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Lessons from the military-industrial complex

Jul 15, 2019 Former Secretary of Defense Ash Carter talked about his book, Inside the Five-Sided Box, on experiences and the lessons he learned while working in the Pentagon.

  • Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon - Kindle edition by Carter, Ash. Download it once and read it on your Kindle device, PC, phones or tablets. Use features like bookmarks, note taking and highlighting while reading Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon.
  • Inside The Five Sided Box: Lessons From A Lifetime Of Leadership In The Pentagon. The influential former secretary of defense presents a behind-the-scenes memoir that reveals the complex inner workings of the Pentagon and its essential role in global politics, national security and scientific research.

People often say that governments have much to learn from big businesses. While this is true in many respects, I believe there is plenty for big business to learn from the successes (and failures) of big government too.

On this front, it’s hard to find a better case study than the U.S. Department of Defense (DOD). With an annual budget of $700 billion USD (larger than the GDP of Sweden!), over 1.4 million people on active duty, and around 700,000 civilian personnel, DOD is one of history’s most complex and massive organisations.

It’s for this reason that I found Ash Carter’s Inside the Five-Sided Box such a fascinating read. The former U.S. Secretary of Defense (SecDef) gives us his account of his time at the helm of the gargantuan enterprise.

Whether you’re in government, business or academia, there’s a lot to learn from Carter’s reflections on management, leadership and strategy. If nothing else, it helped me to appreciate the challenge, complexity and enormity of national defence.

From acquisitions and incentives, to leadership and reinforcement, this post will summarise the key lessons that I took from Inside the Five-Sided Box.

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Acquisitions, supervision and incentives

One of the SecDef’s responsibilities is to ensure that DOD spending is cost-effective. This isn’t an easy ask for an organisation as large, complex and specialised as the DOD. From tanks to computers, the military-industrial complex has to manage over 10 million awarded contracts ever year!

Recalling the Reagan administration’s $600 toilet seats fiasco, Carter laments that waste, excesses and corruptions “are almost inevitable”. But careful supervision and incentives can help to promote better buying.


Carter recalls, for example, how poor management, supervision and consultation had contributed to problems in the Joint Strike Fighter program (JSF). The program sought to acquire over 2,000 advanced joint-strike fighters. But when Carter entered the fray as undersecretary, JSF’s design, development and manufacturing costs had doubled, and its schedule well behind targets.

While the Air Force / Navy-Marine program office were meant to run JSF with Lockheed Martin as their main contractor, Carter saw that every briefing document “had Lockheed Martin’s logo” – A major red flag to him. Additionally, many air establishments were omitted from the consultation and acquisition process. While this helped to avoid complications and delays, it prevented broader expertise and critique. This in turn insulated JSF’s problems.

Carter’s solution was to bring in a new “superstar” program manager from Navy-Marine Naval Air Systems Command. Indeed, this is a pretty obvious problem and solution. But many organisations today continue to make excessive use of contractors, consultants and bankers. Is the private sector so different?


More seriously, bad incentives were at the very heart of JSF’s problems. Carter learned that DOD had agreed to pay for all development costs and an awards fee of up to 15 percent. Unsurprisingly, the contractors had little incentive to avoid scheduling delays, inflated prices and cost blowouts.

Upon learning this, Carter renegotiated the contract structure immediately. Under the new arrangement, DOD would share cost overruns with the contractors, but only up to a 20% limit. Beyond this limit, the contractors would have to cover the costs themselves. Conversely, if the program’s costs were less than DOD had estimated, the contractor would retain half of the savings. This combination, Carter thought, aligned contractor incentives with the DOD’s objectives.

Many enterprises underestimate the impact that poor contracts and incentives can have on internal and external productivity. This is most problematic where a high degree of interaction and coordination is necessary.

When you find your organisation bogged down in the doldrums of bureaucracy, ask yourself: How did humanity ever manage to send people to the moon? Indeed, the engineering and scientific achievement of Apollo 11 were remarkable. But it was also a strong alignment of internal interests that made their coordination, collaboration and achievement possible. Organisations that solve the problem of motivation and incentives can create a competitive edge for themselves.

From fads to better buying

Fads come and go. This is true in many respects of life, even for military acquisitions and contracting. Carter recalled, for example, the fad that DOD had for contracting program management duties. While this might attract new talent, conflicts of interest arise when it’s “the contractor and not the war fighter or the government official [that’s] in the driver’s seat”. As Carter puts it:

“The reason fads tend to capture the fancy of would-be reformers is that they promise a shortcut to reducing costs, improving efficiency, eliminating corruption, and guaranteeing fairness—all by simply writing some new mandate or procedure into the rule book. In reality, however, there are no shortcuts. The key to acquisition improvement can be found where it has always been: in rigorous attention to fundamentals and the sound judgment of DOD experts with intelligence and integrity.”

