Vaunted Defense Innovation Unit nearing inflection point

By Briana Reilly / June 13, 2022

The Defense Innovation Unit, known for being the Pentagon's Silicon Valley outreach team, could be headed for a crossroads as it is poised to lose its longest-serving leader at a time when some in Congress -- critical of top military officials' commitment to the highly visible but small-budget organization -- are rallying to boost investment in the outfit.

With Director Michael Brown slated to step down in the coming months, DIU may be facing an uncertain future as it seeks to rebound from a fiscal year 2022 budget that included a more than 20% reduction while military spending neared $800 billion.

Brown, the former CEO of a major software company, was once tapped by the president to be the Pentagon’s acquisition chief but had to withdraw his nomination last year amid an ongoing Defense Department inspector general investigation. He has drawn praise from lawmakers and defense analysts alike over his four-year tenure as he’s worked to raise DIU’s profile and pushed for bureaucratic changes and increased financial backing.

He’s also overseen DIU’s recent expansion into the Midwest with the opening of its Chicago office, a move that is representative of the unit’s continued shift toward a more regional outreach focus.

Despite those efforts, the organization that aims to leverage commercial technologies for DOD continues to operate under a lean budget: DIU logged $103 million in funding in FY-21, followed by $79.3 million in FY-22 -- a sum Brown called “hardly recognizable” amid broader national defense spending. The Pentagon has requested $89.4 million for DIU in FY-23, drawing congressional criticism for being too low.

“I feel like we're a two-lane highway where there needs to be a freeway,” Brown told Inside Defense in a June 2 interview.

“I think we're so small . . . not because somebody said, ‘DIU is not a good idea,’ it’s just that we’re not focused on how to create that freeway from the two-lane road that we have,” he said.

Some lawmakers blame that lack of focus on Heidi Shyu, the Pentagon’s chief technology officer, who drew fire in recent weeks for not acting to scale up investments more quickly in the unit that has initiated nearly 120 prototype projects -- 44 of which have been transitioned to troops -- between its launch in 2016 under then-Defense Secretary Ash Carter and the end of FY-21.

For her part, Shyu, the under secretary of defense for research and engineering, says she backs DIU “100%,” and has promised a bolstered budget in FY-24.

But Brown, set to leave his role in early September when his term as a DOD “highly qualified expert” ends, won’t be at DIU’s helm when the FY-24 budget request is released. Instead, the responsibility of charting a course for the unit’s next phase will fall to his successor.

“What we've done at DIU so far is a start . . . we've gotten some visibility for that,” he said. “But it’s time now to think about how do we more formalize the resource side of that, the process side of that, so that we can build that superhighway of ingesting commercial technology? That was the original idea from Ash Carter, we've shown that it can work and scale it. But we need to do more with that because we need to modernize the department even faster.”

Multiple congressional staffers and former DOD officials interviewed for this story lamented the end of Brown’s Pentagon career, especially the derailment of his nomination to become under secretary of defense for acquisition and sustainment.

Meanwhile, allegations that Brown ignored federal hiring regulations and misused contracting authorities while managing DIU continue to be investigated.

Asked whether the ongoing inspector general investigation overshadowed his work at the unit, Brown said he didn’t think so, though he’s hoping to “see it concluded as rapidly as possible.” He added that DIU has conducted an internal review and found “there’s nothing to the allegations,” though he didn’t share further details to support that assertion.

“I'm very confident that we've operated the way we should have and I'm just looking forward to this being wrapped up quickly,” he said.

The DOD IG’s office declined to comment on the investigation.

Bipartisan push for plus-up

Though lawmakers extracted a pledge from Shyu to up DIU’s budget in FY-24, the question of where Congress will set spending levels for the organization in the interim remains open.

Confident that DOD will deliver “robust support for DIU” in next year’s request, Rep. Jim Langevin (D-RI), the outgoing chair of a key House Armed Services panel, told Inside Defense that lawmakers “look forward to bridging the gap to that higher funding level.”

