Acquisition Reform

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Affordability Tradeoffs in the Defense Industry Robert A. Page, Southern Connecticut State University Kaylene Williams State, University of California, Stanislaus

EXECUTIVE SUMMARY While affordability is becoming increasingly important to maintain a competitive advantage given current economic conditions, there is little consensus on both how to define the concept and how to realize it. This article examines affordability in the context of the defense industry, and four major types of affordability initiatives- selection strategies, innovation strategies, structural alternatives and efficiency processes. Ironically, while all of these initiatives are individually effective, in tandem they often compete with one another, making affordability a balancing act. Implications for affordability tradeoffs will be discussed. Keywords: Affordability, Product lifecycle cost, Department of Defense, Efficiency, Best value

INTRODUCTION The concept of affordability is complex because its definition varies so widely, usually depending upon both the complexity of the product and/or service offering and the complexity of the relationship between the purchaser and the seller, particularly over time. Most affordability definitions focus on the relationship between two variables: some measure of customer budget or income and the cost of the product or service. After a comprehensive literature review, Bankole and his colleagues (2009) summarize this variety by matching various definitions with industrial sectors:

Affordability has been described as the ability to bear the cost of something (software sector); a ‘measure of whether housing can be afforded by certain groups of households’ (construction sector); the provision of services which can be afforded by customers at different income levels (utility sector); the ability to procure a system as the need arises, within a budget, operate at a required performance level and maintain and support it within an allocated life-cycle budget (aerospace sector), ... [and] the ability to secure a ‘given standard of housing (or different standards) at a price or rent which does not impose, in the eyes of some third party (usually the government) an unreasonable burden on household incomes (construction sector). (p. 230)

With complex product and service offering researchers argue that price-based assessments of affordability are simplistic and misleading, given that operating and disposal costs are often both significant and unavoidable (Browning, 2003). From this perspective, affordability is more of a "best value" proposition across a product lifecycle. The CADMID product life cycle model includes the following stages, each of which contribute to or detract from affordability, depending upon how they are handled: Concept, Assessment, Demonstration, Manufacture, In-service, Disposal (Bankole, Roy, Shehab, & Wardle, 2009). Further, some researchers debate the degree to which customization, and ling-term relationships should also be factored into this equation, given the possibilities of "mass customization" which are increasing available (Kumasr, 2007), particularly in the "publishing on demand" industry. Affordability across a product lifecycle has emerged as a top priority for the Department of Defense. Given the "great recession" and astronomical deficits, defense acquisition costs are unsustainable (Gates, 2009). Unfortunately, there is little consensus on how to reach that goal (Watson, 2007). The past decade has witnessed a massive inflow of funds to the defense industry, and a corresponding increase in costs. The Department of Defense's [DoD] total acquisition cost has grown nearly

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$300 billion over initial estimates in 2007 alone (IEEE, 2009). This has not resulted in increases in contract fulfillment. Since the beginning of 2006, nearly half of DoD’s 95 largest acquisition programs have exceeded “Nunn-McCurdy” cost growth standards which identify seriously troubled programs (Levin, 2008). The Government Accounting Office [GAO] noted that cost overruns increased from 42 billion in 2000 to 295 billion in 2007 (GAO, 2008). While 26 percent of major weapons systems programs were over budget by at least 25 percent in 2007, only one third were on schedule, and a full 29% featured more than two years of schedule slippage (GAO, 2008). If these trends continue, Deloitte (2008) estimates that average cost overruns will increase to almost fifty percent in the next ten years.

COMPETING VALUES

This paper identifies four different types of affordability initiatives: selection strategies, innovation strategies, structural alternatives and efficiency processes. While ideally all of these affordability efforts could be pursued simultaneously, conflicts develop. Often the changes necessary to optimize one type of affordability initiative systematically undermine cost effectiveness in other areas. Differences in these paradigms will be captured using a “competing values” model. Adapting this approach for affordability, these tradeoff relationships can be modeled using two continua. The first continuum assesses the level of analysis used -- whether managers are approaching affordability as a strategic decision or as a structural initiative. From one perspective, it is the choice of strategy which drives affordability -- all other initiatives are too little, too late. From the other, inefficient structures and systems overwhelm even the best cost control strategies. The second assesses managerial focus -- is affordability primarily an internal structure and systems challenge, or does it have more to do with external relationships with customers and suppliers. These continua are modeled in Figure 1:

FIGURE 1 Affordability Initiatives

External Focus

Strategy

SELECTION Marketing Focus: Realistic Technologies Customer Profiling Tight Contracts & Estimates Joint Ventures / Strategic Allies

STRUCTURE Partnership Focus: Complex Systems Integration Supply Chain Management Right Staff for the Job Alignment

Process

INNOVATION Cost Effectiveness Focus: Advanced Features Product / Service Versatility Speed Modular Architecture

EFFICIENCY Cost Control Focus: Continuous Improvement Service/ Sustainability Evaluation/Feedback Early Involvement

Internal Focus Competing values models are designed to capture the inherent paradox involved in organizational effectiveness (Quinn & Rohrbaugh, 1983).

