If you pay attention to the war between Ukraine and Russia, you will have seen changes in the way war is being done. Traditionally, while people had weapons war was done on a person to person basis. If one side had more people, they could send waves of people and eventually the other side would lose. This tactic was present during the Middle Ages and was one of the reasons why WW I was stopped. Both sides were losing too many people, and it was difficult to find more. Part of the problem with person to person is the need for the troops to rush in and be cannon fodder. The war in Ukraine and Russia is changing this with technology.

Drones or small unmanned aircraft outfitted with cameras and also can carry weapons, means there is less dependence on people. The drones can be sent from a safe place for the operator and if there are enough of them sent, some will reach their targets.

In an article by Omar Saleth and Paul Ziadea of North Vector Dynamics, an opinion article in the Globe and Mail, in early 2024, a $2.3 billion US Navy destroyer used a $2.1 million SM-2 missile to shoot down a $500 one way attack drone launched by Houthi rebels over the Red Sea. In the course of a few weeks, the US Navy spent more than $1 billion in high-end munitions defending commercial shipping lanes against threats that cost the enemy a few hundred dollars each to launch.

For the past decade, Western defense procurement has drifted toward the exquisite. Precision, complexity and integration have become synonymous with capability. But in the last couple of years because of drones, the shape of modern warfare has shifted. The ability to wage war has been disrupted. The old battle plans have been shifted, war has changed.

Drones have flipped the battlefield. Every new drone engagement pushes the same question – how long can the allies spend money before there is concern with deficits?

In the Ukraine, $39,000 Shaheds and $35,000 Lancets have knocked out multimillion dollar NATO tanks and air defense systems. In Gaza, rockets costing a few hundred dollars have triggered $40,000 to $50,000 Iron Dome interceptors and once in while get through. In the Red Sea, low-end drones have forced the Navy to expend $3 million missiles, and some drones have hit commercial ships.

A British defense and security think tank called Royal United Services Institute says drones are now responsible for 60 to 70% of all damaged and destroyed Russian equipment in Ukraine. A growing proportion are equipped with AI guidance. In the past, jamming radio frequencies would drop the human controlled drones to a 10 – 20% hit rates, the AI are achieving 70-80% hit rates.

The problem is not capability, it is culture. The Western defense procurement ecosystem is not built to reward cost-efficiency. It rewards integration, vendor relationships, program longevity and adherence to legacy doctrine.

Major defense firms still push gold-plated, monolithic systems built for complex and tightly controlled battlefields. For high-end threats, this makes sense. But against swarms of cheap drones, it is not good.

Linking to dividend paying stocks, a profitable company has the advantage of larger resources, but if the competition is changing the board with hundreds of dollars, it is a matter of time before either the competition is bought out or the competition becomes the leader. The reason is the disruption of what works and what does not. It is always important to understand what is the culture and the strategic plan of the company. Do you agree?

There are more questions than answers, till the next time – to raising questions.