What Next for the Third Offset Strategy?

What Next for the Third Offset Strategy?

December 13, 2017
What Next for the Third Offset Strategy?
Policymakers express increasing concern that the U.S.
The Strategic Capabilities Office, which Carter established
military risks losing its global technological supremacy. In
in 2012, was tasked with repurposing existing DOD
2014, Secretary of Defense Chuck Hagel warned that the
technologies for new missions and for creative use across
U.S. military’s dominance at sea, in the air, in space, in
domains. In the medium term, DOD committed to
cyberspace, and elsewhere could no longer be taken for
undertaking periodic technology portfolio reviews and
granted. Other countries, including potential U.S.
boosting its long-term R&D planning. Steps were also
adversaries, are modernizing their militaries, and some have
taken to improve DOD access to innovation. The Defense
acquired sophisticated missiles and precision-strike
Innovation Board was created to bring together a group of
systems. These capabilities could enable them to restrict
private sector leaders to support the Defense Secretary.
U.S. military access to operating domains and undermine
Carter also set up the Defense Innovation Unit
U.S. ability to project power globally.
Experimental (DIUx) in Silicon Valley as a kind of venture
mechanism to link entrepreneurs with DOD problems and
The Department of Defense (DOD) responded to this
sponsors. DIUx was reformed in 2016 and expanded to
challenge during the Obama Administration with a strategy
Boston, MA, and Austin, TX. Some analysts argue that the
that was referred to as the Third Offset Strategy (TOS). It
DIUx was the TOS’s real innovation.
aimed to “offset” or nullify the advantages of competitors
that had reached or were close to reaching parity with the
Investments in R&D and private sector engagement were
United States in some areas of technology. The goal was to
not seen to be sufficient on their own to keep pace with
transform capabilities over time to enable the United States
potential competitors, so the strategy also involved a new
to prevail in contested environments and thereby restore
approach to human capital and leadership, as well as
conventional deterrence. Through the stewardship of
incentives for war-gaming. It included mechanisms for the
Defense Secretary Ashton Carter and Deputy Secretary Bob
DOD to engage private-sector talent, and incentives for
Work, the TOS promoted innovation across DOD to exploit
innovation across the department and the services. War-
cutting-edge technologies for operational advantage.
gaming efforts would focus on identifying requirements for
Congress generally supported the TOS and took steps of its
future operations as well as on building resilience into
own to enhance DOD innovation and access to technology.
networks and training forces to operate independently of
networks when necessary. Innovation in concepts could
Third Offset Strategy, Defined
allow the joint force to find new ways of fielding
The TOS did not just emphasize developing technology but
technology rapidly and more effectively than competitors.
also fielding it in capabilities more effectively than any
Carter and Work believed the right investments combined
competitor. This, Secretary Carter argued, required
with creative concepts and resilient operators would
promoting innovation across the DOD and building bridges
improve the effectiveness of U.S. forces across all operating
between DOD and the nation’s commercial technology
domains.
hubs. It also required adjusting the acquisition system and
human capital strategies, and offering a new emphasis on
Global Race for Technology
war-gaming and concept development to integrate
The TOS was established to respond to an emerging threat.
technology into capabilities.
Carter and others in the Pentagon believed that Russia and
China, which they called “pacing competitors,” had
Investments in research and development (R&D) were one
achieved parity with the United States in certain areas of
feature of the strategy. Secretary Carter proposed $72
technology, including in battle networks. They described
billion for R&D for FY2017 (a 2.8% increase over the
battle networks as Command, Control, Communications,
enacted amount for FY2016), arguing that it was double
Computers, Intelligence, Surveillance and Reconnaissance
what Google, Apple, and Intel had spent the previous year
(C4ISR) grids that could capture what is happening in an
combined. Adjusted for inflation, this represented less than
environment and sync that information with military
1% increase in real terms. Investments focused on
effects, logistics, and support grids. Russia and China not
biotechnology, robotics, autonomy, and artificial
only have networks that rival those of the United States, but
intelligence (AI). Carter and Work believed that
they are engaged in counter-network operations against it as
breakthroughs were on the horizon for AI and in autonomy,
well. Defense analysts refer to these as Anti-Access Area
and that the United States was uniquely positioned to
Denial (A2AD) capabilities because they could undermine
capitalize on those breakthroughs. AI and autonomy, they
the United States’ longstanding network advantage, which
said, could support human decision-making and enhance
has been an important enabler of U.S. power projection.
human performance; they could also be injected into U.S.
battle networks, electronic warfare and cyber-capabilities,
The TOS was also established to adapt DOD to a changing
hypersonics, and missile defense.
technology environment. During the Cold War, the United
States was the world leader in R&D and mass production,
https://crsreports.congress.gov

