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Lucie Liversain EN
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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
  • 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