Department of Defense Strategy Aims to Support Critical Facet of Defense Industrial Base

The United States faces unprecedented national security and economic challenges. Strategic competitors seek to displace the US military as the world’s preeminent force, the COVID-19 pandemic and impacts from climate change have exposed fragility in critical supply chains, and consolidation in the defense marketplace has undermined the competition and innovation needed to provide the best systems, technologies, services, and products to support the warfighter. These vulnerabilities especially threaten capital-strapped small businesses, which represent a majority of prime- and sub-tier defense suppliers. As part of its efforts to support this critical facet of the industry, the Department of Defense (DOD) has released its Small Business Strategy. This Strategy outlines strategic objectives that will enable the DOD to expand and strengthen its relationship with small businesses and better leverage their capabilities to help solve the Department’s and our Nation’s most complex challenges. 

THE IMPORTANCE OF SMALL BUSINESSES
It is imperative for the Department to focus on small business. These innovative companies account for 43 percent of all high-tech jobs in the US and generate sixteen times more patents than large firms. Small businesses spur innovation, represent most new entrants into the Defense Industrial Base (DIB), and through their growth represent the next generation of suppliers with increasingly diverse capabilities. Small businesses are agile and often can implement change more quickly than larger firms. In Fiscal Year (FY) 2021, small businesses made up 73 percent of all companies that did business with DOD and 77 percent of the research and development (R&D) companies that did business with DOD. One high-profile example is Moderna, a former small business and Defense Advanced Research Projects Agency (DARPA) grant recipient that produced millions of mRNA vaccines to help fight the COVID-19 global pandemic. Without small businesses, the vital engine of growth for the United States industrial base would cease to exist. 

“Small businesses help ensure that our military has the very best capabilities to keep us safe. Some of the most innovative minds in the country come from smaller companies, and in an era of strategic competition small businesses are one of our greatest tools. Despite their significance to the defense mission, the Department of Defense has yet to utilize the full potential of small businesses,” read a message by Secretary of Defense Lloyd J. Austin III. “This Small Business Strategy outlines a Department-wide plan to harness the power of America’s small, innovative, and agile companies and grow their contributions to the defense mission.”

SMALL BUSINESS CHALLENGES
Despite their importance to the Department, small businesses face various obstacles in helping DOD meet its challenges. Regulations and business practices can be difficult to understand or otherwise create barriers or increase the cost of doing business with DOD. Larger, better-resourced companies are better able to navigate these obstacles and address these costs than smaller businesses. Some of these barriers include confusing points of entry into defense markets, improper bundling and consolidating of contracts, and understanding complex regulations. These barriers strain the relationship between the Department and small businesses. 

In combination with economic conditions leading to a consolidating DIB, these barriers have contributed to a reduction of small businesses in the DIB. Although the Department has achieved its small business prime contracting goal for the past eight years, the number of small businesses participating in the defense industrial base has declined by over 40 percent in the past decade. Over time, a decline in the number of small businesses participating in defense acquisitions will lead to a reduction of innovative concepts, capabilities, quality of service, and increased acquisition costs.

DOD ACTIONS & INITIATIVES
Through recognizing these vulnerabilities now, the Department can respond with targeted initiatives that leverage diverse small business suppliers to strengthen our domestic supply chains, reduce reliance on single or sole sources of supply, and help ensure the United States continues to lead in innovation. By adjusting to macroeconomic trends and understanding that the Department must take action to encourage more small businesses to work with the Department, DOD can implement appropriate strategies to expand use of small businesses. 

Increasing small business participation in defense acquisitions is critical. Expanding participation will keep DOD at the forefront of innovation, while simultaneously fostering increased competition that can reduce costs for high quality capabilities. It will also ensure that the Department continues to leverage the untapped potential of disadvantaged-, women-, and veteran-owned small businesses that have historically been underutilized. As the Department aims to maintain the technological edge, small businesses are key. 

These small business efforts are a critical part of implementing the Department’s broader industrial base priorities, which directly support and align with the priorities of the President. These priorities include ensuring robust domestic capacity and capabilities to meet our national security challenges, promoting competition in the procurement process to benefit from improved costs, performance, and innovation, and advancing equity and inclusion in defense acquisition to leverage the unique talent and ideas that come from diverse communities from across the country. Success of implementing these priorities relies on small businesses being drivers to generate these outcomes. 

