and it's a political system I like, and we have to have a role. MR. ALBAUGH: Again, my premise is you have to bring the best of industry. And if you look at the consortium and the discussion that we've had, it doesn't just include "the club," as referred to by Vaga. It includes IBM, it includes Sun, we're talking to Microsoft. We're talking to everybody that's in that business. And the network really operates on two levels. There is the information and communications level which is just as applicable to the banking segment as it is to the armed services. You transfer data. You manipulate data. The unique part of this network is really in the applications, and that's where you need to have the in-depth customer knowledge that I think contractors like Northrop Grumman, Lockheed-Martin and others bring. So, again, my view is at that first level let it be standard, and then let us compete at the applications level, one level above. And down at the lower levels, you're going to have to have everybody that's in the IT business, everybody that's in the software business involved. MR. DONNELLY: I am sorry to have to cut it off. We've already run more than 10 minutes overtime, but I will conclude by promising that we will return to this issue and invite back our participants today for a future discussion of this. I come away very strongly with the impression that we've simply scratched the surface. I'm very glad that we've done so because we've uncovered some perhaps festering wounds by doing so, not that I like the sight of blood, but I think this was a hugely useful dialogue that only begins to suggest the centrality of this issue for the larger prospect of defense and national security transformation. We got from Admiral Cebrowski a really bold vision of where we want to go and what we want and, in fact, in the international environment that we face, what we need to achieve. And we've been talking about the real difficult changes that are necessary in order to try to achieve that. I've just, looking at my notes, you know, what do we need in order to begin to realize the presentation and the vision that the admiral set out? We need, in fact, a whole new set of intellectual measures, as Eugene suggested. We need a way to measure trade-offs among things that we have a hard time simply quantifying on their own merits. We need a systemic change. The procurement system, not simply in the Defense Department, but across the government, is not well-structured to handle what we're going to ask it to do. We're asking very diverse things of industry. We want competition. We want competition particularly for capital in the marketplace, but we also want them to accelerate and change the ways that they do business. So we want two very divergent things out of the people who are inevitably going to be major suppliers. We want our government, not only our government, not only our defense institutions to change, not just the services, but imagine what it's going to take to, if we want to, again, transfer data or information or simply talk from an infantry platoon to a police precinct or a fire department what it's going to take in order to create the protocols, even if it's simply writing the software, in order to be able to do that to step outside the government or, you know, if it's a state government or state-run institution, that's a major task. And we want to do this all simultaneously or iteratively and constantly. The pace of change is changing, and we're trying to run as fast as we can to catch up to it, let alone get out in front of it in a time, whereas, a number of questioners have observed, where we are daily at war and the strains on the force to simply operate on a day-to-day basis, and the cost of operations is going up. We've spent a huge amount of money on defense, and an increased amount of money on defense in the past couple of years, but the overwhelming share of that has gone simply to operate the military we already have, not so much to create the military that we need to have in the future. So I take it that our job here at AEI, we could easily have a session as we had today on each one of those subsidiary subjects that I described, and I hope, over the course of time, we get to do that. But I want to thank our panelists today for getting to suggest the enormity of the issue and to give us the benefit of their wisdom as to what exactly we need to do. So if you would please join me in a round of congratulations and thanks to everybody. [Applause.] MR. DONNELLY: I declare the meeting adjourned until next time. [Whereupon, the proceedings were adjourned.] </body></html>