Delivering the SDR: The UK MoD Challenge

Introduction

Anirudh Suneel: The upcoming Strategic Defence Review will provide important guidance, but there are fundamental challenges the MoD needs to address regardless of its recommendations. Could you outline what you see as the most critical pillars?

Richard Spencer: There are some knowns and some unknowns. We know we’re going to get a budget increase to two and a half percent of GDP by 2027. We know about the National Wealth Fund that’s becoming available, though it’s unclear whether it will go to the MoD, to industry, or to both. So, we know there’s going to be more money.

The unknown is exactly where it will be spent, which the SDR will signpost. But irrespective of that, there are certain things that Defence has to get better at to ensure additional funding is used more efficiently than it has been so far.

From my perspective, there are three key areas for improvement. First is decision making. How do we get comfortable with delegating within the organisation and allowing decisions to be made at lower levels? This would enable quicker decisions, helping industry to start building capabilities faster.

The second area is skills. Does Defence and government have the right skills, particularly in acquisition and especially in the digital world. Are we in a position where we have the right people inside the civil service and military who can make the right decisions quickly and be trusted to do so?

The third element is how do we improve the relationship between industry and MoD to enable quicker “flash to bang” activities? The Defence CIO talked about wanting to get capabilities into users’ hands quickly. That’s great, but we need commercial staff with the right skills and frameworks to work effectively with both the big primes building ships and aircraft, as well as smaller, digitally focused companies working on technologies like autonomy.

The challenge is turning small scale capabilities in users’ hands into larger scale, army and Defence wide capabilities ensuring innovation stops being a “side hustle” and becomes the pathway from small capability to large capability.

Evolving the Decision Making Construct

Anirudh Suneel: You’ve touched on decision making structures. How might we balance the need for proper governance of taxpayer money and the management of organisational and operational risk, against the imperative for quicker, more responsive decision making?

Richard Spencer: The challenge is to establish the minimum viable process that ensures proper governance while enabling speed. At the highest level, senior leaders should allocate funding through the four members of the quad and determine how it cascades down, aligning national strategy through military and Defence strategy to outcomes.

The problem is that expensive items automatically go back to the top for approval, rather than being evaluated against established frameworks. If a proposal aligns with the agreed strategy and fits within allocated budgets, the decision should be made lower down, speeding up the process.

If you consider how the military operations work, mission command is all about delegating to individuals. A battlegroup commander needs to understand what the brigade and divisional commanders are doing, what their plan is, and their part in that plan. They’re then trusted to execute unless something changes, and even then they have freedom, within clear constraints.

We need the same attitude in procurement, of people feeling empowered and owning the problems they’ve been assigned. Currently, as soon as you look up for approval, you end up with decisions being made by people who have to be extensively briefed because they may lack the day-to-day understanding of the issues.

Anirudh Suneel: How has this affected the efficiency of the procurement system over time?

Richard Spencer: Over time, Defence and government have added more and more layers of assurance and scrutiny, making the system less responsive and agile. I believe we spend more on checking that we’re doing things ‘right’ than we would lose by doing less checking. Not everything needs the same level of scrutiny; we need to trust and empower our best people.

Refresh the Talent Strategy

Anirudh Suneel: Turning to skills, particularly in technical domains, how do you see the MoD addressing its skills gap compared to the private sector, especially given compensation constraints in the civil service and military?

Richard Spencer: Having worked with someone from the banking sector, their approach was the opposite of Defence’s. In Fintech, they ensure their high-priced talent, i.e. lead solution architects, enterprise architects, chief engineers, portfolio managers are all permanent staff. These are their crown jewels who understand how everything links together to achieve the overall outcome. They outsource the actual coding and building, often abroad.

Defence, particularly in digital and technology acquisition, has this the other way around. Part of the issue is that they can only afford people earlier on in their careers or individuals who lack the full qualifications for a given role as permanent staff. Looking at my time in Defence Digital, we attract well at the low end with good graduate and apprentice schemes, but these people typically stay for 3-5 years at most. As they approach 30, wanting to settle down and buy homes, they realise they can earn more elsewhere, often working back into Defence as contractors earning more.

At the other end, we get many people at the end of their careers who’ve made good money outside and can now afford to work for what Defence pays at the senior level. There’s something wrong with a model that attracts but doesn’t retain the best talent, especially when we have such interesting work.

Anirudh Suneel: How might we address the compensation challenges while acknowledging budgetary and policy constraints? Does the “mission” sufficiently bridge the gap?

Richard Spencer: The “mission” certainly counts for something. We’re not a bank; we’re about protecting the nation and helping it prosper. We shouldn’t necessarily pay market benchmark for skills and seniority, but we should be far closer than we currently are.

The Government Commercial Service has introduced pension sacrifice for more cash today, which helps with things like getting mortgages. There are models like this we could adopt, and from the press it looks like the Cabinet Secretary is reviewing this as we speak.

Another issue is that technology attracts really good wages, particularly in software. If we changed how we’re allowed to remunerate individuals as permanent staff, maybe introducing some jeopardy so it’s no longer a job for life, but perhaps 4-5 year fixed term appointments, this would allow people to really invest in roles while giving projects and programmes more continuity.

Currently, when you have programs that are more than 50% contractor staffed maintaining continuity becomes extremely difficult, when for good reason you need to recompete the provision of this contractual support.

Better align procurement to outcomes

Anirudh Suneel: The third area you mentioned was industry relationships. How do we foster better engagement with all segments of industry, especially as we increase our acquisition of digital, attritable, and other non-traditional capabilities from a wider and very different looking set of industry players?

