{"id":39543,"date":"2019-12-23T11:00:50","date_gmt":"2019-12-23T11:00:50","guid":{"rendered":"https:\/\/one.sightlinemg.com\/defensenews\/uncategorized\/2019\/12\/23\/recent-defense-ma-reveals-shift-in-industry-national-security-strategy\/"},"modified":"2026-08-07T23:08:30","modified_gmt":"2026-08-07T23:08:30","slug":"recent-defense-ma-reveals-shift-in-industry-national-security-strategy","status":"publish","type":"post","link":"https:\/\/one.sightlinemg.com\/defensenews\/commentary\/2019\/12\/23\/recent-defense-ma-reveals-shift-in-industry-national-security-strategy\/","title":{"rendered":"Recent defense M&A reveals shift in industry, national security strategy"},"content":{"rendered":"\n

The Trump administration considers \u201clong-term strategic competitions with China\u201d to be one of the greatest challenges facing our military. As federal budgets experience increasing pressure from entitlement spending and debt service in the coming years, partnering with government contractors and commercial companies to develop cost-effective defense innovation will be key to countering this threat.<\/p>\n\n\n\n

This then begs the question: How will the United States defense industry<\/a> remain competitive for its primary customer, the federal government<\/a>?<\/p>\n\n\n\n

Research and development<\/b><\/p>\n\n\n\n

The United States is \u201ca culture that fosters innovation and entrepreneurship … precisely what keeps America unique and vibrant in the face of Eastern efficiency,\u201d notes The New Yorker. American business is creative but needs to improve efficiency to address military threats.<\/p>\n\n\n\n

Combining companies may be the solution. In an interview I recently conducted with Harvey Seegers, a former senior adviser to Jack Welch and now an associate dean at The Catholic University of America, he explained that \u201cmergers eliminate duplication of R&D effort and create scale economies that accelerate innovation.\u201d<\/p>\n\n\n\n

Raytheon and United Technologies<\/a> are the latest defense companies to put this theory to the test, proposing a merger that will produce a nearly $74 billion business. The new company, Raytheon Technologies Corporation, will \u201chave unsurpassed technology and expanded R&D capabilities,” according to United Technologies Chairman and CEO Grey Hayes, and it would staff 60,000 engineers and budget $8 billion annually on research and development.<\/p>\n\n\n\n

Will the newly combined defense company be better for our national security? Or will it become a slow-moving, complex military-industrial behemoth?<\/p>\n\n\n\n

Traditionally accepted wisdom<\/b><\/p>\n\n\n\n

Anthony Cannizzaro, who specializes in international business and global strategy at Catholic University, reminded me in a recent interview that “historical evidence tells us that mergers have benefits and drawbacks for innovation. Large firms have scale and deep pockets, yet smaller companies are often better at high-risk, high-reward types of breakthrough innovation.\u201d<\/p>\n\n\n\n

Lockheed Martin, another defense giant, nurtured the famed Skunk Works, first set up in 1943 during World War II. This is an R&D workshop of small teams, which produced breakthrough technologies such as the record-setting SR-71 Blackbird. But very large teams of knowledge workers are not always this effective at generating ideas that lead to developing a product delivered on time and on budget.<\/p>\n\n\n\n

This is documented in Frederick Brook\u2019s classic IBM study, the Mythical Man-Month. This is the phenomena where adding engineers to a project will not speed development but, counterintuitively, more people, more \u201chuman resources,\u201d will slow work and miss deadlines.<\/p>\n\n\n\n

Does this past wisdom apply today?<\/p>\n\n\n\n

Maybe not.<\/p>\n\n\n\n

Cannizzaro continues on Raytheon\/United Technologies: \u201cBoth firms are innovation powerhouses, and combined will possess highly complementary resources. … The success of the merger will ultimately hinge on whether they can find a flexible structure that fosters coordination without stifling each units\u2019 innovative potential.\u201d<\/p>\n\n\n\n

Can the new Raytheon have the productivity and innovation of, say, an Amazon (another $70 billion company)? Every company culture is different, but Jeff Bezos\u2019 \u201ctwo pizza rule\u201d seems to serve them well. The rule suggests that teams are productive only if they are small enough to be fed with 16 slices.<\/p>\n\n\n\n

Knowledge acquisition<\/b><\/p>\n\n\n\n

But large amounts of data and human analysis are still needed. In that common culture of the pharmaceutical industry it is a common courtesy to share information for the common good of improving patient care in a cost-effective manner. Health care researchers are an open source where the code is to improve the human condition.<\/p>\n\n\n\n

The more people and input, the better; the more sharing of data and insights and connections, the faster the innovation. These connections of improving health care are often independent of borders, organizations or silos.<\/p>\n\n\n\n

But less so the organizational structure of national defense. There are (and better be) walls around American R&D \u2014 and not bridges.<\/p>\n\n\n\t