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Innovation in defence: how start-ups are making their mark

Lucie Liversain_1
Lucie Liversain
PhD student at I³-CRG* at École Polytechnique (IP Paris)
Key takeaways
  • Dual-use technologies, with both civilian and military applications, are increasingly coming from civilian industry, which have shorter innovation
    timeframes.
  • Alongside specialised industries, an ecosystem of defence start-ups is emerging whilst still targeting civilian markets for scale-ups.
  • But while there are dual technologies, true dual companies are rare.
  • For the armed forces, the use of open innovation also aims at running exploratory projects with the hope that real breakthroughs will emerge.
  • An open ecosystem, in which public and private players work closely together, makes it possible to attract talent to jobs in short supply.

Fifty years ago, many of the technologies used in the civilian sector came from the defence sector. Today we are witnessing the opposite movement, with the emergence of innovations in defence coming from the civil sector. Why is this so?

There are sev­er­al rea­sons for this phe­nom­e­non. First­ly, tech­no­log­i­cal cycles in the civil­ian sec­tor are much faster than the long cycles of arma­ment pro­grammes, which can last from ten to forty years. Sec­ond­ly, R&D invest­ments in the civil­ian sec­tor some­times great­ly exceed the defence bud­gets of most West­ern nations. For exam­ple, Huawei’s R&D bud­get (€21 bil­lion) exceeds Israel’s mil­i­tary bud­get by one bil­lion, even though Israel is a major play­er in terms of defence inno­va­tion. But we should also be sure what we mean by inno­va­tion here.

The Min­istry of the Armed Forces has been invest­ing for a long time in so-called “planned inno­va­tion”, in the sense of long-term R&D, which aims to antic­i­pate tech­no­log­i­cal break­throughs and ensure man­age­ment of emerg­ing tech­nolo­gies of a strate­gic nature. But there are also inno­va­tions in their use, too. For exam­ple, the diver­sion of tech­nolo­gies from the civil­ian sec­tor (e.g. drones), not fore­seen in the tech­no­log­i­cal roadmaps, can respond to oper­a­tional chal­lenges and be devel­oped more rapid­ly by com­pa­nies tar­get­ing civil­ian mar­kets. The Defence Inno­va­tion Agency (DIA), cre­at­ed in 2018, has the ambi­tion, among oth­ers, to detect, mon­i­tor and cap­ture oppor­tu­ni­ties from the civil­ian world.

The arrival of these civil­ian play­ers in the world of defence (for exam­ple Par­rot, to take the case of drones) rais­es new ques­tions. The issue of con­fi­den­tial­i­ty is not the most dif­fi­cult to man­age. The real issues, which we encounter in the con­text of open inno­va­tion with large defence groups, are how to organ­ise the co-inno­va­tion process, by cor­rect­ly reg­u­lat­ing the intel­lec­tu­al prop­er­ty rights. Col­lab­o­ra­tion between start-ups and large groups can some­times lead to a phe­nom­e­non of pre­da­tion, whether vol­un­tary or not. Yet, con­trac­tu­al solu­tions do exist. 

Fur­ther­more, the DIA, through its open inno­va­tion approach, has the mis­sion of detect­ing and cap­tur­ing the “right project at the right time”: that is to say, a project that responds to the chal­lenges expressed by the armed forces, capa­ble of reach­ing lev­els of matu­ri­ty not only tech­no­log­i­cal but also mar­ket and user. And often the busi­ness mod­el of these start-ups can­not be based sole­ly on the defence mar­ket, which is both too small and marked by exces­sive­ly long acqui­si­tion cycles.

Do defence SMEs have a strategy to management this duality?

The prob­lem of dual­i­ty must be observed on sev­er­al lev­els of analy­sis: strat­e­gy, projects, and busi­ness mod­el. The poten­tial for dual­i­ty often decreas­es as tech­nol­o­gy devel­ops, but also as uses, process­es and organ­i­sa­tion­al choic­es change. The devel­op­ment costs for defen­sive spec­i­fi­ca­tions are usu­al­ly so large for the scale of a start-up’s resources that it can rarely focus on sev­er­al mar­kets at the same time, at least in the begin­ning. The lin­ear mod­el of tech­nol­o­gy devel­op­ment that has been used as a ref­er­ence to define dual­i­ty is some­what out­dat­ed, as we notice today that some (rare) defence start-ups have demon­strat­ed the abil­i­ty to absorb arti­fi­cial intel­li­gence devel­op­ments in the civil­ian world and adapt them to the defence context.

