Wharton Aerospace & Defense Report

Pentagon Looking for ‘Good Enough’ SystemsMarch 25, 2011

The U.S. Air Force recently selected Boeing over EADS for a $35 billion aerial refueling tanker program after a long and contentious decision process that lasted nearly a decade.

That decision is likely to reverberate across and reshape the defense industry for some time according to analysts interviewed by the The Washington Post. When the Air Force picked Boeing, it may have sent the message that the Pentagon is looking for equipment that is less expensive and good enough rather than the best value or most innovative.

Defense Secretary Robert Gates has been a big proponent of systems that are "good-enough" rather than ideal. "They're not going to pay for bells and whistles,” Richard Aboulafia, a defense analyst with the Teal Group told the Post. "That's the clear message here, and everyone should be heeding that message."

Indeed, even other agencies are responding in a similar way. Vivek Kundra, the federal chief information officer, has pushed contractors to build smaller, functional technology sooner rather than more complex systems that never quite meet expectations.

The leaner economic times and the ensuing budget crunch are forcing everyone to pay more attention to the bottom line. Andrew F. Krepinevich, president of the Center for Strategic and Budgetary Assessments, told the Post that the price will be increasingly scrutinized as the defense budget shrinks. Gates is saying is that “we've emphasized for so long high performance because we really haven't had to worry about cost,” Krepinevich said. “Well, that's changed. Cost really matters now.”

Others fear that making cost the most important factor could be risky and even shortsighted in the long run, according to the article. With the emphasis on cost, companies might have less incentive to innovate. Many defense contractors told the Post that they are not changing strategic directions yet because of the Boeing-EADS decision. Even the loser, EADS said it will continue to invest in research and development for new technologies.

Alan Chvotkin, executive vice president and counsel at the Professional Services Council, an industry association, told the Post that companies should continue to invest in new ideas in the increasingly competitive market.

"I don't think companies should jettison their [research and development] work," he said. "Companies still have got to differentiate themselves in the marketplace."