Selection Strategies From a selection perspective, affordability rests on the careful selection of an appropriate marketing strategy. While other cost control initiatives may help, they are not sufficient to overcome a poor choice of strategy. These choices involve: realistic technology goals, indentifying products with desirable margins/market pricing, profiling to target customers willing and able to pay those margins, crafting tight contracts with realistic estimates, and recruiting the requisite talent for the job.

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Realistic Technologies. Significant product and process innovation often defy budget and schedule estimates. Affordability is enhanced by avoiding immature product and service technologies whenever possible, even when defense contractors insist on them (Grasso, 2009; Levin, 2008) . DoD Secretary Gates summarized, "We must ensure that requirements are reasonable and technology is adequately mature to allow the department to successfully execute the programs" (Gates, 2009. p. 3).

Customer Profiling. Even the best of technologies cannot salvage affordability, when matched with the wrong customers. Some customers are simply too needy, given their limited resource base, to justify the investment. Their definition of affordability will tend to be demanding, inflexible and inelastic. The Coast Guard did not meet the profile for an ambitious project such as Deepwater, being chronically underfunded and under-resourced (Carafano & Kochems. 2005; Grassi, 2006), which resulted in program failure. Managing these relationships with the ultimate goal to either improve the resource base or to carefully limit involvement and expectations becomes critical (Haenlein & Kaplan, 2009). Secretary Gates concluded, the DoD’s inability to allocate funding effectively to programs is largely driven by "a failure to balance needs based on available resources" (Levin, 2008). Tight Contracts & Estimates. Ambiguous contracts breed affordability problems, since the customer and the contractor often have very different unspoken understandings concerning the deliverables (Deloitte, 2008; Grasso, 2009). To some extent, given the unknowables involved in new technologies, this is inevitable. Expectations cannot be specified for products not yet developed. However enthusiastic marketing cost, performance and schedule claims made by contractors to "seal the deal" often come back to haunt the engineers charged with delivering them (Levin, 2008). Secretary Gates stated that the DoD should "demand stricter contract terms and conditions" and must "realistically estimate program costs, provide budget stability for the programs we initiate ... [and] fund programs to independent cost estimates" (Gates, 2009, p. 4). Another enemy of affordability is contract escalation. One classic defense industry marketing strategy is the "cost plus" contract -- initially bidding low, then growing the contract later by defining necessary or desired features as escalating the contract. This is matched by the Armed Forces insistence on the inclusion of the latest leading edge technologic developments, regardless of the rework involved (Gates, 2009; IEEE, 2009; Levin, 2009). Consequently Secretary Gates calls for the DoD to: "Provide disciplined and constant oversight. We must constantly guard against so-called “requirements creep,” validate the maturity of technology at milestones ..." (Gates, 2009, p. 3). Joint Ventures / Strategic Alliances. Some degree of globalized networks is almost a competitive prerequisite for a major corporation (Watson, 2007). Not only do these partnerships often yield cost savings, when they cross borders they can also help develop new international marketing opportunities. It becomes more affordable to tap into the world class expertise of a partner than to attempt to internally replicate it, particularly when schedules are aggressive. Affordability hinges on selecting appropriate partners, and then effectively managing these partnerships (Kar, Subramanian, & Saran, 2009).

