Post-Soviet Innovations: Incremental or Radical

"FOR Ukroboronprom, innovation is a matter of survival", Deputy Director general of the concern

The state concern "Ukroboronprom" joins more than a hundred enterprises of the military-industrial complex of Ukraine, many of which are of strategic importance to the economy and security of the country. Ukrainian military equipment is known abroad, at UOP Enterprises there are development of new missile equipment, RADAR, projects for modernization of combat aircrafts, helicopters and armored vehicles are being implemented. Since the Russian war against Ukraine, the latest technologies have become the key to saving lives of our military. And given the export orientation of the domestic defense industry, innovation is also a necessary condition for success in the world arms market.

We talked about the development of technology and innovation strategy of UOP State concern with the Deputy Director general of "Ukroboronprom" on innovations by Nadiia Vasileva.

You head to the concern innovation direction, and as far as we understand, this is a new position in governance. What exactly includes the direction of innovation in "Ukroboronprom"-only the introduction of existing technologies or the search for new solutions?

Indeed, the position of Deputy general Director for innovation at the state Concern "Ukroboronprom" appeared for the first time at the end of 2019. Our team considers digitalization, innovations integral parts of the group's transformation. Innovation for us is the revival and strengthening of the design direction of the national defense, it is new business models of cooperation and transparent interaction, as well as protection of intellectual property on our developments. Technology and development today constitute a significant part of the capitalization of World industrial giants, and innovation in our sector is not only the guarantee of economic development, but also a critically important part of the country's defense capability.

The direction of Ukroboronprom's innovation has an ambitious goal – to set the standard in which spheres to look for new technological solutions for defense. We understand trends and have a strategy for the future. Our enterprises already possess unique technologies and material and technical base for repair, improvement and modernization of equipment, which is armed with the Ukrainian army. But we understand that we have not only the Ukrainian market, but also the world and we need to know how it develops.

If we continue to produce only existing products and not take into account the directions of market development, we will finish our production in three years. In addition, our products are mainly low-margin and its sales volumes do not allow to separate part from income on innovation. In the world's giants it is up to 30-40% of trade turnover, and in Ukraine we leave only the same 30%, but at all costs – other quarterly takes the state as their own company. Therefore, we have formed a strategy for introducing new technologies of high-margin products. Currently, we spend 3-5% of resources on innovative fields and their research, and 95%-for upgrading and upgrading existing products. However, the percentage of expenditures will constantly change in favor of new technologies.

Does not conflict the idea of creating any technological unit that has yet to be created by R. Romanov (general director of the state CONCERN "Ukroboronprom" in 2014-2018- "Mic") with the presidential Decree 59/20, which marked the creation of a separate agency for development of technology?

I do not see contradictions here. There is a general direction of strengthening of security of the country and Supreme Commander defines, among other, ways of development of defense technologies. "Ukroboronprom", first of all, is the company that provides production-that is, the introduction of technologies into life. If UOP enterprises (which are more than 100 factories) will not implement innovative approaches and technologies – we just become uncompetitive and lose markets. For Ukroboronprom, innovation is a matter of survival and it does not depend on the creation of an agency in the structure of executive power.

I want everyone to understand: Any company without innovations is doomed. Both in terms of product sales strategy and in terms of the development of their specialists and engineers. We need to look at the market in a modern. We have more than 15,000 constructors and working engineering specialties that await loading and wages boards. But neither state orders nor existing markets are enough to download our design and production capacities. We need to innovate in products, production technologies and business models to find new markets and types of funding. In all the economies of the world most powerful innovations occur in the military sector; Innovation in the civil sector is on the order of cheaper and less radical.

Can there be a conflict of interest? For example, there will be a profile central executive Body-the ministry or agency-you will be for the development of some technologies, and the agency-for the development of others. How to solve such issues?

I convinced that the State and the state concern "Ukroboronprom" should act in shared interests and follow modern trends. For this purpose we revived the Scientific and Technical Council of Ukroboronprom, which created the so-called "small chamber" to coordinate the needs of our clients and understand the challenges they face. Client – The forces of security and defense of Ukraine – should be a key factor in the absence of conflict of interest. In relation to the weapons producers ' market, we stand for competition and do not fight for monopolists. There are interesting, promising ideas and developments in the private sector, there are great startups. There are breakthrough technologies in sectors that are not at all in general, but there are modern developments, which can be used in our solutions and products. At the same time, the arms market is highly competitive, high-tech and capital-intensive. Our industry does not work without cooperation and partnerships, no one here will survive.

As for high-tech military developments it is necessary to understand the following. No startup will not be able to bring the product to a high level of engineering product transmissionin    a  mass production. This requires not only a design bureau of experienced constructors and engineers, but also a system of design documentation for the preparation of production, arming, transferring to a series and  registration of intellectual property rights. It would Be logical to develop intellectual potential of Ukraine on the basis of defense industry, so that there was a request for engineering development, and the final product of production in large sizes. Military technologies can and should flow through a certain period of time into other spheres and civilian products and work in the interests of society.

Based on the expectations and demands of our key stakeholders – Ukraine's security and defence forces, starting from our strengths and potential, the opportunities of partnership cooperation and taking into account the world's trends, we will build our unique product strategy.

What exactly will the product strategy include? What weapons are you betting on?

In order to determine our product strategy, we have re-launched the UOP Scientific and Technical Council, which has not worked for 8 years – This also indicates how the priority for the previous executives was. STC unites representatives of our Divisions and Engineering Bureau of Enterprises, as well as market experts, representatives of relevant ministries and other authorities. This is a platform for common denominator and inclusive development in the interests of the State and domestic of. By the end of May, we plan to develop a medium-term product strategy with a focus on several purely innovative new high-margin products. What exactly this will be until I disclose. Our task is to prepare prototypes for the "Arms and Security" exhibition in autumn.

