Exclusive: How the German military created a startup culture

By Shirley Tay

Marcel ‘Otto’ Yon, founder and ex-CEO of the Bundeswehr Cyber Innovation Hub, shares his secrets for incorporating agility and innovation into the German military.

​​​​​​Image: Bundeswehr

What can the military learn from startups? A lot, says Marcel ‘Otto’ Yon.

50 years ago, defence organisations were the “key drivers for innovation”, he adds. “But all of a sudden, we live in a world in which disruptive innovation is coming from small startups.” That can be “a very difficult concept, because we come from a world where size is a competitive advantage and now it slows us down.”

Yon is the founder and former CEO of the Bundeswehr Cyber Innovation Hub, the digital innovation unit in the German military. How did he get a large, bureaucratic organisation to be agile and work with startups? GovInsider spoke to him to find out how he created an entrepreneurial culture in the military.

How it all started

Yon started out as an investment banker, but wanted to be an entrepreneur. He became the Executive Director of Zentrum für Neuroinformatik, a German research institute. “That’s how I got into the startup world,” he shares. From there, he spent 16 years creating companies specialising in AI, healthcare and national security.

“If you had asked me 10 years ago, I would have not believed that I would end up in the Ministry of Defence,” Yon says. But a “series of coincidences” led him to serve as the special advisor of digital transformation under then-Minister of Defence, Ursula von der Leyen (who now heads the European Union).

“We initially had a discussion about how we can drive deep tech in the military, especially around AI and other technologies,” he says. Technology isn’t everything, he advised, and “culture” and “talent” were added to the menu.

“The question is, how do we change such a big organisation? Where do you start, and what’s the most effective thing to start with? There’s no single answer,” Yon says, but there’s one thing that has proven effective: to create a less complex universe, a digital innovation unit.

Incorporating startup culture

Yon founded the Innovation Hub in 2016 with the aim of working more closely with startups and incorporating an entrepreneurial spirit into the unit.

The Hub made it a priority to participate more in the startup ecosystem, Yon says. “If we don’t tap into the innovation of that ecosystem, we are missing out on something.”

Senior leadership in large organisations “want to work more with startups but then tend to task their corporate teams with the mission”, he says, and advocates that the military and large organisations alike should hire more startup entrepreneurs.

Startup culture needs to be incorporated into the “core” of the organisation, Yon believes, and that includes hiring. 50 per cent of the hub’s manpower comes from the startup ecosystem – which brings a diversity of mindsets and experience.

“You don’t need to take everything on board from the startup ecosystem,” Yon says. “Not everything will be suited for your organisation, but much more than you think.”

Yon also sought to create a culture of experimentation in his team. Fear and corporate rules are a huge impediment to innovation, he says, and it was important to create an environment where “people feel safe to experiment, but are reasonable enough to not engage in crazy risks.”

The key success factor to working successfully with startups, Yon adds, is to create efficient decision making and procurement processes. So the Hub designed a process “to source innovations in less than 90 days from the initial idea to the delivery into the hands of the soldier”. In total, over 18,000 startups have been sourced and 80 projects initiated.

Creating with the user

At the Hub, all of the projects were done together with military troops, Yon says. The team always believed that “‘with the user’ is better than ‘for the user’”.

“This is not how the military typically works. It usually goes through the hierarchies of the organisation,” he adds. Departments such as R&D, planning, sourcing and procurement go through a “formalised” way of thinking what the user needs, and then creating it for them. There’s an “underlying assumption that because they had been in the operating business before, they know what needs to be done.”

The Hub challenges that assumption, says Yon. His team applies techniques like user experience and design thinking to understand what soldiers need. That is “more effective than doing it, even for all best intents and purposes, for the user.”

In 90 per cent of the projects, the outcome is not exactly as imagined, he says, and more adjustments need to be made. “In the old days, we could define specifications and say this is what we need,” Yon adds. Today, however, we live in a world where products are never finished. “We need to build the rocket in flight.”

As a result, the military needs to change the way it procures technology. It’s important to consider how the product will evolve in the next months.

For a military organisation, the Hub has a relatively short investment horizon of 1-2 years, Yon says. The assumption was that "we needed to onboard what’s already there before we start looking into what may become possible in 10 years - speed is the most important performance indicator", he adds.

Out-of-the-box innovation

When the Hub first started, Yon’s team thought they could rely on certain departments in the military to help set it up faster, he says. “When we wanted to buy software, and we had negotiated the contracts,” the military’s IT security, legal, and procurement department worked alongside them.

“That failed,” Yon says, because “we were not dealing with large German domestic corporates.” “All of a sudden, we were talking to international small startups, not used to the public sector, with a completely different risk profile.”

“The bottom-line lesson learned is that if you want disruptive innovation, if you want really new things to emerge, the innovation unit must be free of the core organisation,” he adds.

That will probably mean that 90 per cent of the projects will be closed down at some point in time, he adds. “But if you don’t allow the unit to even start looking out of the box, you will never have out-of-the-box innovation. The higher risk associated with disruptive innovation should not be mitigated by placing an innovation unit under the governance and approvals of the core organisation, but by limiting the budget, measuring portfolio vs. project returns and selecting the right team, just like the venture capital industry is doing it.”

In the four years that Yon was leading the Cyber Innovation Hub, discussions on how independent the unit should be emerged. His team addressed it here and there – but the debate wasn’t closed, he says. “It’s an ongoing difficult question, a question of permanent balancing.”

The Hub was in “permanent conflict” with the military bureaucracy about this, he says. It had a lot of support from soldiers and the senior leaders who were willing to go very out of the box – but received a lot of pushback from middle management that “was always trying to keep us in the box,” Yon adds.

“The core organisation will always view and value everything innovators do from the perspective of their own wisdom – which was good wisdom in the past, but it will be an impediment to doing things differently,” Yon says. “You cannot be different if you work like how your organisation always works.”

Most innovation units are forced to hand over projects to their core organisations too early, he says. “I don’t believe this works in disruptive business models or technology innovations.”

When the project is handed over, the core organisation needs to really be invested in the project – as new technology will require constant adjustments and iterations, he says. But traditional organisations are “not used to, don’t have the experience and don’t demonstrate the resilience required.” “Let the innovation unit build and grow the new capability. Only when it’s really mature, then hand it over,” says Yon.

Traditional, structured processes are no longer viable in today’s volatile world. “Too many people involved from too many departments”, Yon believes, “don’t really help create a better product”. Even military organisations need to experiment small and fast– and may indeed have a lot to learn from startups.

Marcel "Otto" Yon is a partner of innovation@scale, a company builder and consulting firm for disruptive innovation in security and defence. He may be reached at accelerate@innovation-at-scale.com