Innovation

Another perspective defines affordability as a social construct, driven by perceptions of relative value. Even the most expensive of weapons systems are affordable if they offer commensurate value-added capability to modern warfighters. This is the defense industry's field of dreams -- if you build it (quality, leading edge product/service offerings), customers will come. These values are captured in the vision statement of Lockheed Martin: "Our Vision: Powered By Innovation, Guided By Integrity, We Help Our Customers Achieve Their Most Challenging Goals." Advanced Performance Features distinguish innovation industry leaders like Lockheed Martin. Being and General Dynamics. They are developmental engines, continuously inventing and improving features, quality and reliability, to build a "Best Value" proposition (Deloitte, 2008). From this perspective, affordability means you get what you pay for - not on the cheap In the words of Robert J. Stevens, Chairman, President and Chief Executive Officer, Lockheed Martin Corporation:

How can we ensure that the greatest capability for our customers is delivered in real time to meet evolving threats? This is a chance for our sector to push the envelope on progress and to reframe the public debate away from seeing defense investments as predominantly costly or cumbersome or unnecessary to an understanding of defense investment as essential, valuable and pioneering. ... It means helping our governments realize the enormous potential for innovation in our industry and the broad contributions we can make to the research and technology base. ... if they [our customers] want the best defense and security products, they need to resist protectionist impulses and other

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restrictive measures that undermine our ability to innovate and collaborate across national boundaries and they need to stabilize investments in our industry. (Stevens, 2009, p.111)

Product / Service Versatility requires products and services that can execute a wide range of missions, the relative value of the program increases, bolstering perceived affordability. DoD Secretary Gates argued for "maximum versatility" against a wide range of threats (Gates, 2009), and concludes: "We must break the old habit of adding layer upon layer of cost, complexity and delay to systems that are so expensive and so elaborate that only a small number can be built and are usable in only a narrow range of low-probability scenarios" (quoted in Jaffe, 2009, p. 1).

Speed is regarded as a sustainable competitive advantage. Critics allege that the longer the contract, the more likely affordability will give way to requirements creep and contract escalation (Gates, 2009; Levin, 2008). Consequently budget minded contract officers are focusing on realistic timelines and milestones, despite accelerated delivery schedules.

Companies must constantly innovate the products and services they offer as well as the systems on which they depend to design and deliver those products and services. If they do not, they get left behind by those that do. But change is not enough. It has to occur ever more quickly. With every new advance in transportation and communication, people and products can move from one place to another more freely, and the more information that is easily available, the more intense competition becomes. (Spear, 2009, p. 39)

Modular Architecture was pioneered in the auto industry as a manufacturing best practice. Modularity "deliberately partitions a system's functionality into discrete scalable, reusable modules consisting of isolated, self-contained elements" (Kar, Subramanian, & Saran, 2009). These process innovations are only beginning to be adapted for the needs of the Defense industry. Previously this was not the case - each major weapons platform was developed relatively independently. This is not cost effective, and has been changing. Development efforts can be concurrent if common methodologies and tools are agreed upon, and effective systems interfaces are developed (Kar, Subramanian, & Saran, 2009).

Structure

With the explosion of information technologies, the fundamental nature of business has changed. For the first time, smaller organizations can compensate for a lack of staff with sophisticated software and subcontractor allies to successfully compete with industry giants. This has enabled the evolution of relatively unique organizational forms and competitive strategies called "network organizations." These network strategies were so successful, some analysts predicted the decline of the larger competitors, whose internal complexity did not offer the efficiencies and flexibility of external networks, and whose product/service offerings were no longer yielding lucrative profit margins (Crock, 2005). In a networked world, differentiators would ensure maximum effectiveness and efficiency by coordinating and bundling the output of diverse partners to seamlessly deliver complex products and services (Cersale & Stone, 2004). Complex Systems Integration involves a team of contractors directed by a "lead systems integrator." Lead integrators fill much of the oversight role formerly reserved for the government, Government agencies like the DoD report that, due to chronic under-staffing, they lack the project-management skills and technical expertise necessary to execute complex "systems of systems" projects (Grasso, 2009). Consequently it is potentially more affordable to turn over these projects, under the rationale that private sector contractors have the requisite knowledge and expertise for "innovation and overall system optimization." Thus lead integrators "can have broad responsibility for executing their programs, and may perform some or all of the following functions: requirements generation; technology development; source selection; construction or modification work; procurement of systems or components from, and management of, supplier firms; testing; validation; and administration" (Grasso, 2009). Lead integrators with systems responsibility perform portions of the project development, while others without systems responsibility merely oversee that development, performing administrative tasks formerly performed by government agencies (Section 805 of the FY2006 National Defense Authorization Act). In the Defense industry, billions of dollars of contracts began to flow towards system integration projects, offering more attractive profit margins than traditional projects (Yamanouchi, 2005). Supply Chain Management partitions program value chains into discrete work platforms, some of which can be outsourced. Affordability can develop by utilizing contractors who specialize in specific technologies, or who have lower natural