Is the cooperation between the "Ukroboropromom" and the "Kyiv Polytechnic", which included the creation of an open platform and technology competitions, is promising?

I believe that ukroboronprom able to to make the start-up contest independently. But this does not mean that we are closed and working ourselves. We have the idea of building a technopark.

As for the KPI and other polytechnic Universities, we are committed to revive respect for engineering specialities and renew education not only for youth but also existing constructors with modern methods of development and engineering. We need to make the work of professionals in the field of defense modern, comfortable and highly paid. The design reform that we are planning will involve two parallel programs:

First – for a leading team of constructors, which will consist of a small number of most talented and energetic constructors with experience and modern knowledge, and representatives of the young generation of high ambition engineers and no less modern knowledge in development, engineering, mathematics, project management.

The second is for the so-called transformational team, whose task will be to find those products and business models that provideлthe economy of most of the constructors and engineers through the development and production of double or civilian purposesinorder to meet the needs of the population and give  impetus to the development of Ukraine's economy.

Such teams should be strengthen by experts in product design and business modeling economists. Here we count very on cooperation with the private sector. For us – Quality and responsibility, for the private sector – business models and orders.

Why do you think Ukraine could not create an analogue of American DARPA?

Unfortunately, Ukraine invests more in incremental technologies (modernization and improvement), rather than in radical innovations, when it is necessary to look at the problem very differently and to allow inventors and scientists to demonstrate new opportunities. To do this, the foundation was created, in which, as well as in startups, 60-90% of the realized ideas would be ineffective. The Question here is: How is the use of money in Ukraine called inefficient means? That is, a non-purpose or corrupt purpose (if a conflict of interests is proved) useof state funds. On the one  hand, the absence of people in Ukraine who make decisions and have responsibility are the disease of independent modern Ukraine. On the other-baiting people who demonstrate the result. You need to look for best balance. And this is the first.

Secondly, long-term research requires a stable economy and on-нthe-standsoftware financing. Our policy is very short-term – look at the frequency of changes in governments. We plan to very short-term, in the framework of one-year budgets, now at least try to do it for 3 years. And if we talk about DARPA, then this is an investment of 5 -10 years.

Thirdly. We have in the non-public sector innovative funds that are looking for interesting new projects, but the amount of investment is too small even for military research, let alone development.

Fourth, we have lost respect for engineering specialities. Not IT, namely engineering, where talented studied the young people and generating new ideas based on directions that exactly and sets DARPA.

But it should be noted that the NSDC under the presidency of the President is now brings a decision about the programs to develop innovative directions in certain areas, which we base on critical technologies of our innovation strategy.

So where to take the investment for innovative developments?

Unfortunately, in recent years, the state has not been particularly focused on investments in research, or they were not later integrated into the production of state-owned companies. Instead, the global weapons market is investing in research and development from 9% of the volume of defence sales in Europe-up to 15% in Israel. This is in addition to private investment and investment companies themselves. Unfortunately, Ukraine has invested not more than 2% on the development of military products in the past 5 years. Yes, we really need innovative investments, but they will come from high-margin products. In developed countries, they constitute the specific weight in the product portfolio, and profits from them are reinvested in other areas of research. In order to return to the top-10 world arms suppliers, we need to increase our destiny in the total defense budget of the world from 1% to 2.2%, and this is only on the current world budgets of almost $2 billion. This is a great challenge. That is why in the medium term, we rely on 1-2 innovative high-margin products in each area of "Ukroboronprom" (air , sea, land), over which our STC is currently working.

Is it possible for the SC "Ukroboronprom" joint projects on the creation of shock aviation or ground robots with private enterprises?

Now we want to look at foreign markets and understand where the budget is spent there. After that we will have to come to the military management of the country and say: "We are ready to invest in promising development, if the State service of export control will allow us to supply the latest technology abroad without setting them up for service in Ukraine". In fact, the concern is very difficult to get out of the current doctrine, which is in our defense complex, because technology has initially to purchase the ministry of Defense Of Ukraine, and it does not procure super-innovative areas of development at this moment, it needs weapons for war    today.

Are there any joint ventures with foreign states? How do they work?

The previous Ukroboronprom management had preliminary agreements with several companies. We currently study them and deal with distressed contracts that we inherited.

If we talk about the JV, then more than anything is not how much joint production, as a joint development andnew Armament, as well as opportunities to enter the markets, where Ukraine has not been represented before. Because even if Ukraine is not going to produce such weapons for its own needs, we can get money for joint development from other states. And we can continue to use such technologies for our domestic economy – in the products of civilian purpose. Currently, there is Napracgation in such spheres as the development of radar and aviation complexes – we negotiate such contracts. Joint development concerning DKR or research work is underway. We have still worked on the outsourcing, but this is the same as in the IT sector-we are buying "hands and brains", and do not buythejob. The strategic objective that aims to develop the innovative direction of ukroboronprom, including such processes and principles, approaches and business models for which we would increase the technological potential of our economy by modern means, exchanged the advanced experience, received their intellectual property or share in the final product. We need to become a smart hub of Ukraine for the revival of the image of a talented intellectual nation in the world-due to own or joint skills, honest fulfillment of its obligations and highly professional modern approaches to interaction. Now we are interested in the creation of the joint teams for the development of new weapons. For example, when we work together on the same drum tank: some develop avionics, while others are the engine. We want to receive our intellectual property and common rights to implement.