How to make technological innovation happen at the Pentagon

There’s growing talk about the urgent need for the Pentagon to embrace innovation as it tries to revive its industrial base and reverse our declining defense posture. There’s also talk about the need to spend more on defense, with one senior senator calling for an annual benchmark of 5 percent of GDP.

But it’s no good spending more if you don’t have a clear idea what it’s being spent on. It’s also no good demanding innovation if the entire budget process slams the door on adopting new technologies in a decisive way.

The latest Government Accountability Office report on Department of Defense weapons systems underlines a similar point. It takes too long to develop and deploy major programs because the Pentagon moves at the speed of government, not the speed of relevance to our strategic defense needs.

One reason is that the DoD process for planning and allocating money for programs, the Planning, Programming, Budgeting and Execution (PPBE) process, was designed in the early 1960s. It reflects an earlier industrial era, not the digital age or the world of software and AI — two major sources of innovation today, both in and out of the military.

Many private tech companies want to contribute to our nation’s defense, but too many choose to opt out because the current budget process discourages them with long waits for a contract, often more than two to three years. They suffer even longer waits to see their product deployed, if at all.

That’s one reason why Congress appointed the PPBE Reform Commission in 2022 to reinvent the Pentagon’s budget process. The commission released its final report this spring, and its 28 separate recommendations represent major steps in creating a more efficient, more flexible resource allocation system for the DoD and everything that entails. (Full disclosure: I was involved in writing and editing the report.)  Now it’s up to Congress and the White House to make sure its recommendations get implemented.

In thinking about how to incorporate more innovation into the budget system, the commission is pushing three major reforms for bringing the Pentagon into the 21st century.

The first reform is creating a seamless and continuous process for aligning the Pentagon budget process with overall strategy from start to finish.

That’s why the commission recommends replacing the existing PPBE Process with a new Defense Resourcing System, by bringing together the four discreet stages of the old system into three interlocking stages. The first stage would be focused on meeting strategic goals; the second on allocating resources, including dollars, to meet those goals; the third on carrying through on execution.

The goal is to ensure that Pentagon spending clearly aligns with current overall strategic goals, such as confronting China’s growing naval threat. It also aims to ensure more efficient performance at all levels of the allocation process.

The second reform is reinventing the budget structure so that it focuses on bringing capabilities to our warfighters first, and on individual programs and systems second.

The commission’s recommendations include transforming the Pentagon budget’s overall structure, by creating a seamless top-down flow from Service/Component and Major Capability Activity Area, such as UAV’s or submarines or space systems, down to individual systems and programs throughout their lifecycle. This will help to make sure budgets stay on track with important strategic as well as technological changes, while also giving a clearer picture to Congress and the public of how Department of Defense money is spent.

The third reform is giving Pentagon managers more flexibility to direct the flow of funding at the speed of innovation, especially for software.

Here the commission urges consolidating all the different budget activities that currently fall under the heading of Research, Development, Test and Evaluation. Right now, the division of these activities into separate discreet boxes denies a fundamental reality — that technology develops very differently and much faster than the standard Pentagon budget process can react. That’s particularly true of software, which is crucial to the success or failure of today’s weapons systems. It will be even more crucial for adapting AI solutions to our military and strategic challenges.

Anyone who knows Washington knows great reforms don’t sell themselves. An implementation plan is needed, as the commission noted in its final report. Fortunately, both House and Senate versions of the defense bill for 2025 call for establishing “a cross-functional team” to implement the PPBE Commission recommendations. Moreover, Senate and House language requires “annual reports on the implementation of the recommendations of the PPBE Commission.”

At a time when a senior Pentagon official has warned that China can obtain new weapons systems five to six times faster than we can, creating a Pentagon budget system that can keep up with technological and strategic changes isn’t just timely — it’s become a national imperative.

Arthur Herman is senior fellow at the Hudson Institute and author of “Freedom’s Forge: How American Business Produced Victory in World War II.”