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resource, personnel and operating costs, given the economic conditions of their region (Deloitte, 2008; Dehoff et al., 2009; Watson, 2008). ERP system can streamline communication and improve visibility across the organization and with suppliers. "Instead of focusing on price and supplier shuffling, the emphasis is on process improvement and supplier communication to reduce costs" (Editorial, 2005, p. 38). Assigning the right people for the job underlies effective affordability efforts (Kar, Subramanian, & Saran, 2009). There is a shortfall in employees with expertise needed to develop cost effective major weapons systems, particularly when it involves complex supply chain management (Deloitte, 2008; Murray, 2008). True talent (both customer and contractor) is difficult to recruit, expensive to hire, and challenging to retain. However, as the complexity and risk involved with weapons development and supply chain management continues to increase, so does the need for experience and expertise (Watson. 2007). Unfortunately the most complex and messy projects are also among the most unpleasant (extremely high stress, time and effort requirements), resulting in talent limiting their involvement, and transferring out. Alignment is the key. The effectiveness of complex systems integration and network structures depends on coherent and complementary management policies. As activities disperse, fragmented, inconsistent managerial policies and short-sighted decision making can easily compromise affordability. Common challenges in managing "systems of systems" include (Deloitte, 2008; Gates, 2009; Grasso, 2009; Kar, Subramanian, & Saran, 2009; Murray, 2008):

• Effectively leverage products and platforms. • Building consensus around a clear set of goals and decision making priorities. • Establish clear governance rules. • Distinguishing global versus local and centralized versus autonomous decision issues. • Developing a clear partnership strategy for consistent supply chain management. • Developing effective authority and administrative hierarchies. • Exercising appropriate levels of oversight and accountability systems. • Developing true cooperation among contractors. • Share infrastructure and tools. • Appropriately structuring incentives to reinforce overall program goals. • Establish explicit performance targets to promote the desired collaborative behaviors • Developing comprehensive communication channels across time zones and locations. • Systematic tracking and reporting progress through diverse media. • Effective problem identification and resolution processes.

Efficiency

When it comes to cost control, more executives regard process efficiency initiatives as more important than strategy and structural alternatives (Watson, 2007). Efficiency gains cut costs, minimize waste, improve quality and can significantly benefit the bottom line. Major defense contractors are process efficiency leaders. Common efficiency initiatives address continuous improvement, waste minimization, feedback loops and early expert involvement. Continuous Improvement initiatives tap into the creativity of the workforce to foster and support a steady stream of product and process innovations. "Continuous improvement programs are ... very significant to organizations in reducing or eliminating the non-value-added (Smith, 2009). A culture of cost reduction focuses on initiatives to eliminate waste and non- recurring costs such as Six Sigma process control and lean manufacturing. Customers will not recognize these efforts, however, if the resulting inefficiencies are absorbed by contractors to reinforce their profit margins. This frustrates project managers to no end, as customers keep applying pressure despite re4al efficiency improvements by the team which are not passed on to their end user. Evaluation/Feedback determines the quality of the information available to identify best practices and track problems to remediate them (Coyle, 2007; Dehoff et al., 2009). Industry leaders develop and maintain their high performance by benchmarking standardized metrics against competitors as a means to identify weaknesses and blind spots before they develop into serious misalignments, including: Time-to-Market (often called Concept-to-Launch Cycle-Time), Quality Levels (often measured by the number of high-severity defects), Organizational Productivity (often measured by a ratio

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between the number of projects completed in a year and the R&D headcount), and Fit with Business Strategy (often measured by project alignment levels with strategic business objectives) (Kar, Subramanian, & Saran, 2009). Unfortunately this is a case of investing money to make money. The process of developing metrics that are accurate, useful, valid, simple and transparent should not be underestimated. However poor operational performance metrics often result in costly misalignments and imbalances between on-schedule, on-budget, quality and high performance (Smith, 2009). Service/ Sustainability probes long-term costs. In some cases defense contractors have "front-loaded" program budgets to focus on the costs of design and development, while short-changing the long term sustainability issues such as logistical support, documentation and training. Consequently the DoD emphasizes the importance of a specific dimension of affordability -- the degree to which the cost of a product or service over the long term is sustainable. This calculation is based on total lifecycle costs, not just the initial purchase price. What was once a peripheral part of most Aerospace & Defense companies’ business strategy, Customer Support & Sustainment, has moved to the forefront through a confluence of events around the globe, including:

• A significant expansion of international commercial sales • A dearth of new, large government programs in the foreseeable future because of military spending constraints

that have caused original equipment manufacturers (OEMs) to seek other revenue/margin growth channels • The tremendous acceleration of asset usage in the last five years because of the fight against terror, which has

dramatically increased the demand for aftermarket services • The U.S. government's explicit decision to change its product support contracting strategy and pay for

performance through Performance Based Logistics contracts

These events have created a $105 billion global customer support & sustainment industry (70 percent government/30 percent commercial) with profit margins up to 10 times that for the original equipment. ... Defense contractors are going through significant changes with the shift away from cost-plus contracting arrangements to a contracting strategy focused on pay-for-performance. (Haynes & Whitehead, 2009, p. 1) Both the DoD (2003) and NATO define affordability largely in terms of sustainment:

By definition, affordability can be considered as the degree to which the life cycle cost of an acquisition programme is in consonance [delivering systems that meet the customer’s needs and budget] with the long-range investment and force structure plans of national defence administrations. Affordability procedures establish the basis for fostering greater programme stability [working towards sustainable opportunities] through the assessment of programme affordability [a programme management strategy that guarantees programme viability] and the determination of affordability constraints [to avoid misconceptions in management and engineering which may ultimately lead to unaffordable design solutions]. (NATO-RTO, 2007: section 2.9, emphasis in original)

Early Involvement means designing affordability into a program from the start, Unless the architecture of the new program accommodates cost effective innovations, it is often impossible to retrospectively adopt them, even with significant rework. Cost control initiatives have to be explicitly built into the contract and design criteria, and cost control specialists included in the team in the earliest phases. since retrospective cost control is neither efficient nor effective (Dehoff et al., 2009; Sundaram, 2008)

IMPLICATIONS Affordability initiatives are now ubiquitous, finding potential applications at every level, from team processes to corporate strategy, in every phase of the DoD product/service life cycle. Industry leaders like Lockheed Martin attempt to address every one of them. The Lockheed Martin Integrated Enterprise Process (IEP) has developed a coordinated set of process integration requirements for affordability management, including (EPM, 2008):

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• Enterprise Processes (improving the support provided by organizational management, strategic planning, quality management, ethics, legal support and communications)

• Infrastructure Processes (improving standard process, environment, technology use, staffing, training and support) • Common Management Processes (planning, decision analysis, configuration and data management, assessing and

controlling performance, managing risk and opportunity) • Product Life Cycle Processes. (improving affordability in each phase: business capture, development, production,

deployment, operations and sustainment, and disposal)

Unfortunately, the results of this analysis suggest that affordability initiatives are not always complementary. The changes necessary to successfully implement one set of affordability initiatives may somewhat undermine affordability efforts across other dimensions of this broad and comprehensive construct. Part of this problem lies in the concurrent development of such initiatives, which occasionally creates unintended misalignments. Further, even when internal alignments are established, in this era of complex systems integration and the involvement of many other contractors and subcontractors on the same project, cost alignment across the program becomes increasingly problematic. Efficiency tradeoffs are often the focus of affordability initiatives. Improving process efficiency is among the most popular of affordability initiatives (Watson, 2007). From this perspective, efficiency and affordability are virtually synonymous -- more efficient processes translate into more affordable products and services. Empirically, however, in the defense industry, this is not the case. Despite extensive process efficiency efforts, affordability gains are often problematic (Grasso, 2009). The price of efficiency is anonymity, as organizational attributes that support innovation -- slack resources, flexible scheduling, retention of top talent, etc. -- are, by their very nature, inefficient. The low cost, high efficiency paradigm is best suited for commodity markets, and can undermine differentiation strategies based on quality and leading edge innovation.

The financial mess leads many to the simple fix for the bottom line: rein in costs. ... It all starts with a cost reduction edict, and payroll is the first target. Invariably, an axe is used when a scalpel would be more appropriate. People with the highest pay and seniority are primary targets, and often a lot of expertise goes out the door. Even higher on the list are employees who don't appear to directly help the bottom line. ... too often people [replacements] working in this way are complete unknowns with minimal training. Cowboys save the company money by not being accredited or working to any known calibration standard. They don't have to because they're following the company's procedures ... But these and other elements of such programs could end up costing as much or more than a staff person. ... Another issue involved in bringing in outsiders is confidentiality. Outsiders have less to lose for a breach of confidentiality than staff members. Like anything else in life, low costs often mean high risks. (Cox, 2009, p. 59)

