It's wonderful to be here at the American Enterprise Institute and with so many key policy makers, leading thinkers, and members of the press. I’m very pleased to have the opportunity to tell you how we see things from the industrial side of the military industrial complex: Where we in the defense industry have come from and where we're going; How the technological revolution has brought about a paradigm shift in military capabilities; and finally, the importance to the United States of a healthy and, yes, profitable defense industry to keeping our nation strong and secure.

The last ten years have been period of enormous transition--and transformation--for the defense industry, especially for Northrop Grumman. Ten years ago, Northrop Corporation, as it was then known, was facing a daunting prospect. Our core market for combat aircraft was drastically sinking, and we were wrapping up production of the B-2 Bomber after only 21 jets, a significant reduction from the number that was originally planned.

Meanwhile, the defense industry as a whole was dramatically downsizing in the aftermath of the Cold War, when peace, it seemed, was breaking out all over. At that time, my predecessor, Kent Kresa and his top team at Northrop, with a lot of input from visionaries such as Andy Marshall and others, sat down to re-imagine the future trends of warfare. That future, they determined, would demand a number of things. It would demand the ability to project force through long-range precision strike. And it would demand orders of magnitude improvements in battle space awareness through better sensors and surveillance and through better network command and control that brings it all together into one seamless system of systems.

That's what we now call transformation. And it's the vision that guided Northrop Grumman through our last ten years of strategic growth. As hockey player Wayne Gretzky says, "You don't skate to where the puck is, you have to skate to where the puck is going to be." Management guru Philip Drucker put it another way: "Don’t solve problems, pursue opportunities."

And the great opportunity, of course, was the exponential growth in information technology that was predicted--so far with amazing accuracy--by "Moore's Law," named after Gordon Moore, the co-founder and CEO of Intel Corporation. Moore’s law, as many of you know, says that the power of a computer chip will double every 18 months.

Now it's a quality of exponential growth--which is what doubling every 18 months means--that at the beginning, the growth rate is very flat. But then comes what is called the "knee of the curve," or the turning point, when the growth line takes off in an increasingly vertical direction. When Ronald Reagan stood before the symbols of the Bolshevik Revolution at Moscow State University, in 1988, and spoke of the peaceful revolution in technology that would completely reshape the world, we were still then on relatively flat portion, the first half of the growth curve.
Today, we've entered the second half. It's amazing to think that it was simply the promise of SDI, the Strategic Initiative, as it was then called, that was instrumental in breaking the Soviet Union's will and speeding the dissolution of their empire. Now that promise is being realized. And similar advances have also been occurring in other enabling technologies as well.

Just as supply creates its own demand in economics, such an enormous supply of new technology is expanding the universe of what is possible in defense.

Today we face different threats. In some ways, the challenges of defense have become even greater, but so too have our capabilities.

Many may remember the story of an air controller in Grenada calling in a strike over a payphone with a credit card. Even in Desert Storm, one pilot complained that he got more information by tuning into the BBC than he did through his normal Air Force communication channels. In Operation Enduring Freedom, in Afghanistan, and much more so in Operation Iraqi Freedom, the real-time intelligence provided by Global Hawk, our unmanned high-altitude surveillance aircraft, as well as other systems, allowed us to shift from pre-programmed air tasking orders to ad-hoc flying. The kill chain, from intelligence collection to target destruction, shrank to less than 20 minutes. And we're going to shrink it further.

In Iraq, flying only three percent of high-altitude sorties, Global Hawk located and identified 55 percent of all time critical targets destroyed. And as the conflict progressed, strike fighters deployed from carrier and land bases asked to be vectored into sectors of Iraq which were being supported by Global Hawk surveillance, because they knew they would be much more likely to find and kill the remaining targets.

With sensors deploying multiple bands on the electromagnetic spectrum and with network command and control, we're now able to cut through the fog of war. Real fog, too, as these electronic sensors--Synthetic Aperture Radars and other advanced electro-optical devices--can actually work day or night, in any kind of weather, including sandstorms. Recently released photographs taken by Global Hawk flying 65,000 feet above Tora Bora in 2001, show sensors picking up even soft targets such as enemy campfires and individual fighters guarding a cave entrance.

The crucial advantage of Global Hawk is its persistence. Unlike the other, shorter window assets we have that are provided by conventional manned surveillance systems or even by low-altitude satellites that move very quickly over the target, the Global Hawk can stay aloft for 33 hours at a time. Persistence like this can be lethal to an enemy. In Afghanistan, the Taliban said it was like they were fighting against "a great infidel army perched up in the skies."

