Should structure or conduct drive the Pentagon’s supply strategy?The bids for Sikorsky are in. For United Technologies CEO Greg Hayes, they’re “at least as good as what we had hoped to see.” By the rumors, they’re from Blackstone, Lockheed Martin, Textron, and Airbus. With such a heterogenous set of bidders, a range of strategic and financial considerations are driving the offers. The tax implications are daunting for United Technologies, and even strategically arduous for Textron, so a spinoff remains in the running as the best option for shareholders. But military buyers should also care about just how the structure of the rotorcraft industry could change, and what that could mean for the conduct and performance of all involved.
Textron's Scorpion wins on the economics. The politics need some attention.Instead of attending the Paris Air Show this week, I found myself sitting on the couch the other night, watching Iron Man 2 with the kids. As Justin Hammer introduced his squadrons of nearly-identical killer robots (er, drones) for “the Army, Navy, Air Force, and Marines”, I thought about Textron's Scorpion jet as a problem of inter-agency politics. (Bear with me.) Almost two years ago, Bill Sweetman of Aviation Week warned that "Textron had better be prepared to commit some serious time and money to this project” if the company hoped to develop the market. After last year's Farnborough Air Show, I characterized that problem as one of “market categorization”. Plenty of smart people (like Richard Aboulafia, to start) don’t identify this plane in a separate product category, so they “don’t understand its mission, its performance relative to alternatives, or its economics..” I will try to help with that, because while Textron's story is strong, political boundaries have clouded the case.
For improving military procurement, there’s no alternative to cultural change.And all the brilliant private-sector managers who say if only I were running the Defense Department, I know what I’d do? Well, the first thing they’d discover is the Civil Service Commission wouldn’t allow them to fire the 50,000 non-performers as they would have done in their own business, for example.
— Deputy Defense Secretary Paul Wolfowitz, interview with the San Francisco Chronicle, 23 February 2002.
John McCain thinks he has a way. The Senate version of the National Defense Authorization Act mandates a 7.5 percent reduction in civilian staff next year across the department. By 2019, civilians at Defense should be down 30 percent. As Politico Pro reported, the Senate version further directs that the head-cutting should proceed by performance assessments: those deemed least successful are out first. This markedly contrasts with the current approach, which “gives heavy weight to seniority and veteran status to determine whom to keep and whom to let go.” Naturally, the labor unions are up in arms, as is to be expected, and no further noted. But will this make a difference? The challenge of improving the performance of the procurement enterprise depends on both people and processes. The problems therein are not easily separated, but there’s no alternative to cultural change.