But he declined to name the funding level the defense policy bill may recommend, saying only: “Surely, [if] there’s a way to increase support for DIU, I want to find a way to do it.”

Langevin said there is a “strong case” to be made that DIU is being “artificially constrained” because of a lack of funding.

“[W]e want to bring it to a level of funding that is robust and adequate to meet the mission,” he said in a May 26 interview.

Langevin was among the members of the House Armed Services Committee’s cyber, innovative technologies and information systems panel who questioned Shyu about senior DOD leaders’ support for DIU during a May 12 hearing. At the time, Reps. Seth Moulton (D-MA) and Jim Banks (R-IN) also sought to gauge the level of commitment toward the unit, as well as its path forward in light of Brown’s forthcoming departure.

“It's been Congress, not the department, that has repeatedly pushed investment in DIU and innovation,” Moulton told Shyu last month.

Ahead of the hearing, Moulton and Banks called on congressional appropriators to “dramatically” increase the outfit’s budget, endorsing DOD’s request for a nearly 13% increase in spending over FY-22 levels for DIU in an April 19 letter that was shared with Inside Defense.

But that boost is nowhere near the tenfold funding increase the pair recommended in 2020 for DIU and other “successful innovation efforts” within DOD as part of their leadership of the House Armed Services Committee’s “Future of Defense” task force.

Shyu told lawmakers that by the time of her confirmation last July, “the budget was pretty much baked,” giving her little chance to change DIU’s spending levels.

“My opportunity to influence is this year in FY-24,” she said during the hearing. “So, you'll see a much stronger request for funding for FY-24.”

Going forward, Shyu sees DIU’s “biggest challenge” as moving commercial prototypes from development and production through the acquisition process -- and it is experience with both sides of that transition that she wants to focus on when searching for the unit’s next leader.

Praising Brown’s work to bring DIU “to a whole new level” over his tenure, Banks said during the hearing he hopes to see a successor embody Brown’s knowledge and experience, noting the panel “treasures” his work.

In an interview, Moulton said he is disappointed that Brown as director has had to focus on “advocating for the critical role [that DIU] plays in our national security.”

“The fact that Director Brown has had to spend so much time and effort simply ensuring the organization survives again points to the reality that leadership hasn’t made this enough of a priority,” he told Inside Defense.

Mike O’Hanlon, a Brookings Institute analyst, voiced a more contrarian view.

“Boosting it tenfold seems more of a sweeping wave of the arm than an analytical result,” he wrote in an email. “We already do have a number of innovation efforts, at the national labs and with DARPA, etc. Not to mention Futures Command in the Army and the best military R&D system in the world. But I still favor DIU as a (modest) additional way to bring in more actors, players, and ideas. Not sure it should in fact be scaled up; that attitude/approach may actually sort of miss the whole point (of being an incubator and seeder of ideas).”

Systems ‘built for inertia’

Though DIU has drawn a significant spotlight over the years, it’s just one innovation team within a vast military that’s home to various service-level efforts seeking to engage with nontraditional businesses, ranging from AFWERX to NavalX to the Army Applications Laboratory.

The attention paid to the DIU, an organization operated out of the Office of the Secretary of Defense, comes as service officials are trying to strike a balance between sustaining legacy weapon systems and funneling resources toward new and emerging capabilities.

Within that context, Raj Shah, one of the first leaders of DIU who now heads a cybersecurity startup, sees “a disconnect” between senior leaders’ stated commitment to innovation compared with the steps taken to foster it, such as canceling existing programs or changing how DOD does business.

“It's easier to say ‘innovation’ than actually do it because it requires tradeoffs and hard choices and the system is built for inertia, essentially,” he said in a June 3 interview.

Brown told Inside Defense that DIU stands out from the other DOD entities dedicated to innovation because they rely on the Small Business Innovation Research program as the mechanism for working with companies, while the unit isn’t constrained in the same way.