Information also means precision. Some interesting facts that illustrate the revolution in precision strike: back in World War II, on average, thousands of bombs and hundreds of airplane sorties were required to effectively destroy a target. By the time of Vietnam, we had to use, on average, 176 bombs and 30 airplane sorties to effectively take out a target. In Operation Iraqi Freedom, it was one bomb per target and 16 targets destroyed per sortie. That is an absolute, dramatic revolution--an exponential, if you will, revolution in capability.

Of course, the more accurate a bomb is, the smaller it can be and still achieve the same result, and the less likely it is to cause unnecessary collateral damage or loss of civilian life. In a test last month, a Northrop Grumman B-2 stealth bomber successfully released 80 independently guided bombs--500-pound Joint Direct Attack Munitions, called JDAMs--against 80 separate targets. They were inert bombs; but they were all effective. They all hit their targets. And all in one pass. That's an enormous, effectively precise amount of solid firepower. We and The Boeing Corporation are each involved in the process of developing the next-generation of unmanned combat aircraft for both the Navy and the Air Force, so that we'll be able to carry both surveillance and strike capability.

Winston Churchill said that, "There's nothing quite so exhilarating as being shot at to no effect." It's even more exhilarating for us to be able to develop systems that never let the enemy get off a good shot. As I've often said, "We never want our fighting men and women to have to face the enemy in a fair fight."

The American way of war used to be to overwhelm the enemy with mass, of both men and material. The lesson of Iraq is that information can be an important substitute for mass. Reduced mass enables greater speed. And as General Tommy Franks says, "Speed kills."
The ongoing revolution of technological progress has also had what I believe is a profoundly positive effect on weapons procurement strategy. The new strategy is called Spiral Development, and it’s based on the common sense idea that the perfect should not be the enemy of the good. Spiral Development allows emerging technologies to be fielded in incremental blocks of capability as they become proven, but before they have been driven to perfection.

There are several advantages to this. You can get useful systems out into the field sooner, at lower per unit costs. And the lessons learned from real-world experience can be fed back into the design loop and the concept of operations. The result is that the final product will be much more capable than if perfection had been demanded from the beginning, essentially freezing the technology at some earlier point.

The Global Hawk that I mentioned is a good example. Early prototypes, which were not intended as operational battle systems, were, in fact, used in Afghanistan and again in Iraq. And this has given our military planners much greater understanding of the enormous potential of these systems and how to use them in combat. And by the way, as a result of this, not only are we making changes in our operational doctrine, we are now producing a bigger model of Global Hawk with 50 percent more payload capacity and vastly expanded sensor capabilities. All of this, again, as a result of actual operational experience and, if you will, a customer demand.

Another example of Spiral Development will be the next-generation of surface combatants and nuclear carriers. The new CVN 21 Aircraft Carrier, for example, will bring significant advances in technology, one of which will be vast stores of surplus electricity that could be used to power on-board laser systems one day in the future. These weapons systems don't totally exist yet; but one knows that over the lifetime of a future carrier, which is 50 years or more, we're going to want to have that capacity.

Similarly, the next-generation of destroyer, the DD(X) will bring greater lethality and stealth to surface war fighting, and also potentially carry laser weaponry.

In August, the Army selected Northrop Grumman to design a mobile version of our Tactical High Energy Laser, which we developed together with the Israelis. In recent tests at White Sands, the THEL, as it's known for short, shot down 28 Katyusha rockets fired individually and in salvos and five artillery shells in mid-flight. Imagine the ability to destroy incoming artillery shells at the speed of light.

Clearly, this kind of capability will be transformative across the services. Secretary of the Navy, Gordon England has said, "Directed energy weapons like this could one day become the primary weapon in the U.S. Navy arsenal." We're also under contract with the Missile Defense Agency to provide an airborne laser, which is mounted on a Boeing 747, and will be able to destroy ballistic missiles during their boost phase.

Now let me say more about what I believe is the most important effort to which Spiral Development, as a procurement concept, applies, and that is missile defense. It's been pointed out that it wasn't raining yet when Noah built the Ark. Well it's not raining missiles yet, but we can see threatening clouds.