This is the case of Pre­li­gens: a start-up which devel­ops soft­ware using AI to auto­mat­i­cal­ly analyse mass data from mul­ti­ple sources, notably satel­lite opti­cal imagery, and alerts intel­li­gence agents when an abnor­mal sit­u­a­tion is detect­ed on a site of strate­gic interest.

In prac­tice, the dual­i­ty is very dif­fi­cult to man­age, espe­cial­ly from a strate­gic point of view and on the ques­tion of resource allo­ca­tion. There are dual tech­nolo­gies, but real dual SMEs are rare (we can nev­er­the­less cite the case of MC2 Tech­nolo­gies, on anti-drone combat).

Can we still speak of a defence ecosystem, or does the civilian component anchor these start-ups in other innovation ecosystems?

Talk­ing about a defence ecosys­tem con­trasts some­what with a con­cept that is still very reg­u­lar­ly used by the play­ers in the defence mar­ket: that of the defence indus­tri­al and tech­no­log­i­cal base (DITB), made up of about ten indus­tri­al prime con­trac­tors (some of which were State ser­vices before being pri­va­tised) and about 4,000 SMEs.

Open inno­va­tion rep­re­sents less than a quar­ter of the DIA’s bud­get. There is no rev­o­lu­tion. Nev­er­the­less, open inno­va­tion is redefin­ing the roles of play­ers in the defence world and their rela­tion­ships, espe­cial­ly in cross-cut­ting areas such as arti­fi­cial intel­li­gence, where there is no his­tor­i­cal play­er that impos­es itself on this vertical.

The major defence groups are increas­ing­ly sys­tems inte­gra­tors: they inte­grate all the sys­tems and com­po­nents, a skill that only the very large play­ers pos­sess. But they no longer have full tech­no­log­i­cal con­trol. SMEs are not just sub­con­trac­tors; they pro­vide com­plete tech­no­log­i­cal build­ing blocks. Open inno­va­tion also encour­ages the emer­gence of inter­me­di­aries to align play­ers in an inno­va­tion sit­u­a­tion, for exam­ple the DIA’s Inno­va­tion Defense Lab, the inno­va­tion labs of the Armed Forces such as the Bat­tle Lab Terre, or even cap­i­tal investors.

An ecosystem is driven by a form of cooperation, but also by the spur of competition. What is the situation in defence?

The shift towards strate­gies of hyper-com­pe­ti­tion and inten­sive inno­va­tion has been described for more than thir­ty years by researchers in man­age­ment sci­ences, and the defence sec­tor is no excep­tion. This con­text of strong com­pe­ti­tion has had a sig­nif­i­cant impact, push­ing com­pa­nies to ratio­nalise the organ­i­sa­tion of devel­op­ment projects. In the ear­ly 2000s, major tech­no­log­i­cal dis­rup­tions made the sys­tem­at­ic design and stan­dard­i­s­a­tion of devel­op­ment process­es obsolete. 

This is per­haps where the defence mar­ket can shed some inter­est­ing light. Indeed, faced with the increas­ing com­plex­i­ty of sys­tems, the con­duct of arma­ment oper­a­tions through major pro­grammes is find­ing it increas­ing­ly dif­fi­cult to cohab­it with explorato­ry approach­es. These explorato­ry projects, char­ac­terised by their uncer­tain­ty, must allow learn­ing loops to be car­ried out and sev­er­al con­cur­rent devel­op­ments to be car­ried out in order to avoid being “killed” by the qual­i­ty-cost-delay log­ic of oper­a­tions. The chal­lenge of the defence inno­va­tion ecosys­tem today is to allow real break­throughs to emerge from these explorato­ry projects.

Between large and small players, what about the competition for talent? 

The human fac­tor is of course cru­cial for the armed forces as well as for the actors of the defence world. If the ques­tion of man­pow­er is always impor­tant, espe­cial­ly in the cur­rent geostrate­gic con­text, the ques­tion of a qual­i­ta­tive rise in pro­files is cen­tral. Accul­tur­a­tion to new tech­nolo­gies is essen­tial to face the evo­lu­tion of pro­fes­sions, equip­ment, and organ­i­sa­tions. In the fields of arti­fi­cial intel­li­gence, cyber­se­cu­ri­ty, or nan­otech­nolo­gies, many pro­fes­sions are in per­ma­nent ten­sion. Cyber defence is one of the pri­or­i­ties of the armed forces in terms of recruit­ment. And it is here again that the pow­er of an open ecosys­tem can be illus­trat­ed, as is the case in Bruz near Rennes, where pub­lic actors (the Direc­torate Gen­er­al of Arma­ments, the Com­Cy­ber) and pri­vate actors (indus­tri­al­ists and start-ups) work close­ly togeth­er, includ­ing to attract talent. 

Interview by Richard Robert