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The Defense Innovation Ecosystem
January 8, 2025
A wide range of authorities, programs, and organizations
across the U.S. government support and manage
technological aspects of national defense. In particular,
such efforts seek to preserve or expand the defense
innovation ecosystem-the set of organizations, activities,
functions, and processes that develop, produce, and field
new or improved technologies and capabilities for military
use.
Historically, the Department of Defense (DOD) has heavily
influenced the trajectory of global technology development,
largely because of the magnitude of its investments in
research and development (R&D). However, DOD and the
federal government, more broadly, are no longer the
dominant funders of global R&D. From 1960 to 2020, the
federal government's share of global R&D fell from 45% to
6%. Today, private sector R&D investments, which account
for nearly three-quarters of global R&D, and commercial
markets drive much of the development of leading-edge
technologies in fields such as artificial intelligence,
robotics, advanced materials, and others important to
national security and defense. This shift has substantial
implications for how DOD maintains technological
superiority. DOD's challenges include developing or
modifying its organizations and business models to acquire,
adapt, and leverage commercial technologies for defense
applications, especially critical and emerging technologies.
Examples of DOD nnovation-Reiated
Organizations and Programs
Congress and the executive branch have undertaken a
number of actions to improve the defense innovation
ecosystem, including providing policy direction and
establishing new innovation-related positions,
organizations, and programs within DOD, some of which
are described below.
Defense nnovation Unit
Created in 2015 by the Secretary of Defense, the Defense
Innovation Unit (DIU) focuses exclusively on prototyping
and fielding dual-use commercial capabilities that solve
operational challenges across the U.S. military. DIU is
currently focused on the following technology areas:
artificial intelligence, autonomy, cyber, energy, human
systems, emerging technology, and space. DIU has offices
in California's Silicon Valley; Boston, MA; Austin, TX;
Chicago, IL; and Washington, DC.
Since creating DIU, Congress has increased its authority.
The National Defense Authorization Act (NDAA) for
Fiscal Year 2024 (P.L. 118-31) codified and expanded the
responsibilities of DIU. For example, it directed DIU to
serve as the principal liaison between DOD and individuals
and entities in the national security innovation base,
including entrepreneurs, start-ups, commercial technology
companies, and venture capital sources. It also directed DIU
to coordinate and harmonize the activities of other
organizations and elements of DOD on matters relating to
commercial technologies and to use funds made available to
the agency to select, support, and monitor the execution of
projects that will be carried out by service-level innovation
organizations (e.g., AFWERX).
In a February 2024 report, DIU Director Douglas Beck,
outlined a plan for DIU 3.0-the next evolution of the
agency. After demonstrating that commercial technology
can solve defense innovation problems, the report states
that DIU must now ensure that [DOD] can leverage the
best of commercial technology and innovation at speed and
scale to deter major conflict or win if forced to fight.
DIU is leading DOD's Replicator initiative-an effort to
field thousands of all-domain autonomous systems within
18 to 24 months. Exemplifying the aims of DIU 3.0, the
initiative seeks to develop an accelerated process within
DOD for rapidly scaling, fielding, and delivering
operational capability.
Office of Strategic Capital
On December 1, 2022, Secretary of Defense Lloyd Austin
established the Office of Strategic Capital (OSC), which
seeks to accelerate and scale private investment in critical
supply chain technologies needed for national security.
Section 903 of P.L. 118-31 formally established OSC to
(1) develop, integrate, and implement capital investment
strategies proven in the commercial sector to shape and
scale investment in critical technologies and assets; (2)
identify and prioritize promising critical technologies and
assets that require capital assistance and have the potential
to benefit [DOD]; and (3) make eligible investments in such
technologies and assets, such as supply chain technologies
not always supported through direct investment. P.L. 118-
31 also authorized OSC to carry out a pilot program ... to
provide capital assistance (i.e., loans and loan guarantees)
in support of its mission.
On March 8, 2024, OSC released its first investment
strategy. Then, in September 2024, OSC announced the
availability of up to nearly $1 billion for direct loans (each
ranging from $10 million to $150 million) to finance the
modernization of manufacturing equipment in covered
technology categories listed at 10 U.S.C. §149(e)(2) (e.g.,
quantum computing and advanced manufacturing).](ViewImageLocal?handle=hein.crs/goveryn0001&div=1&collection=&method=preview&ext=.png&size=3)
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