Global Security: in Search of a New Vision - Center for Strategic ...

170 Mr. Kent Schneider
more broadly. The pace of change is also forc ing indus try to get far ther ahead of what is going on. There
needs to be more com mu ni ca tion between gov ern ment and indus try because, in the absence of gov ern -
ment vision, indus try does not know where to go and does not know where to invest. It tries to get far ther
ahead, under stand require ments, and invest ear lier, and it is team ing because what it hears from gov ern -
ment is that gov ern ment wants total solu tions. Most com pa nies are not able to sin gle-handedly pro vide
that kind of capa bil ity so we are see ing more team ing and we are seeing teaming on a global basis.
We are also see ing com pa nies inten sify research and development. R&D spend ing in indus try is going
up in real terms every year and that is prob a bly appro pri ate, par tic u larly in the gov ern ment space and the
defense mar ket, because gov ern ment spend ing is going to go down. In real terms in the U.S., gov ern ment
R&D is going to be down 21.7% over the 2009–2013 period, and the only place where that slack is going
to be made up is on the industry side.
Of course, cross-bor der M and A activ ity is at an all-time high. The defense indus trial strat e gies of the
Euro pean Union are forc ing U.S. com pa nies to acquire in Europe. Why Because you say you want to buy
local, so U.S. com pa nies are acquir ing local so that they can be viewed as a local player. On the other side
of the Atlan tic, the moti va tion is a lit tle bit dif fer ent. With the change and exchange rates, U.S. com pa nies
are sell ing at bar gain rates—the num ber three acquirer of pub lic sec tor IT com pa nies last year in the U.S.
was QinetiQ North Amer ica, a U.S.-based com pany. How ever, the play ers at this table from Europe,
EADS, and Thales have also been major acquir ers along with BAE, VT, and a number of others.
PROVIDING BEST VALUE
Let me shift to the notion of best value. We have been talk ing about capa bil i ties and opti miz ing capa -
bil ities and I will return the favor to Edgar Buckley and say that, yes, we in the U.S. believe that Euro pean
indus try needs to be strong and to have capa bil ity, and we need to team to pro vide best value. I think it is
impor tant to real ize—and here I go back to Scott Har ris’s point—that with glob al iza tion, indus try pro -
vider choices are no lon ger con ti nen tal. Today, it is inap pro pri ate to think that we want to buy Euro pean
or we want to buy U.S. or we want to buy Asian. That is because all com pa nies are glob al iz ing, and even if
you do not buy from a global com pany, the like li hood is that you are going to buy from a global team,
because we are going to team across the Atlan tic or across the Pacific in order to provide total capability.
I would argue that pur chas ing deci sions should be made on best value. The dilemma there is fig ur ing
out what best value is—best value, like pol i tics, is local and should be com pre hen sive, but it should be on
the table at the begin ning of an acqui si tion. Pre vi ously, in refer ring to the Northrop
Grumman-EADS/Boe ing tanker pro cure ment, some one men tioned that the prob lem is one of pro cess.
Well, the prob lem with the pro cess was that the Gov ern ment Account abil ity Office deter mined that the
rules changed in the mid dle of the pro cure ment, so best value was defined in the RFP and then defined
dif fer ently in the final eval u a tion. I do not know whether that is right or wrong. His tory will tell when the
pro cess is done. The point is that this is not the first time that cri te ria have been applied that were not on
the table at the begin ning of a pro cure ment. So it seems to me that you want to encour age global team ing,
you want to get the best capa bil ity—we need the best capa bil ity for our warfighters—but we also have to
define and make known at the out set what best value means for a par tic u lar pro cure ment. It should be
holis tic and it should be open so that industry can make good decisions about where to engage.
CRE AT ING A LONG-RANGE STRAT EGY
We should not be reluc tant to put all the cri te ria on the table. Those of you who have been doing busi -
ness in Europe for some time will remem ber when Geoff Hoon was the Sec re tary of State for Defense in
the U.K. and pub lished what is known as Hoon’s Rules. Hoon’s Rules basi cally said that we are inter ested