By Ajay Patel, J. David Patterson, Gregory F. Treverton, and John Prior
If we’ve learned anything in 2017, it is that we will be surprised. When we were talking with one former undersecretary of Defense for Policy, he observed that three months after he left his position, the top three issues for his successor hadn’t been on his agenda at all when he left. And we’ve also learned that surprises are as likely, perhaps more likely, to arise here in the United States than somewhere else on the globe. In those circumstances, predicting the future is a fool’s game, but let’s play. Here are not predictions, but rather things to watch for in 2018:
Global Conflict
- Miscalculation/escalation on the Korean Peninsula. This, alas, has to be top of the list given the respective bubbles that Trump and Kim Jong-un inhabit. North Korea’s nukes remain a problem without a solution—and surely without a quick, military or unilateral solution.
- A terrorist attack in the United States done by a single individual or a small group. The Islamic State of Iraq and the Levant’s (ISIL) caliphate is disappearing but its appeal, in a combination of Islamic grievance and gang solidarity, has not. And while this attack, like its predecessors, wouldn’t be all that deadly in comparison to other violence in the United States, it would spur an outsize reaction.
- A miscalculation or half-advertent escalation in the proxy war between Iran and Saudi Arabia, a conflict viewed with pride in Teheran and as an existential threat in Riyadh. Lebanon looks like the most likely victim of that escalation, but Egypt or Qatar are other candidates.
- Some relief for the Rohingyas in Myanmar? Don’t bet on it, for Secretary of State Rex Tillerson is surely right in saying a calculated policy of ethnic cleansing is being carried out by the government. But hope for some help at least for Bangladesh, which has behaved nobly with regard to the refugees despite its own poverty and crowding.
- Continuing stalemate in Afghanistan. The slight increase in US military involvement will help prevent a Taliban victory but hardly make for a win for the Afghan government. The Taliban long has assumed it will win in the end, so for it “reconciliation” means the government capitulating.
- A big new hot spot. Recall Somalia in the 1990s, which went from unimportant to near the top of the US agenda almost overnight. Continuity—a continuing increase in US special operations troops in small contingents in more and more countries—is the best bet. But don’t rule a new hot spot, probably one driven to the top by perceptions of a terrorist threat.
- Crisis with China or Russia. Saving the worse for last, the worst of all would be a Putin miscalculation in the Baltics that took NATO to an Article 5 (an attack on one is an attack on all) crisis. Somewhat paradoxically, Trump’s “bromance” with Putin may make that less likely, just as his deference to China’s Xi over climate and trade may make China more averse to a crisis in the South China Sea or over Taiwan.
US National Security Sector
- Defense spending will increase 10% above the 2017 enacted budget based on the reconciliation of the House (HAC) and Senate Appropriation Committee (SAC) bills—5% more than the President’s request
- Much of the increase will fund overseas contingency operations (OCO), but some will address selected priorities in modernization, operations and maintenance, and force readiness
- The defense market will benefit from having almost all key decision makers in place to allocate resources where needed the most, plus the “system” benefit from improved relationships between key Department of Defense (DoD) decision makers and the cognizant congressional committees—great news for industry!
- The national security apparatus will become more effective due to current appointments and nominations in key decision making positions—all are seasoned executives who understand how to get things done (Mattis, Shanahan, Gibson, Rood, Tillerson, and McMaster)
- The split-up of Acquisition, Technology, and Logistics (AT&L) and resulting emphasis in Research and Engineering, and increased acquisition authority at the service level will catalyze the most significant improvements in acquisition performance seen since the golden era of 1995-2001 (starting with the lightning bolt initiatives and ending with Technology Readiness Levels (TRLs) and Spiral Development); but industry will have to remain patient to see the benefits
International Defense Markets
- President Trump is good for weapons sales, notably helping close a $110 billion arms deal with Saudi Arabia in May. He may not know the details, but his adoration for all things military combined with his desire to close deals overseas will continue to make him a potent ambassador for US defense firms.
- Given the trend toward less regulation and more cooperation between big business and the government, President Trump might catalyze a long overdue overhaul of both the International Traffic in Arms Regulations (ITAR) and the Missile Technology Control Regime (MTCR). A smart reshaping of these will certainly drive more sales, particularly unmanned systems. If unmanned sales do explode, this in turn might underpin the research & development (R&D) necessary to usher in a new generation of systems able to survive in contested environments.