Recently, North Korea announced that it is reprocessing spent fuel rods into weapons grade plutonium. And at the same time, they are producing a new missile called the Taepo Dong X, which analysts believe would have greater accuracy and be able to hit most of the West Coast of the United States. Some people argue that we should wait to deploy a missile defense system until all of the technology is fully perfected. I disagree. We're at risk today.

There is a principle at work here, which I call the time value of capability. Analogous to the time value of money, it recognizes that time is risk, and therefore has a definite cost associated with it. The cost, in this case, is the greater risk that we assume by holding out for the perfect missile defense sometime way off in the future, rather than deploying systems with real but limited capability now and then continually improving them over several subsequent development spirals.

As Calvin Coolidge said, "We can't do everything at once; but we can do something at once." Our company Northrop Grumman has several missile defense programs underway: the airborne laser I just mentioned; the new space surveillance and tracking system; the mid-course battle management and control system; and a proposal for the new kinetic energy interceptor, which is actually a rocket that catches up to an enemy missile in its boost phase¾when it's just being launched¾and knocks it out of the air over the enemy's own territory. One day, we might even deploy satellite-mounted lasers that could destroy missiles during mid-course when they are high above the Earth's atmosphere.

No one missile defense system can do this job alone. No one company. It will require a layered system of defenses and the contributions of all the American defense industry to make it happen. There are many technical hurdles ahead of us; but as far as I can see, there are no laws of physics which have to be violated to provide our nation with defense against ballistic missiles.
And even short of absolute perfection, missile defense can be enormously effective in reshaping the strategic landscape. As I mentioned, we all saw what just the mere threat of SDI did to undermine Soviet military morale. Even an imperfect system would begin to dramatically alter the balance of incentives to use or even decide to undertake a development program for nuclear missiles.

Short of some act of lunacy, the most probable use of nuclear missile capability by another country, in the short term, will be intimidation: a threat to make the United States back off or back down, to paralyze U.S. policy and split us from our allies in the Pacific or the Middle East, very much like the Soviet deployment of SS 20s, which was designed to split NATO in the 1980s.

Missile defense can also help stem nuclear proliferation because the less certain the threat is, the less incentive nations will have to invest the enormous resources necessary to build an offensive missile capability.

So as we look forward toward the future and where our nation's competitive advantage in warfare will be, I would say that two things stand out to me as a technologist in industry. One is Network Centric Command and Control, which takes information from an array of sensors in stealthy manned and unmanned aerial platforms and satellites. Secondly, as we look downstream, directed energy weapons. In other words, speed of light intelligence combined with speed of light weaponry.

Now I've spoken some about the future of defense. What I'd like to do now is just offer a few thoughts about the future of the defense industry.

It is the responsibility of our elected leaders to decide what the progress of transformation will be, and just how much of our nation's resources should be invested in defense. But as they do this, it is important to ensure a financially healthy defense industry. The Defense industry, as a whole, is indeed rising again after an eight-year holiday. But despite the current increases, the threat is that operations and maintenance costs will swallow up the funding needed for research and development and weapons procurement. Our aging weapons systems are increasingly in need of replacement and modernization. We must resist the temptation to underfund the investment accounts of defense.

Obviously, wars are not cheap, and neither is reconstruction. I think all adults understand that. And we understand that defense funding is politically driven, but the historical pattern of boom and bust is not only destructive for the industry, it is a hugely wasteful way for our nation to deploy its precious resources. From an industry standpoint, it would be much better to have steady, predictable growth that would enable us to plan our own investments, to raise capital, and to apply emerging technologies in a more efficient and thoughtful way.

Profitability is also important. Defense margins are generally lower than those of other leading industries. If you ask Wall Street 'do you think the defense industry earns the right margins to make it an attractive industry for investors,' many would say no.

Investors have many other choices as to where they invest their money. It is sometimes uncomfortable for me to speak about profits and defense in one breath. But the fact is that America needs a profitable defense industry to attract private capital, to attract the best and brightest, and to create a robust, competitive market place for innovation. It is that innovation that makes this country so very different than everybody else.

At my company, we are not just competing against my colleagues at Lockheed and Boeing and Raytheon for financial and human capital, we are competing against everybody: GE, Intel, Microsoft, you name it.

Well, I have shared with you now some of my thoughts of the future of warfare, the role of technology, and the importance of an economically-strong defense industry. We Americans find ourselves in a new kind of conflict with very high stakes. It's also a fight I am convinced that we can win if we understand that we are in it for the long haul and take the steps necessary to ensure America's overwhelming dominance, not just today, but far into the future as well.