Instead, Brown said, DIU’s use of research, development, test and evaluation dollars allows “us to move more quickly into production and fielding capabilities from companies that might not be small businesses but can be very relevant to the department.”

Still, the unit faces process constraints that Shah said deny DIU the flexibility it needs to “work with different types of companies that move a lot quicker, particularly when you think about software and AI.”

Brown, as part of his “fast follower” strategy, has advocated repeatedly for expanding the avenues to bring commercial technology into the department, calling for changes in the requirements process that involve creating a framework to validate what’s needed, rather than dictate to companies what they should build.

One potential vehicle for reviewing and introducing those changes is a new commission created by Congress in the FY-22 National Defense Authorization Act dedicated to overhauling the Pentagon’s decades-old planning, programming, budget and execution approach.

Among the panel’s appointees is Shah, who said he’s bringing a focus on software, agility and nontraditional vendors to the group, as well as questions about how to “think about capabilities versus specific requirements” and ensure that officials have “the flexibility to adapt to changing technology” while continuing to be held accountable by lawmakers.

‘Canary in the coal mine’

Bill Greenwalt, a non-resident senior fellow at the American Enterprise Institute who previously served as DOD’s head of industrial policy and as a Senate staffer, said he believes DIU is “the canary in the coal mine warning of what is wrong with our defense innovation system.”

“Things are not looking good,” he said. “We are not innovating at speed or otherwise and the forces of the acquisition status quo are winning. This means we are doubling down on a linear, bureaucratic, risk-averse and time-intensive system that puts us at greater risk to being outmaneuvered by China’s embrace of commercial technologies and its dominance of advanced manufacturing.”

Greenwalt, who was a Senate Armed Services Committee staffer when then-Defense Secretary Ash Carter founded DIU, said he believed the former defense chief had a good idea but “he and his successors underestimated what it would really take to partner with Silicon Valley and non-traditional commercial industries and never expended the political capital to overcome the inevitable countervailing forces to reform.”

Greenwalt said he believes DIU has “been actively sabotaged from its inception,” citing government bureaucracy and forces from the private sector.

“It has suffered from a lack of funding and flexibility to support non-traditional experimentation and the scaling of technologies, an acquisition bureaucracy stuck in a 1970s mindset, and a monopolistic entrenched defense industry that does not want to see the emergence of any new SpaceX’s to threaten existing weapons franchises,” he said.

Alex Gallo, executive director of the Common Mission Project, a non-profit that works with DOD’s National Security Innovation network on the Hacking4Defense program and other initiatives, said he believes the Pentagon is a long way from the transformation required to sufficiently tap into non-traditional sources of defense technology.

“The central question is what is the paradigm the department is going to operate within?” he said. “Are they going to operate within a legacy paradigm or an innovation-based paradigm?”

In Gallo’s view, DOD continues to choose a legacy approach, mainly because it has not aggressively funded the transition of experimental technologies into production contracts. Commercial companies that might be interested in doing business with DOD, he said, reach a “valley of decision” -- in which they must decide to keep pursuing government work -- well before they reach a “valley of death” and risk going out of business.

“If the government doesn’t use its buying power to buy and iteratively test these companies and their capabilities and technologies against validated problems, they will eventually say, ‘I have to go commercial to become market-viable because the government and DOD is not a market-viable thing,” he said.

To get there, Gallo said he hopes the next phase of DIU will be stewarded by someone who is as familiar with Washington policymaking as they are with technological innovation.

“Mike Brown was absolutely the right leader for the job during this period,” he said. “But for where things are going? Mike Brown is a Silicon Valley guy at the end of the day. Really what we’re finding is innovation is a D.C. fight. I think the director of DIU in the future may need to know as much -- if not more -- about D.C. than Silicon Valley. You really need someone who understands the value and impact of defense innovation, but also someone who deeply understands how the D.C. policymaking process works. I think that what we’re finding with this DIU experiment since 2015 is that it is really going to require a bureaucratic in-fighter.”