WASHINGTON — In a tacit admission that the current setup was not successful, Secretary of Defense Ash Carter last week shook up his Silicon Valley outpost, replacing the leadership and announcing the group will report directly to him.

It's a bold move, analysts say, and shows that Carter is willing to act quickly to address issues with the Defense Innovation Unit Experimental (DIUx), a pet project that Carter has promoted heavily since its creation in April 2015.

But the decision to tie the unit in as a direct report to the secretary also brings risk, given the small window of time left for Carter before he is likely replaced at the start of the next administration, experts warn.

The most visible change from Carter's May 11 visit, which he branded the launch of DIUx 2.0, is the removal of director George Duchak, who will be replaced by Raj Shah, a former F-16 pilot and special assistant in the Office of the Secretary of Defense.

Shah, most recently senior director of strategy at Palo Alto Networks, will be the new managing partner of DIUx, leading a four-person board that Carter described as "taking yet another page from the Silicon Valley playbook, and making the leadership structure of DIUx as flat as any startup here in the Valley."

While Carter praised his work in getting the unit off the ground and said Duchak would be returning to Washington — "we look forward to his continued service at the Pentagon, where I've asked him to leverage his experiences here to help expand innovative practices in other areas of DoD" — it is hard not to view the move as an admission that Duchak's leadership of DIUx was not getting the job done.

Ben FitzGerald of the Center for a New American Security said "it seems like [Duchak] understood how startups operated, but he was operating a DoD organization. … Duchak wasn't quite as innovative in implantation as the organization was in rhetoric."

However, a source with knowledge of the challenges facing DIUx believes that Duchak wasn't the problem, as much as institutional challenges from a Pentagon bureaucracy that was outright hostile to the new group.

"Early on, they didn't give DIUx any money or contracting authority. You can't have an organization on the West Coast micromanaged from OSD [the Office of the Secretary of Defense] and think it's going to be successful," the source said. "The Pentagon sees everything in power balance views of bureaucracy and they don't see it in long-term security issues."

Which gets back to the decision to have the group report directly to Carter, something the secretary acknowledged to reporters during the trip.

"One of the things we learned from DIUx is that the Department of Defense is frequently not rapid and agile enough," Carter said. "So if I show that from the very top, agility in decision-making, adaptability, the ability to sense that you're not getting somewhere and change course and go somewhere else, I want to show that coming from the top and I want to support that coming from the top."

FitzGerald sees benefits in having Carter get direct report from DIUx.

"It will ease some of the bureaucratic challenges they've faced internally, in terms of getting approvals to do things," FitzGerald said. "And it helps ensure that they are able to execute more effectively while the secretary is still in place."

Jeff Bialos, a former deputy undersecretary of defense for industrial affairs now with Sutherland Asbill & Brennan LLP, says it's not unusual for a secretary to have priority projects report directly to his office.

"It's a way to keep it a priority. That's the upside," Bialos said. The downside is that it's disconnected from the rest of the large defense S&T ecosystem, and it doesn't begin to address the underlying issues, if any, that we have with commercial participation."

Carter seemed to acknowledge some of that problem when saying DIUx will now "work closely with DoD's rapid acquisition cells and R&D community," which could in theory include groups like the Defense Advanced Research Projects Agency (DARPA).

Andrew Hunter of the Center for Strategic and International Studies says that shows "DoD has heard and understood industry's message that their level of interest will be directly related to whether this effort leads to actual work and real revenues."

"As rapid acquisition has an abundance of real problems to solve and real money to put against solving them, I think industry will find interactions with DIUx 2.0 more concrete and engaging," Hunter, a former director of DoD's Joint Rapid Acquisition Cell, said. "Being more closely tied to the existing rapid acquisition entities will quickly expand their ability to link innovative companies with real problems and real contracts."

While it comes with benefits, making DIUx a direct report to Carter comes with serious implications with a new administration — and presumably a new secretary — coming into office in just seven months.

Says FitzGerald: "It puts added pressure on them to deliver and have a viable model in place by the time of the transition, because it seems highly unlikely a future secretary will have them report directly to him or her and they will need to be able to survive on their own at that point."

Or, as Bialos warns, "by making it personal to the secretary, it makes it less likely it will have a long shelf life."

Carter also announced the opening of a new DIUx outpost in Boston. Few details were available, although a Pentagon spokesperson said the office will be "operational by this summer" and that "DIUx East and West will have a shared reporting structure, with both reporting to Raj Shah."

Hunter believes the standup in Boston will go "much quicker" than in the valley, noting that the original DIUx has done much of the groundwork in figuring out how to handle the gathering of furniture and IT that is required. And getting things done quickly is going to be important.

"It certainly can survive him," Hunter said of Carter and DIUx. "It is still an open question whether it will."

Email: amehta@defensenews.com

Twitter: @AaronMehta

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

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