Technological Advancement and Defense Programs

The rate of technical advancement has—and will—continue to have a profound impact on defense suppliers and those who invest in them. In the United States, we have seen spending on Sustainment (the gray bars in the graph above) fall from 70% of the Department of Defense budget to just 30% since 1980.  At the same time, the average service life of a DoD program has been reduced from 30 years to 10 years, and it continues to decline (as shown in the graph's blue line).  Finally, the technical advancement index has been increasing at an exponential rate (see the dashed-orange trend line).  What does this mean?  We spend less on maintaining older platforms and are replacing them at an increasingly rapid rate because technological innovation makes platforms ineffective or not survivable and, therefore, obsolete.   

A Real-World Example of Battlefield Innovation

In addition to being a tragedy of profound proportions, the Russian invasion of Ukraine has turned into the largest land war in Europe since World War II and has spurred a rapid innovation process in the defense sector—taking new concepts from an idea to battlefield application in days. The quote below highlights the rapid iteration of drones and their varied application to the battlefield. Everything from surveillance, to anti-drone UAVs, to UAVs with rockets and thermite-spewing cannons, to drones that drop off robotic dogs with various weapons systems or surveillance devices (or both) mounted on them. The rapid application of technology to the battlefield is making technologies obsolete in weeks and months instead of years and decades typical in the past.

Implications for Operators and Investors 

Defense manufacturers need to be increasingly nimble and efficient to bring technologies to market with sufficient time to generate acceptable financial returns as program lives continue to shorten.  As a result, market dynamics will favor more entrepreneurial companies with dual-use technologies they can leverage to get “inside” the DoD development and procurement cycle timeline.