DOD’S SMALL BUSINESS STRATEGY
The Department of Defense built its Small Business Strategy around three strategic objectives. First, improve management practices by sharing best practices and creating efficiencies across the enterprise for small business activities and programs. Second, ensuring that small business activities within DOD better support national security priorities. And third, strengthening the Department’s ability to engage and support small businesses. Implementing this strategy will make the DIB more innovative, resilient, and effective, producing a Joint Force that is better equipped to execute its mission. 

The strategy heavily relies on the Department’s own continued push for excellence. Numerous existing small business initiatives have made incredible progress in addressing these issues. For example, the Department of the Air Force’s Open Topic Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) Programs have successfully brought first time applicants into the DOD. This strategy seeks to uncover similar pockets of excellence, share best practices, develop policy, distribute guidance, and establish initiatives, as appropriate, to continue to accelerate the Department’s ability to partner with and benefit from America’s small business base.

STRATEGIC OBJECTIVE 1:
Implement a Unified Management Approach for Small Business Programs and Activities
The Department’s small business programs, activities, and workforce are distributed across the Military Services, Defense Agencies, and field activities (DOD Components), including Components of the Office of the Secretary of Defense (OSD). This distribution, although beneficial in some areas, also often leads to confusion for small businesses as to what the entry points are, how programs and initiatives connect to each other, and how a small business can or should utilize DOD’s various small business programs to mature their capabilities from prototype to full-scale integration or to diversify the goods and services they provide to DOD. To address these issues, DOD will develop and implement a unified management structure for DOD small business programs and activities, develop a unified small business professional workforce, and streamline entry points, and improve small business access to decision makers.¹ 

STRATEGIC OBJECTIVE 2:
Ensure the Department’s Small Business Activities Align with National Security Priorities
National security concerns are a primary force guiding the Department’s military and defense objectives. Accordingly, national security concerns should guide the Department’s activities with respect to the small business industrial base. To build enduring advantages and get the technology we need more quickly, DOD must have access to a healthy small business industrial base with broad capabilities to produce parts and systems, secure supply chains, and access a skilled workforce. Presidential executive orders to promote competition,² foster supply chain resiliency,³ and advance equity⁴ also put small business at the nexus of the nation’s economic and national security priorities. Attending to commercial trends is critical, as today’s innovative companies have many choices for capital, are not reliant on defense spending, and, therefore, have other options for how to do business. These trends may lead to adverse incentives that inhibit the Department’s ability to access America’s most innovative minds, and potentially impacting DOD’s ability to achieve national defense priorities. The Department must, therefore, take action to entice small businesses into the defense marketplace, while simultaneously taking into account their commercial growth objectives. The Department will ensure small business activities are carried out to further national defense priorities through efforts to stabilize and scale existing programs that help small technology and manufacturing businesses deliver capabilities to the warfighter, utilize data tools to understand and expand small business participation and spending, and expand policy and process engagement of small business professionals and senior leaders on small business matters. 

STRATEGIC OBJECTIVE 3:
Strengthen the Department’s Engagement and Support of Small Businesses
For the Department to effectively support small businesses, DOD must improve its ability to meaningfully engage with small businesses including firms from critical socioeconomic categories and underserved communities. The Department must also ensure that its operational and acquisition leadership continues to recognize the abilities of small business to support the defense mission, and that small businesses can understand and access the Department’s most current initiatives, efforts, and policies. Furthermore, DOD should provide training and other resources to help educate small businesses and enhance their ability to resist cyber threats, IP infringement, and foreign ownership, control, or influence. These efforts help reduce the vulnerability of the DOD’s supply chain. The Department will advance these efforts through strategies to improve outreach and communication with small businesses, provide cybersecurity training and resources to small businesses, and educate small businesses.

1 Section 4901 of title 10, United States Code (U.S.C.); Section 861(b) of the William M. (Mac) Thornberry National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (Public Law 116-283); Department of Defense Instruction (DoDI) 4205.01 “DoD Small Business Programs (SBP)” (August 2018); DoDI 5134.04 “Director of Small Business Programs (SBP)” (December 2017). 

2 Executive Order (E.O.) 14036 “Promoting Competition in the American Economy” (July 2021). 

3 E.O. 14017 “America’s Supply Chains” (February 2021). 

4 E.O. 13985 “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government” (January 2021).