Further, there is some empirical support for the inverse hypothesis that resource sloppy innovations for improved

performance and quality sometimes generate unexpected consequences -- process efficiency improvements. "Cost reduction, by itself, very seldom leads to quality improvement; but properly executed quality improvement initiatives often lead to cost reduction." (Smith, 2009, p. 67). This paradox is illustrated by the dilemma of appropriate contract length. Programs with short contracts to minimize waste and control costs do so at the expense of superior program management and system of systems integration -- aggressive scheduling seldom permits it. On the other hand, programs with long contracts to improve control processes and systems integration invite features creep and cost escalation. Strategy (Selection and Innovation) Tradeoffs are equally problematic. Selecting market niches with well-funded customers who can support higher profit margins tends to conflict with growth strategies, since such markets are, by nature, limited. Tight customer profiling limits the program to a market niche which is easily saturated -- growth requires broader appeal, with the increased competition, greater demand for customization and the price elasticity that accompanies it (HBR Staff, 2009). Perceptions of affordability are likely to be ruptured if innovative technologies are being offered at above- market prices, and if competitors are offering more customization and/or a wider choice of products (HBR Staff, 2009). Similarly, selecting and retaining the top talent necessary for leading edge product/service/process innovation ensures high overhead costs, undermining affordability. Significant innovation is a resource intensive, messy, and unpredictable process, making realistic estimates problematic -- the engineers are boldly going where no one has gone before, and this is always something of an adventure. Developing realistic estimates and tight contracts may not be a sustainable in a

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marketplace full of competitors using "price-to-win" bidding strategies which may overpromise and under-deliver, but win the contract.

However, these efforts have fallen far, far short. No matter how well-intentioned Secretary Young and other senior acquisition officials may be, for example, they remain dependent upon the information that is provided to them by contractors and program offices. These contractors and program offices have every reason to produce optimistic cost estimates and unrealistic performance expectations, because programs that promise revolutionary change and project lower costs are more likely to be approved and funded by senior Administration officials and by Congress. In other words, we get the information we need to run our programs from people who have a vested interest in overpromising. (Levin, 2008, p. 1)

Structural tradeoffs are all too often structural initiatives are merely corporate code for outsourcing and downsizing

efforts. Both directly improve cost structures, particularly in the short term. Despite these gains, however, they may not be affordable. The problem with organization structures on the cheap lie in agency problems and problematic oversight. Inadequate program management contributes to cost and schedule overruns (Deloitte, 2008). Effective complex systems integration fundamentally depends upon relationships of open communication, close collaboration and an underlying trust -- a set of very demanding assumptions given that these contractors are often bitter rivals. Similarly, outsourcing may not improve affordability when low-cost engineers implement designs created by high end developers -- "product development requires a great deal of collaboration and customer understanding, this separation of responsibilities can often become counter-productive." (Kar, Subramanian, & Saran, 2009)

Confidential information and intellectual property are always vulnerable in such arrangements. Lead integrators are supposed to develop and maintain these partnerships, while providing the oversight and control necessary to keep the project on track, and on quality. However, the more of the budget devoted to oversight, the less affordability advantages the use of subcontractors, strategic allies and joint ventures offers compared to in-house alternatives. "Thin" integration, which tries to maximize affordability through limited oversight, occasionally produces disastrous results, such as the Deepwater program, which delivered, in part, Coast Guard ships that were not seaworthy (Lipton, 2006).

Unfortunately, however, the lack of management rigor and discipline can have negative consequences. ... Some companies with aggressive outsourcing initiatives have been surprised by severe quality problems. There have been many publicized examples of suppliers that were under pressure to reduce costs, and ended up making incorrect decisions with disastrous repercussions. Most of these situations could have been avoided with validation testing to ensure compliance to requirements or customer expectations. Failing to take assurance steps can have negative consequences. (Smith, 2009, p. 66)

In summary, affordability is more of a balancing act than a coherent corporate strategy. Affordability balances cost

efficiency with cost effectiveness. Cost efficiency may offer short-term affordability gains, but unintended consequences can make such initiatives very costly in the long run -- even unaffordable. The tensions created by competing values cannot be resolved, only managed. As the adage goes, "today's answers are the source of tomorrow's problems." With affordability, there are more questions than answers. Given this paradox, strategic opportunities emerge. Organizations who can develop their own idiosyncratic mix of leadership, structure and process which does minimize cost misalignments have a sustainable competitive advantage. It is relative rare, as well as difficult to imitate or substitute. Even sophisticated contractors with the capability to address this challenge often choose other priorities, given that the real benefits of such an approach is longer term, and thus is always vulnerable to internal organizational pressures to maximize short-term returns.

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