The Outsourcing Paradox – How Traditional Defense Procurement Stifles Innovation and How the Vested Model Can Fix It

In theory (the best, easiest and most convenient of Worlds...) outsourcing is meant to drive efficiency, leverage specialized expertise, and reduce costs.

In practice—especially in the defense sector—it often achieves the opposite: stifling innovation, creating dependency on legacy contractors, and slowing down technological advancements.

This is the Outsourcing Paradox—where the very act of contracting out work to external suppliers, rather than fostering internal R&D and co-creation, leads to a loss of agility, innovation, and strategic independence.

This does not happen by any law of Nature. It happens when the Contracting party hires an expert or an innovator to do their magic. And then tells them What to Do, How To Do It and When To Do It.

Nowhere is this paradox more evident than in the Defense sector, where procurement policies, despite being rooted in technological ambition, have often fallen into the trap of over-reliance on established vendors, rigid procurement structures, and innovation bottlenecks.

However, by embracing the Vested model and relational contracting, there is a real opportunity to break free from this cycle and reignite defense-tech innovation.

How the Outsourcing Paradox Has Stifled Defense Innovation

The Over-Reliance on Legacy Contractors – The Grip of Established Players

Nordic countries—despite having some of the world’s most innovative tech ecosystems—have historically relied on a small group of legacy defense contractors. These firms, while competent, have monopolized military procurement, often leading to cost overruns, sluggish development cycles, and a lack of competition.

?? Problem:

• Limited domestic defense R&D investment.
• Dependence on foreign suppliers for upgrades and modifications.
• Lack of an innovation ecosystem to develop indigenous alternatives.

Siloed Procurement – Locking Out Startups and Scaleups

Traditional defense procurement in the Nordics has largely been geared towards large-scale contracts, which are complex, rigid, and out of reach for startups.

?? Problem:

• Nordic startups struggle to enter defense markets due to traditional bidding requirements.
• Large contracts discourage modular innovation—instead of integrating solutions from multiple players, the focus is on “all-in-one” projects.
• Slow adoption of emerging technologies due to bureaucratic procurement cycles.

The Illusion of Cost Savings – Outsourcing to Cut Costs, but Increasing Long-Term Dependence

One of the fundamental arguments for outsourcing in defense procurement is cost efficiency—governments contract out to the lowest bidder to save money. But in reality, this often leads to higher long-term costs, dependency on external contractors, and less control over critical defense infrastructure.

?? Problem:

• Lack of long-term strategic independence.
• Higher costs for upgrades and modifications due to dependency on external firms.
• Reduced ability to integrate emerging defense technologies without supplier approval.

How the Vested Model Can Solve the Outsourcing Paradox in Nordic Defense Innovation

To break free from over-reliance on legacy contractors, rigid procurement, and innovation bottlenecks, Nordic defense agencies should shift from transactional outsourcing to collaborative, outcome-based partnerships—a model perfectly suited for Vested contracting.

From Short-Term Contracts to Long-Term, Performance-Based Partnerships

Instead of focusing on short-term, fixed-price contracts, the Vested model creates long-term partnerships where suppliers are rewarded based on innovation, efficiency, and real-world performance.

? Solution:

• Move from fixed contracts to innovation-driven agreements that allow for continuous iteration.
• Focus on shared risk and shared reward—where defense contractors are incentivized to deliver breakthroughs, not just fulfill a static contract.
• Example: Norway’s defense partnership with Kongsberg, which integrates real-time performance data into procurement decisions.

Opening the Door for Startups – Building a Defense Innovation Ecosystem

Rather than limiting procurement to large legacy firms, Nordic defense ministries can use the Vested model to integrate startups and scaleups into procurement ecosystems.

? Solution:

• Develop dual-use technology incubators, where startups work alongside defense agencies on emerging military applications.
• Implement modular contracting, allowing smaller firms to contribute niche solutions rather than requiring them to bid for massive contracts.
• Example: Sweden’s AI-focused defense sandbox, which is piloting private-sector AI innovations for military applications.

Reducing Long-Term Dependency – Bringing Key Capabilities Back In-House

Instead of fully outsourcing key military assets, the Vested model enables hybrid approaches where critical capabilities are co-developed between governments and private industry.

? Solution:

• Shift from pure outsourcing to in-house capability building, ensuring Nordic countries retain critical defense technology expertise.
• Encourage joint ventures between governments and private companies to co-own military IP rather than fully handing over control.
• Example: Finland’s hybrid defense R&D model, where the state retains partial control over critical technology while outsourcing non-core functions.

Conclusion – Rethinking Outsourcing to Secure Nordic Defense Innovation

The Outsourcing Paradox has long constrained defense innovation in the Nordics, locking out startups, creating supplier dependency, and slowing technological advancement.

By shifting to Vested contracting, modular procurement, and ecosystem-driven innovation, Nordic defense agencies can:

? Foster a high-tech defense ecosystem that integrates startups and research institutions.

? Reduce long-term costs and dependency by retaining core capabilities domestically.

? Accelerate defense innovation by enabling flexible, performance-based partnerships.

The question is no longer whether the Nordics must modernize defense procurement—but how fast they can break free from outdated models and seize the future of military innovation.

Are governments and defense agencies ready to rethink their approach—or will they remain trapped in the paradox of outsourcing?