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

Better buying power

As acquisition czar, Carter introduced the Better Buying Power (BBP) initiative to strengthen the “link between faster, smarter acquisition policies and on-the-ground accomplishments”. Carter wanted staff to think beyond the size of investment. That is, to have “affordability” as one of their goals.

To incentivise affordability, Carter allowed agencies to allocate newfound savings to other priorities. Again, this seems a simple, practical and obvious solution. But many businesses, universities and governments today actually omit this incentive from their budgeting process!

Often, a large organisation’s finance department will slash divisional budgets if the team is spending below their original allocation. As a result, teams are incentivised to spend more, and in suboptimal ways, to preserve their allocation for later years. It’s also hard to spot the problem after the fact as people are great at rationalising their spending habits.

Incentives, competition and substitutes

Better Buying Power also extended to contract design. Here, Carter “cautioned against dogmatism”. One should use fixed pricing when it’s reasonable to do so. But it should specify cost sharing arrangements for overruns and underruns. Where projects are speculative and costs uncertain, cost-reimbursable arrangements are probably more appropriate.

Competition is an important element of the “Pentagon’s acquisition toolbox” too. Price competition between Boeing and Airbus for defence contracts, for example, help to reduce project costs. When direct competition is not achievable, one can use cost sharing arrangements and asymmetric competition (e.g., indirect substitutes) to incentivise contractor performance.

Strategy and mobilisation

Carter says that mobilising for the wars in the Middle East was among the DOD’s biggest challenges. He describes how, historically, “the Pentagon [had] prepared almost exclusively for traditional military-versus-military conflict”. This made the Pentagon a “cumbersome” organisation and less prepared for decentralised adversaries. Roadside IEDs, for example, exposed “the inadequacy of the existing equipment and the views inherited from wars of the past”.

“Under the circumstances, the Pentagon’s system… [was] not far removed from the old, slow-moving fashion we’d become accustomed to during the Cold War… When the terror attacks of 2001 hit, the Pentagon was a bit like a successful corporate giant confronted by a nimble start-up armed with a disruptive new technology… We had to figure out how to fight back without letting our bureaucracy slow us down.”

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

Dogmatism, bureaucracy and remoteness

Several factors contributed to their challenges in the Middle East, each of which, I think, are common issues in business as well.

Firstly, strategic missteps were reflected in their acquisition criteria and capability programs. Decision makers prioritised “sexy, complex advanced systems for possible wars of tomorrow” over practical equipment for “the real wars of today”.

Secondly, dogmatic biases added “to the clumsiness of our military’s acquisition system”. Carter recalls, for instance, the marine’s obsession with amphibious vehicles, and the Air Force’s resistance to drone-based warfare.

Thirdly, daily bureaucracy is sometimes all consuming. Strategic urgency was sometimes lost in the minutia. Carter recalls how Congress’ Buy American policy, for example, made it difficult to procure equipment from sole manufacturers overseas.

Fourthly and relatedly, decision makers were far-removed from the tactical challenges. Carter learned that “none of [his] predecessors as acquisition czar had ever travelled to Afghanistan or Iraq in their official capacity” – A practice he soon fixed.

Finally, many decision makers believed that the “new wars… would be over in a matter of months”. As military history would suggest, this is almost always a dangerous assumption to make.

Contingency planning and prevention spending

Planning is essential to military readiness. It enhances “the clarity of our strategic thinking and the readiness of our forces”.

War plans should match the adversary, environment, threat level and national priorities. At the DOD, these plans tend to contain six phases: (1) shape, (2) deter, (3) seize initiative, (4) dominate, (6) stabilise and (7) enable civil authority.

And in the event of nuclear war, there is a 2×2 playbook for the president to step through. It consists of two variables: (1) Is the attack occur with or without notice? (2) Is the response delayed or immediate? Additional decisions follow, depending where on the grid the president lands. (I thought this was interesting to note)

Crisis response

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There is often a lot of uncertainty when a crisis is unfolding. Unfortunately, this is often also the moment when people expect a response. What should leaders do to navigate an emerging crisis? Here, Carter offers several suggestions.

Firstly, one should recognise that incoming information during the early moments of an unfolding crisis is often incorrect. Because of this, Carter likes to “take a deep breath” and avoid rushed decisions.

Secondly, one should “stop and ask when a decision is actually required, and why”. People dislike uncertainty, so doing something feels natural and productive. But taking available time to gather evidence and evaluate options, Carter says, can make the difference.

Finally, leaders must defuse anxiety and tension within the room. With “a sense of clarity” and “calm”, they should demonstrate an awareness of the problem, communicate “an orderly process”, and delegate meaningful tasks to the team.

Prevention spending

Why do nations spend so much on defence? Couldn’t we put taxpayer dollars to other national priorities? Carter acknowledges this viewpoint and agrees that this is a worthwhile discussion.