What Next for the Third Offset Strategy?
and it attracted top S&T talent. This helped it to develop
Defense analysts differ, however, both on whether the
war-fighting technologies that offset Soviet conventional
strategy could actually achieve an offset and on what
advantages in numbers. The development of nuclear
elements of the strategy should be prioritized. Some argue
weapons in the 1950s, analysts argue, marked the first
that despite investments in technology, the United States
offset, and the development of stealth, precision and
would nonetheless be held back by an outdated
computing in the 1970s gave the United States a second
procurement system or by industry itself. The procurement
offset.
system still fails to attract commercial interest, and DOD
still struggles to compete with industry for S&T talent.
Since then, however, R&D leadership has shifted to
Others felt the strategy pursued technology for its own sake
commercial industry. Industry globalized, and innovation is
and at the expense of more important efforts to identify the
now following the same pattern. Technological
right problems and incentivize industry. They argued the
breakthroughs are more likely than in the past to take place
TOS lacked sufficient prioritization, and that it was a “one-
outside the United States. Russia and China, for example,
size-fits-all” fix for the entire array of defense challenges. A
are investing heavily in AI and autonomy, and China has
few felt it was simply an excuse for more defense spending.
made great strides in biotechnology. Both are exploring
ways of integrating these technologies into their defense
Defense Secretary James Mattis does not use the language
strategies and capabilities. The Economist recently argued
of the Third Offset, but he has referred to innovation in
that innovation is taking off in China. It attracted $77
hearings and in a speech at the DIUx offices, where he
billion in venture capital between 2014 and 2016, a sixfold
argued that private sector influence and its impact on DOD
increase from $12 billion from 2011 to 2013.
would expand under his leadership. By 2018, DIUx’s first
pilot projects are to move into production, and the building
Figure 1. Venture capital investment by selected
blocks of the TOS, as envisioned by Secretary Carter,
region, country, economy in billions of dollars
would all be in place. Congress will have an opportunity at
that point to reflect on the TOS’s achievements to date and
to make adjustments. Questions relate to the relative
priority of internal and external challenges, the acquisition
system, the balance of authority between DOD and the
services, and expediting the process of prototyping and
deploying technology.
Congress and Defense Innovation
Congress has played a longstanding role in promoting
defense innovation. Efforts go back to the creation of the
Other Transaction (OT) authority in 1994 as a vehicle for
obtaining commercial R&D. Its expansion from DARPA to
the rest of the DOD reflected the growing importance of
commercial technology and innovation for defense. To
Source: Dow Jones, special tabulations (2015) from VentureSource
encourage progress in R&D as well as in acquisition, the
database, National Science Board, Science and Engineering Indicators
2017 NDAA split the job of the Under Secretary of Defense
2016. This is the most recent data available from NSB.
for Acquisition, Technology and Logistics (AT&L) into

two organizations: the Under Secretary for Research and
Engineering (R&E) and the Under Secretary for
The pace of change is accelerating in part as a result of the
Acquisition and Sustainment (A&S), which is to take effect
confluence of advancing technologies and their synergistic
in February 2018. According to the FY2017 NDAA
effects. The National Intelligence Council reports in its
Conference Report Section 901, the aim was to “elevate the
Global Trends 2035 that technology is transforming society
mission of advancing technology and innovation within the
faster than economies can adjust. Achieving a third offset in
Department and foster distinct technology and acquisition
this environment is seen as requiring a shift in emphasis
cultures to better deliver superior capabilities.”
from not just developing technology but also competing for
innovation in the fielding of technology.
U.S. policymakers, including Congress, remain constrained
by spending caps in the Budget Control Act and face
How Effective Is the TOS?
competing pressures from the nuclear and conventional
The TOS sparked a wider debate in Washington about how
modernization agendas. If Congress desires, it can play a
to restore U.S. technological supremacy. For the
leading role on defense innovation by providing reliable
intelligence community, the TOS resonated. Intelligence
funding, structuring incentives for innovation, fostering
agencies face similar challenges as a result of the diffusion
debate, and helping let commercial innovators know that
of technology, the importance of global networks, and the
DOD is open for business.
dominance of commercial R&D. They share the view that
the United States will cede leadership if it fails to innovate,
Lisa A. Aronsson, Analyst in International Affairs
and they set up structures of their own, such as InQTel,
which mirror the TOS in the goal of improving the
IF10790
agencies’ access to commercial innovation.

https://crsreports.congress.gov

What Next for the Third Offset Strategy?

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10790 · VERSION 3 · NEW