Richard Spencer: There’s a balance to understand here. While some things are changing, not everything is. People might say Ukraine represents a completely different kind of war with the significant use of drones and other modern technology, but my great grandfather who fought in WWI would recognise some of the close combat fighting happening there. Tanks are still doing a critical job in Ukraine.

So, we still need some “hard metal”, and we need individuals and equipment to occupy ground because that’s ultimately what this is about. We need to keep legacy heavy metal providers in business while also integrating newer capabilities to find the right balance.

Defence hasn’t yet fully understood how to work with newer technology providers and how to blend disruptive autonomous technology with current combat doctrine. The question becomes: how do you enable these capabilities to work together without being mired in both technical and commercial complexity?

Anirudh Suneel: Overspecification has been a hallmark of Defence acquisition, but what risks does this drive into the system now, and do better options exist?

Richard Spencer: The MoD has often over specified capabilities. In the first iteration of Bowman communications equipment, they specified the exact chipset for the data terminals. Some terminals were delivered 4-5 years after the first one, by which time those chipsets weren’t made anymore, and Moore’s law meant newer ones exponentially better. We penalised ourselves.

Defence needs to be better at contracting for outcomes rather than specifications to drive different behaviors with industry. Being less specific in certain areas while being clear on what good looks like is critical. It’s a challenging contract to write.

The MoD’s commercial staff tend to over specify because they view it as a win-lose situation, whereas what you need is to give industry clear outcome or user requirements, incentivise them to get it right, and reward them when they do. That’s a proper win-win situation.

Our current approach can seem adversarial rather than collaborative, partly because English law is adversarial. Any big project will tell you that you need partnerships and good relationships; it’s about win-win, not win-lose. This needs clear buy in from both parties to the contract and Defence Industry, current and new, needs to play a key role in this.

Anirudh Suneel: Is this something that is being considered?

Richard Spencer: These strategic industrial questions should be where senior Defence and government leaders focus. The National Armaments Director will need to look outward and across Defence Security, examining what’s the right strategy for the UK Defence enterprise and broader European Defence. What do we need for sovereignty? And where sovereignty isn’t required, where can we collaborate?

When it comes to requirements, we need to shift our thinking. The contract should cover more of the user requirements focusing on outcomes, not specifications. If you put a cavalryman in charge of a program to kill tanks, you’ll get a tank. If you put an infantryman in charge, you’ll get a shoulder fired anti-tank weapon. If you put an airman in charge, you’ll get an aircraft. This once more touches on Mission Command, which expects individuals to understand what they need to achieve and be left to work out how for themselves, within constraints.

What you need are people thinking differently, challenging Defence to articulate the outcome they want, i.e. the ability to overmatch an adversary with specific capabilities. The Ukrainians think through this daily and iterate drone technology on fortnightly cycles. The challenge is doing that in peacetime, when there’s less urgency and more risk aversion.

Anirudh Suneel: Tough to touch on “disruption to traditional acquisition” and not feel obliged to mention Anduril. How do we balance innovation and savings today, against long-term security and the prosperity of UK plc when it comes to new players like Anduril, who are putting their own money into R&D and rapidly bringing minimum viable products to Defence customers?

Richard Spencer: The Anduril model presents an interesting shift. Historically, the MoD funded R&D and then bought capabilities back from the companies they funded. Anduril and similar companies are investing their own money, building around loose mission requirements, and bringing MVPs for the MoD to evaluate.

There is much to admire and get excited about with the Anduril approach, but we need to consider the broader implications. If we shift to buying everything from these new players, we might lose sovereign industrial capabilities. If we take something from a company and end up in a situation where everything’s automated through a third-party satellite provider who could potentially turn everything off that’s problematic.

We need to think about second and third order consequences, not just for military capability but for the industrial base. The decision in 2008 to establish the complex weapons pipeline with MBDA was because if we take a pause in building complex weapons, it’s not really a pause it will take a lifetime to rebuild those skills. We need these new ‘challenger’ companies, but we should expect then to think though sovereignty issues and assist in the UK prosperity agenda; the current global uncertainty demands this.

Final thoughts

Anirudh Suneel: As we look to the future, what would be your key recommendations for the new Secretary of State for Defence implementing the SDR?

Richard Spencer: I believe there are several critical questions the Secretary of State needs to address.

First, how do you attract and retain the right skills to envision, commission and deliver complex projects and programmes? This requires rethinking compensation models and career structures to compete with the private sector for the right talent. These people then need a clear and minimal decision making framework, within which they are empowered to deliver the capabilities needed.

Second, how do you change the relationship with industry to allow more collaborative innovation while keeping the ‘heavy metal’ players engaged? The frameworks need to evolve to accommodate both traditional and emerging providers.

Third, how do we reform our fiscal rules? Should we reconsider the distinctions between capital and operational expenditure, especially for capabilities like cloud services? Could we move to a rolling three-year window aligned to the comprehensive spending review, with flexibility across years? This would reduce the tendency to waste money at year end.

Finally, how do we reduce the ‘checker’ to ‘doer’ ratio? The Secretary of State himself mentioned the ratio of checkers versus doers in a recent IfG speech. We’ve put layers and layers of bureaucracy in place to ensure we’re doing the right thing, to the point where we have more people checking than doing, and we still often do the wrong thing or the right thing badly.

Addressing these questions will be crucial to ensuring that the additional funding committed to Defence delivers the capabilities we need to meet evolving threats.