- Qatar has fast become the regional pariah with nine countries severing ties and more under Saudi pressure to do so. Could self-preservation finally shake Qatar’s young leader to stop talking and make decisions when it comes to buying a wide array of in limbo weapons systems?
- In the Kingdom of Saudi Arabia, Crown Prince Mohammad bin Salman (MBS) continues to surprise, firmly leading Saudis into a brave new world. While it’s too early to tell where it will end up, domestic constituents and international observers are cautiously optimistic. Initiatives to fight corruption and professionalize the military, coupled with a rapidly changing military offsets and acquisition strategy, could finally put the Saudis on a path to consistently participate in high-end weapons manufacturing.
- Looking to needs, North Korea’s and Iran’s missiles may be bad for nerves but not bad for THAAD, the US Terminal High Altitude Area Defense. The system had a success last July against a test ballistic missile, and while it has limitations—its radar may be overwhelmed by multiple missiles on different trajectories—the North Korean threat is not that sophisticated either. South Korea has already deployed it. Others, like Japan, will be tempted or build their own.
- By the same token, the Iranian-Saudi proxy war will be bad for the region but not for arms sellers—North Korea and other sanction-busters for Iran, Europe and the United States for Saudi Arabia, and Russian and China filling in gaps where they emerge.
- Nobody wants war, but it’s undeniable that instability is good for defense firms, and there’s plenty of instability to go around. 2018 could be a banner year for international arms deals.
US Industry and Competitive Dynamics
- The top several program priorities of each service will consume any additional modernization budget left over after paying for new urgent needs and cost over-runs.
- The Joint Surveillance Target Attack Radar System (JSTARS)—an incredible and necessary system—will continue to be grist for the big A acquisition grinder as it (like other systems) suffers from misalignment between who pays for it and who benefits from it.
- Under Wes Bush’s leadership, Northrop Grumman has learned to punch above its weight in the world of Lockheed Martin and Boeing; it will become the competitor of most concern to other platform primes.
- Technology services will become a battlefield of the haves and have nots—as Leidos, CSRA, and the newly emerged DXC-Vencore combination leverage their scale to further dominate the federal market; as a result, the platform primes will complete their exit of what was once their hot market.
- We will see a few surprise wins on notable competitions by a large margin, contrary to the relentless trend of the past decade of a narrowing margin between winning and losing; the surprise will be that the wide margins will be driven by customer intimacy and not price!
- We will see at least one contractor unlock the secret of creating value from innovative thinking—the era of buoying stock prices by relentless cost cutting and share repurchases is over.
- Regrettably for us as tax payers, not a single contractor will unlock the potential of mining its own program performance data to drive a culture of excellence in program execution. All will continue to disappoint their customers’ expectations on cost and schedule management
In addition to several cups of New Year’s cheer as an antidote to these 2018 possibilities, some perspective is useful. Terrorism in the United States is frightening but, comparatively, not very lethal. Extremist Islamists killed 94 American between 2005 and 2015, and more than half of those were the work of the Orlando shooter who, despite his deathbed conversion to ISIL martyrdom, was more like the Las Vegas shooter, a sick killer, not a committed terrorist. While you wouldn’t know it from the media, by most accounts we are living in the most peaceful period the planet has known. Surely, deaths from major wars are down dramatically since the period after World War II. And while deaths in conflict seem to have ticked upward in the last several years, population growth means the numbers go up even if the rate of killing does not. In the worst of cases, surely Kim Jong-un must understand through the fog of idolatry that while having nukes may protect him and his regime, using them would be the end of both. And if all else fails to temper the grimness, tune to ESPN where they still hotly debate whether the era of football as America’s pastime is in over, and whether post-touchdown celebration deserves the equivalent of a Heisman now that the staid league finally has permitted a moment of fun for players and viewers.
Greg Treverton left the chairmanship of the National Intelligence Council in January 2017. He has written widely on strategy and intelligence, and served in government on the Hill and on the National Security Council staff. He is an SMA Executive Advisor.
Dave Patterson is SMA Senior Vice President for Strategic Accounts , and the former Principal Deputy Undersecretary of Defense, Comptroller in the Bush ’43 Administration.
Ajay Patel is President and CEO of SMA, Inc., and formerly Senior Partner at the Monitor Group for twelve years, where he created and led its global National Security practice.
John Prior is Vice President of SMA’s Management Consulting practice, and formerly Senior Director at Sonos, Inc., a Principal at Treacy & Company, and Associate Partner at Monitor Group.
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