logistics, it’s more of a collaborative enterprise. No one can really throw his weight around, even four-star generals.”
Camm agrees. “What you need to lead these efforts is not people who lead people, but people who know how to do strategic thinking. You don’t even want the same people any more. When you go in and talk to officers that way, they say, ‘Well, I don’t want to do strategic thinking. I’m a leader, I lead people.’ ” As Camm concludes, charisma and decisiveness have their place in organizational life. “They are important once the proper direction has been set, but they can be quite damaging if the leaders pursue the wrong goals, which happens too often.”
Albert Robert offers a variation of the point: “It’s not essential, but it certainly makes it easier to influence people and get them to pursue common objectives. Then the question becomes whether the leader is smart enough or disciplined enough to determine the right set of objectives and lead the organization in the right direction.” John Birkler echoes the point: “I don’t believe the leadership has to be charismatic. I think it just has to be com- petent. In many cases, you will find a charismatic leader can also be very shallow and not have much substance. That can get you by for a little bit, but not very long.”
Lesson 6: High Performance Requires
place. RAND certainly makes that case for the military aircraft industry, for example, especially as the number of firms has dwindled from 16 in 1945 to just 3 major prime contractors today—Boeing, Lockheed-Martin, and Northrop Grumman. If the military merely wants to keep building the same airplanes, it need not worry about organization and management at all. After all, anyone who has the right parts and enough rivets can assemble an aircraft.
But if the military wants to produce innovative aircraft, it needs an industry with enough “minimally viable firms” to produce the break- throughs. According to a nine-person RAND research group, a minimally viable organization needs enough funding to maintain its design, develop- ment, and production capacity; enough skilled managers and workers to maintain a skilled workforce; facilities and equipment to convert the proto- types into production; and the expertise and structure to hold all of the above on course.21By RAND’s own estimates, a minimally viable aircraft design organization today consists of 1000 to 2000 engineering and support personnel at a total cost of $200 million to $500 million per year.
As the team notes, the number of minimally viable firms is less impor- tant to innovation than the way in which the existing firms work and the future demand for innovation. Unlike in the 1940s, when aircraft firms operated in isolation, the aircraft industry today has adopted a number of practices that have changed the definition of just what constitutes a minimally viable organization. As the final report predicts,
Industry structure will increasingly be defined through teaming arrangements and participation of all stakeholders throughout a product’s life cycle. . . . Over time, even the characteristics of the prime contractors today may change radically. Future prime contractors will be more integrated across defense systems, and they may be smaller as a result of focusing on system-integra- tion activities while relying on partners from the supplier base for design innovation in key components and subsystems.
Whether there are enough minimally viable firms to produce inno- vation is an entirely different problem, however. As the team also contends, innovativeness is a product of national factors such as access to capital, the quality of the industry workforce, the ability of suppliers to generate new ideas, the level of research and development spending, national demand, and the right kind of competition. RAND clearly does not believe that compe- tition alone produces high performance. On the contrary, too much com- petition can diminish the resources needed for research and development, while too little can produce complacency.
Moreover, R AND research suggests that aircraft innovation often comes from firms with little or no history in the military industry: “Incum- bents innovate in their old technologies in response to new entrants with the new technology. Eventually, and only in hindsight, the new technology prevails, driving out the old technology as it constantly improves, and at a faster rate than the old technology.” Competition among a dwindling num- ber of prime contractors does little to assure a steady supply of new ideas.
On the contrary, evolving business practice has changed R AND’s definition of the minimally viable firm. According to a R AND research team led by John Birkler, prime contractors are increasingly relying on strategic alliances and teaming to assemble the skills required for major product development. Instead of building all this capacity in-house, prime contractors often concentrate on overall integration across a portfolio of reliable partners. In turn, they invest heavily in sharing information and developing virtual capacity to respond to new opportunities. As a result, the minimally viable organization has changed into a minimally viable design team composed of individuals and units drawn from several firms.
Such strategic alliances are increasingly common across government and business. The U.S. National Security Agency, which is responsible for collecting, decrypting, and analyzing electronic intelligence signals, has bet its future by outsourcing 1000 information technology jobs to the Eagle Alliance, a joint venture of Computer Sciences Corporation and Logicon, a division of Northrop Grumman. Under the Groundbreaker program, which weighs in at $2 billion over 10 years, the alliance is responsible for making sense of the agency’s ridiculously complicated information tech- nology, which included at least 68 independent e-mail systems in 2001.
Although it is too early to tell whether Groundbreaker will actually transform the agency, the contract reflects a clear embrace of partnerships as a source of viability. Because businesses increasingly prefer long-term relationships, or at least longer-term contracts, to repeated competitions for critical work, organizations must find ways to balance the pressure for full and open competition against the benefits of long-term partnerships that rely on strong incentives for performance, and the information sharing that goes with them.
Lesson 7: High Performance Requires at Least Minimal Competition
Competition dropped out of the winnowing process in the very first round, largely because it disciplined all organizations equally. Roughly half of the
organizations that operated in a competitive environment were rated as exemplary or very good performers, compared to roughly half of the orga- nizations that operated in a noncompetitive environment.
Yet, if competition does not assure success, its absence increases the likelihood of mediocrity. Roughly a sixth of the organizations that operated in a competitive environment were rated as mediocre or poor performers, compared to more than a third of the organizations that operated in a non- competitive environment. Simply stated, organizations need at least some competition in order to stay awake.
As R AND’s work on aircraft innovation suggests, there are times when competition is essential to the creation of new technologies such as the propeller monoplane, the supersonic jet, and the stealth fighter, and there are times when competition produces costly duplication and overlap.
According to Mark Lorell’s history of the aircraft industry, “the precise rela- tionship between competition and increased innovation at the beginning of each new technology era is unclear. The competition to innovate during these periods was usually triggered by factors related to increased market demand, various technology developments, and military threat perceptions and system requirements.”
Nevertheless, all of the aircraft breakthroughs of the past century have involved competition among at least seven experienced, credible prime contractors, which is four more than currently exist. As Lorell notes, the greatest stagnation in the industry occurred during the biplane era following World War I. “What explains this lack of innovation and design conser- vatism from the late teens to the early 1930s?” he asks. “We believe that, at least in part, it was likely caused by the relative lack of competition in mil- itary aircraft development, owing to the very small number of experienced, financially viable, and technologically credible firms competing for bomber and fighter contracts. This small number was in turn, caused primarily by the low demand from and the small size of the domestic market.”
Yet, even as Lorell hints that Boeing, Lockheed-Martin, and Northrop Grumman may need company, other RAND researchers have come to believe that competition is not always desirable. This is clearly the case in some areas of purchasing, where long-term, single-source vendor-purchaser partnerships are now preferred over yearly competitions. These private-private or public- private partnerships are based more on incentives and benchmarking than on traditional dog-eat-dog competition. As Frank Camm explains,
Japanese auto firms that had previously assiduously cultivated at least two sources for all critical items ultimately came to realize
that they were paying a significant price by not going with the best source. They concluded, one after another, that if they could identify one source and build a partnership, with proper incentives, that the partnership could outperform dual sourcing over the longer term. That logic has generally been borne out.
Imbedded in this logic is an idea used much more broadly—
benchmarking has proven to be an effective substitute for com- petition in the context of partnerships.
(See Camm’s briefing slide on the advantages of partnerships.)