We have previously reported that the challenge is  finding the right balance between developing breakthrough or “disruptive”  technologies—those considered to be innovative—and investing in  moderate, “incremental” technology enhancements. Leading Companies Foster Innovation by Investing in Both Near- and Long-Term R&D and Taking Steps to Prove New Technologies Work

Selected leading companies that we reviewed follow six key practices that  together reflect a disciplined approach to managing their R&D activities— those akin to DOD’s S&T activities. 2. Technology and product development teams at Honeywell Aerospace, for  example, complete an annual roadmapping process to align incremental  technology development activities with the company’s product plans. DOD Implements Some Practices Used by Leading Companies, but Policy Limitations and Culture Hinder Adopting Others

While some DOD S&T practices closely mirror those of the selected  leading companies we reviewed, DOD’s funding policies and culture limit  its ability to adopt other practices for managing its S&T investments. Unlike the companies we reviewed, DOD does not organize and fund  incremental and disruptive innovation separately. Nor does its leadership  provide guidance on or assess how these innovation investments should  be or are mixed. As a result of DOD funding policies,  projects are planned 2 years in advance, which can slow innovation and  limit lab directors’ autonomy to initiate work. While Congress has provided  authority that, as implemented, has enabled the military department lab  directors to initiate work outside of the normal lengthy process, DOD has  not fully utilized these flexibilities. Additionally, we found that divided  responsibilities for technology versus product development contribute to a  culture that does not encourage collaboration between DOD’s S&T and  acquisition communities and limits the S&T community’s ability to conduct  advanced prototyping. These issues are not insurmountable, however, as  demonstrated in pockets of each military department. In recognition of  these and other issues, Congress has required that DOD create a new  Under Secretary of Defense for Research and Engineering charged with  advancing defense technology and innovation and establishing policies  on technology development, prototyping, and experimentation, among  other responsibilities, by February 2018. Military Departments Do Not Define in Strategy or Assess the Mix of Investments in Incremental and Disruptive Innovation

Although our review of selected leading companies found that they define  in strategy their annual mix of investments in incremental and disruptive  innovation, the military departments do not do this, nor do they assess  such a mix. The fiscal year 2017 NDAA requires this position to be created by  February 2018. To ensure that DOD is positioned to more comprehensively implement  leading practices for managing science and technology programs, we  recommend that the Secretary of Defense direct the new Under Secretary  of Defense for Research and Engineering to define, in policy or guidance,  an S&T management framework that includes the three following actions: emphasizes greater use of existing flexibilities to more quickly initiate  and discontinue projects to respond to the rapid pace of innovation;  incorporates acquisition stakeholders into technology development  programs to ensure they are relevant to customers; and promotes advanced prototyping of disruptive technologies within the  labs so the S&T community can prove these technologies work to  generate demand from future acquisition programs. Below are  descriptions of the eight companies featured in this report. To identify the extent to which DOD can employ these leading  commercial practices, we interviewed officials responsible for the  management, execution, and oversight of DOD’s S&T enterprise. We  compared and contrasted those practices with the practices identified  through our meetings with leading commercial companies to determine  the extent to which DOD is employing these practices.
Why GAO Did This Study

DOD relies on innovative technologies to ensure the superiority of its weapon systems and planned to invest about $12.5 billion in fiscal year 2017 to achieve this aim. Recently, DOD's leadership role in fostering innovation has been supplanted by the commercial sector. This has changed DOD's approach to technology development by relying more on commercial innovation.
Conference Report 112-329 included a provision for GAO to review DOD's S&T enterprise. This report assesses (1) the practices leading companies employ to manage technology development and (2) the extent to which DOD can incorporate these practices into its own. GAO interviewed eight large, profitable, leading technology companies (Amazon, Dow Chemical, Honeywell, General Motors, IBM, Qualcomm, Siemens AG, and Valvoline) to identify practices they used to manage, prioritize, and assess their technology portfolios. GAO also met with DOD organizations that manage and execute S&T funds to identify their practices.

What GAO Found

The eight leading companies whose practices GAO assessed take a disciplined approach to organizing and executing their technology development activities by grouping them into two portfolios: incremental and disruptive, as shown in the figure. Incremental development improves product lines whereas disruptive development is for riskier innovative and potentially market-shifting technologies.
By separating these two portfolios, companies reported that they could promote existing product lines in the short term while exploring opportunities to remain competitive in the long term, and mitigate the financial risk associated with disruptive technology development. Moreover, GAO found that leading companies also ensure technologies will be relevant in the marketplace by engaging a wide range of internal stakeholders. These companies also reported that they gain leadership buy-in by prototyping technologies before committing to further development and product integration.
While some Department of Defense (DOD) practices closely mirror those of the companies GAO reviewed, DOD's ability to adopt leading commercial practices in its approach to managing science and technology (S&T) investments is limited by its funding policies and culture. Unlike the companies GAO reviewed, DOD leadership does not provide guidance on or assess the mix of incremental and disruptive innovation. As a result, officials reported that DOD labs struggle to find the right balance between these investment areas. Under DOD's budget policy, projects are planned up to 2 years in advance, which can slow innovation and limit lab directors' autonomy as compared to companies. Congress has provided a means for lab directors to initiate work outside of this lengthy process, but it has not been fully utilized. Additionally, responsibilities for technology versus product development also contribute to a culture that discourages collaboration and limits labs' ability to prototype. Yet these issues are not insurmountable, as pockets of each military department have demonstrated, such as through recent efforts to expand advanced prototyping in the labs. Further, Congress has required that by February 2018 DOD create a new Under Secretary of Defense for Research and Engineering (USD(R&E)), which will be charged with developing policies to improve innovation. This position creates an opportunity to develop policies that further promote adoption of leading commercial practices.

What GAO Recommends

GAO recommends that DOD annually define and assess the mix of innovation investments and define, in policy or guidance, an S&T management framework that comprehensively employs leading commercial practices. DOD did not agree with the recommendations, citing its ongoing deliberations on the new USD R&E's role, but did identify some planned actions. GAO believes its recommendations are valid as discussed in the report.