Hinote Urges Defense Innovation Board to Find Incentives for Faster Technology Development

As the Department of Defense engages commercial entities to accelerate innovation, cultural and structural differences between government and the private sector continue to be the biggest obstacle to the rapid deployment of new technology, the head of Air Force Futures told the influential Defense Innovation Council during a said recent meeting.

“It’s not an access to innovation problem that we’re dealing with, it’s an innovation adoption problem,” said Air Force Lt. Gen. S. Clinton Hinote, deputy chief of staff for strategy, integration and requirements, said and a number of obstacles he has experienced in recent years. “I’ve seen every one of these [barriers] stifle innovation on behalf of the bureaucracy and at the expense of tomorrow’s warfighter.”

Hinote made his comments at the end of a two-day meeting of the new Defense Innovation Council. Chaired by Michael Bloomberg, the nine-member board includes academics, technologists and other experts who advise DOD on emerging technology and innovation and how to advance military technological dominance. Among its members are former assistant secretary of the Air Force Will Roper and retired adm. Michael Mullen, former Chairman of the Joint Chiefs of Staff.

Passionate but positive, Hinote urged the board to identify incentives throughout the procurement world that could speed technology development in a culture full of bureaucratic roadblocks.

He said he’s seen leaders from three different administrations come in with a sense of urgency, only for that dynamic to not cut through the bureaucracy. “Having that lack of sense of urgency in the middle is deadly, and that’s what it was for us,” Hinote said.

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One particular area Hinote focused on was risk timelines, noting that DOD’s actions are based on near-term risks, as opposed to its stated focus. Hinote also said there is a strong tendency to focus on “old ways” instead of new ones.

“There are a lot of soft vetoes in our department … and at any point there are so many different people, offices, interests that can block an action,” Hinote said. “They cannot initiate an action; they can’t initiate or get an action through, but they can block, and that’s a fact of life in this department that makes it very difficult to continue.”

He added that there is also a strong “not-invented-here culture” where there can be competition between internal and external science and technology sectors. And while some competition between sectors can be good, Hinote added, it can be challenging when a company’s timelines differ from the government’s budget timelines.

This is a particular problem with small businesses whose rapid innovation may be perfect for DOD, but the startup must fund itself for several years until the budget process catches up with them. On top of that budget process, he added, is a lack of trust between the executive and legislative branches, especially when looking at flexibility in how money is spent.

“At some point, we’re going to have to examine what type of transparency we need to get our congressional stakeholders semi-comfortable with the type of flexibility we know we need to get to,” Hinote said. “And I think that involves a flexibility in intellectual property that we haven’t seen before.”

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Challenging the board to map out incentives, he emphasized the need to tap more into intellectual property and use it at scale.

For example, Hinote suggested that in critical times of need, if US forces have good technology and an ally has good manufacturing capabilities, “it is in the national interest to release the intellectual property, give it to the partner and give them the weapons too late to build. , because right now we are not able to build enough weapons fast enough,” he said.

Ultimately, Hinote said, the conversation needs to change because often there is little incentive to push technological boundaries, increase the speed of a bureaucratic process or take risks.

“I don’t believe it’s impossible; I don’t think people want to watch innovation flounder in our department,” he said. “But the incentives are structured in a way that makes that impossible, and until we call it out, I just don’t see it getting any better.”

In another brief to the board, Jason Rathje, director of the Office of Strategic Capital and co-founder and former director of AFWERX’s AFVentures division, insisted that the government should do more to increase capital access for innovators.

With so many American companies investing in and developing capabilities in science and technology, bolstered by collaboration with academia, there have been world-class advances in critical areas, Rathje said. But there must be a next step—providing opportunities for entrepreneurs to have their technologies support national security goals.

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Rathje added that OSC is looking at two new strategies to promote private investment as a national security tool: syndication and leveraged finance.

“Syndication is a strategy that simply partners with private capital providers to co-invest in new technology efforts to help scale the business as we help scale the technology,” he said. “What leverage does is it lowers the cost of capital; private investors can make the patient capital investments needed, at the sizes they need to invest, in deep technology companies.”

Rathje also celebrated the OSC’s partnership with the Small Business Administration and the work with the Small Business Investment Company program. SBIC provides investment opportunities to technology companies in their early stages using the Federal Credit Program.

“The way these investment funds work is that we can license new limited partnerships that are vertically focused on deep technology areas,” he said. “We can provide two dollars of leverage, two dollars of debt for every dollar of private capital raised.”

The SBIC initiative began in December, and Rathje said they hope to start receiving applications for the initiative by the middle of the year. In addition, OCS will soon publish its first investment strategy, which will review critical technology sectors and provide assessments on capital availability.


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