WHAT KIND OF INNOVATION DO YOU WANT?


advisory. Tose clients tend to be people on boards of directors or who have “chief” as the first word in their titles—chief executive officer, chief financial officer and so forth. Enlightenment Capital is an investor in small and medium-sized aerospace, defense and government ser- vices firms.


With an undergraduate degree in politi- cal


science and management science


from MIT, Chao describes himself as “a systems engineering-like thinker and pattern recognizer by genetics.” He has always been fascinated with the defense industry, he said when we spoke with him by telephone on Aug. 19. “It’s one of the few sectors that has a blend of technology, business, politics, finance, international relations; where they all come together and those complex intersections are rel- evant,” he said.


Interested in complex


systems since he was a child, he said that the defense industry is “eternally fascinat- ing to me to the extent that all these factors always come into play. And I would argue that if you look at the problem from just one of those lenses, you’re going to miss a huge chunk of the issue.”


Add to that an interest in history and military technology and an affection for multi- and interdisciplinary thinking, and it’s easy to understand how Chao has


Army AL&T: Innovation is an odd thing in that it seems to mean different things to different people in different contexts. How would you define innovation?


Chao: Yeah, I agree. Tese days, innova- tion is a loosely bandied term and many times ill-defined because there are so many different types of innovation, and they’re all important. I think too often people default immediately to the version of innovation that describes a massive technological breakthrough, the dis- ruptive kind of innovation. And yet the reality is that, more broadly speaking, there’s technological innovation, there’s process innovation, and you have busi- ness model innovation.


Business model innovation occurs when we invent a way to do things differently. In some cases, you can get a major revo- lution in how things are done or how


participated in more than $12 billion in financial deals in the industry, including mergers and acquisitions as well as ini- tial public offerings. We wanted to talk with Chao about innovation—what it is and what makes it happen, including the topic of acquisition reform. For Chao, you can’t really talk about innovation without talking about acquisition reform, something he’s intimately familiar with.


markets will work just by changing busi- ness models—for example, by rethinking tasks that were inherently governmental and then outsourcing them as a service or a product, or capabilities that are under- taken as a service or solution rather than delivered as a piece of hardware. Tere are also plenty of dramatic commercial examples—consider what Amazon or the other online stores did to the brick-and- mortar retail industry. Or the idea of a credit card versus carrying cash—that’s a business model innovation.


Process innovation is more around the idea of, “How do you build things bet- ter, how do you manufacture, how do you improve?”—not necessarily changing the product, but finding ways


to manufac-


ture far more efficiently. Say a particular technology is well-established and well- understood—mature. It’s sometimes far more important to have process innova- tion to try to bring the costs of mature technologies down and make them more broadly available. It’s not necessarily about reinventing the technology or the product.


The fear of failure that has crept into the system, into the culture, over the last 30 years—I believe —is a really dangerous thing. And this institutional fear of failure can only be beaten back, I would argue, by leadership and the willingness to protect those who take risks and fail.


112 Army AL&T Magazine October-December 2015


Finally, you have the kind of innovation that I think most people are familiar with, which is developing a new product. And there, you need to further subdivide it into two types. Disruptive innovation— I’m going to bring in a fundamentally new technology to completely change a market, which is a rare case. [Ten] a more likely form of innovation, what people refer to as incremental innovation, where they’re steadily improving the product.


When somebody says, “I want innova- tion,” your first question back should be, “Well, what kind?”


Army AL&T: In an interview with Defense News at the recent Paris Air Show, you seemed to be saying that if you follow the money, you can find innovation.


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