The U.S. military has historically been an important investor in transformational technologies, but this model faces challenges from a less innovative and more concentrated defense industrial base. This paper examines reforms to the Air Force Small Business Innovation Research (SBIR) program, which are part of an effort to address these challenges by bringing new firms with frontier technologies into the defense market.
The “Open topic” reform takes a bottom-up approach to innovation, encouraging a broad set of ideas. This contrasts with the traditional “Conventional topics,” which solicit highly specific technologies in a top-down approach. We show that the Open program attracts new entrants (younger firms and those without previous defense SBIR awards).
In a regression discontinuity design that offers the first causal evaluation of a defense R&D program, we show that winning an Open award increases future venture capital investment, non-SBIR defense contracting, and patenting. These treatment effects are driven by new entrants. Conventional awards have no effects on these outcomes but do increase the chances of future defense SBIR contracts, creating a kind of persistent dominance. The results suggest that government (and perhaps private sector) innovation could benefit from more bottom-up, decentralized approaches that reduce barriers to entry, minimize lock-in advantages for incumbents, and attract a wider range of new entrants.
I usually don’t like quoting abstracts, but that was an interesting one from Nov 2020 paper, Opening up Military Innovation: An Evaluation of Reforms to the U.S. Air Force SBIR Program from Sabrina T. Howell, John Van Reenen, Jun Wong, and former Acquisition Talk guest Jason Rathje. There’s tons of data and discussions throughout, so it’s hard to excerpt.
One major issue in my view is that when government defines the requirement, it leads to a narrowly specified market research stage that hones in on incremental change with incumbent primes. The sequence is flipped with open or broad topics. The government starts with an ongoing process of market research, understanding the investment in commercial fields dwarf DoD’s own. Then, from early stage contracts like SBIR, the integration into a military mission generates the data and requirements to make decisions as to scale or field the disruptive product.
I’m a bit surprised the authors didn’t mention commercial solutions openings (CSOs) or broad agency announcements (BAAs), which enable a similar opportunity for open topic solicitations. Indeed, AFWERX utilized CSOs quite a bit using SBIR funding. Perhaps the authors wanted to focus on the concept rather than specific implementation.
Here’s an interesting part:
… between 1976 and 2019, 225 companies consolidated into just six. Remarkably, the dollar share of total defense contracts that these firms have won, shown in the grey area, has stayed fairly constant over the years at roughly 35%. The value of these contracts increased from around $70 billion (in 2019 dollars) for the 225 companies in the late 1970s to $115 billion awarded to just six companies in 2019. The remaining 65% of contracts did not become more dispersed and the total number of remaining contractors declined slightly over this period.
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