It’s important to recognise, Carter says, that such spending is often for prevention and deterrence. Yes, the cost of prevention and preparedness is high, but the risk and cost of inaction is even greater.

People often underestimate the significance of averted disaster. We find it hard to justify the cost of prevention because its benefits are hard to visualise. Sometimes, however, we have to invest to avoid even greater losses.

Whether you agree with Carter’s reasoning or not, I think the general idea of prevention spending is important. We observe similar tensions, for example, in prevention spending for financial crisis, wildfires and pandemic. Society is often slow to prevent tail-end risk until they’ve experienced the pain of it for themselves. As Carter puts it:

“Non-events [can] mean the survival of freedom for huge swaths of humanity and millions of lives save. Money spent to produce those results was scarcely wasted. In fact, that’s exactly the reason we spent most of our defense dollars during the postwar years… If we tried to cut that figure drastically… we might find ourselves, in time, in a battle for survival against a major global adversary… – a battle whose demands would make today’s defense budget appear pitifully small”.

FreeCarter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

Leadership and reinforcement

When talking about leadership, Carter likes to differentiate between leadership and reinforcement. Leadership refers to the direction that leaders choose to take. Effective leaders understand the importance of path selection, and the trade-offs, opportunity costs and risks it entails. As the old saying goes, those that try to do everything will succeed in nothing.

Reinforcement, by contrast, “involves bringing out the best in your subordinates”. It focuses on communication, culture, mentorship and so on. Effective leaders must nurture the “values, habits, skills and culture” that enable high operating standards. It goes without saying that experience, honesty and integrity are a must.

Order, clarity, diversity and sincerity

Carter got to observe the leadership styles of several presidents firsthand. I found his reflections on Barack Obama the most interesting. In particular, Carter believed the former president possessed four qualities that made him “an exceptional leader”. (As you can tell by now, the author is very structured in his communications. He loves numbered lists.)

Firstly, Obama was smart and orderly. This helped him to handle crucial details methodically – An “unfortunately rare” combination in large organisations, Carter says.

Secondly, Obama was “decisive”. He always communicated his intent and reasoning “clearly”. For example, Carter never left a meeting with the president with unclear directions, roles and responsibilities.

Thirdly, Obama “did not play games”, like “pit[ting] one staffer against another”. Treating your staff well can generate devotion, hard work and productivity. Carter notes, for example, how Bill Clinton took time to recognise the efforts of his junior staffers.

Finally, the former president respected a diversity in opinions. He listened to disagreements and gave members their chance to explain their views and arguments. It isn’t hard to imagine how such traits might help teams to work more collaboratively.

Playbooks and conventional wisdom

Leaders must know when to use and abandon conventions. One criticism that Carter had of Obama’s tenure was his tendency to ignore the playbook in favour of an “unconventional policy path [as] … a worthwhile goal in itself.”

According to Carter, Obama didn’t enforce “the red line” against the Assad regime’s use of chemical weapons in Syria because the red line was “an artefact of some conventional playbook”. Whether that was it was the right move or not, Carter found such reasoning too “dismissive”.

This, of course, is an oversimplification of the situation. But Carter’s point is this: “Conventional wisdom [can] contain a healthy helping of wisdom”. Yes, conventional wisdom is sometimes “outdated and inflexible”, where new thinking is required. But we shouldn’t do away with tradition until we have a good reason for doing so.

Learning organisation

With that said, organisations must know when to abandon or adapt their traditions. For example, to attract “the best minds”, the “DOD modified its rules on policies like hairstyles, tattoos, and religiously prescribed dress”. “The same need to broaden our talent base moved [Carter] to lift the DOD’s ban on transgender service members… [and] open all positions in the military to women”. To find the best people, we have to draw from the “entire pool of talent – not just a portion of it”.

The role of history

Carter believes that leaders should show greater “respect for history and it uses” (Carter himself majored in physics and medieval history!). After all, history is an important repository of problems and problem-solving approaches. And “thinking historically”, Carter says, is a valuable “tool for analysis, interpretation, communication and persuasion”. I think this is true, not only for military leaders, but for leadership and decision making in general.

Fresh concepts

Finally, on the topic of playbooks, history and wisdom, I want to end this post with my favourite observation from Carter – A reflection I find highly applicable to executive leadership in general:

“Henry Kissinger once remarked that all the ideas he used in government were ideas he’d brought with him – because while he was in office, he was too busy to generate any new ones… It takes time, energy, and discipline to stay current on new thinking in any field, much less to create fresh concepts… But those who occupy important leadership roles in government have little time to do either of these things. So, bringing in new faces – with a stock of new ideas – every four or eight years is not a bad thing, even if it produces some awkward disruptions in the process”.

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

If you’re an aspiring leader of tomorrow, you best be nurturing your ideas, philosophy and style today. When you’re finally in the pilot’s seat, you won’t have time to learn to fly.


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Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon. More articles and research from Carter at < >

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