Pierre Chao shares his thoughts on where future innovation will come from.

When looking at today’s market and trying to figure out where innovation will come from in the future, where do you begin?

This was the theme of the Fairfax County, Va., Chamber of Commerce 2013 GovCon Symposium that took place Tuesday morning.

Pierre Chao, managing partner at Enlightenment Capital and Renaissance Strategic Advisors, sat on one of the panels, and gave his views about future industry innovation.

He was asked what his expectations for change in the government contracting industry are, and what stability is going to look like in the new world.

But it isn’t stability that should be considered most here, Chao said. “Dynamism is actually what you’re looking for,” he said.

“There are so many trends in the industry that it’s important to set them into two categories,” Chao said; there are long-term, secular trends, and then there are cyclical trends.

“Innovation is tied to either one of these,” he added.

The long-term trends are things like moving to the cloud and cybersecurity—things that need to be considered and implemented now, and will not lose their importance, he said.

Another long-term trend that Chao mentioned was the aging of the federal workforce.

Five years from now, the government will have lost around half of its workforce, and “it is this room,” Chao said, referring to government contractors, “that is going to solve those problems.”

Going into cyclical trends, Chao said that the current time “smells and looks a lot like ’89 to ’91, that many of us lived through,” he said.

So, many contractors probably have a sense of what is going to happen, and what needs to be done.

For those that don’t, Chao said that his company did an analysis of the top 100 companies in the last downturn, potted their strategies, and were able to figure out the best and worst strategies for companies during such a downturn.v

The worst, value-destructive strategy was, not surprisingly, to do nothing, with the second worst value-destructive strategy being doing something you didn’t know how to do.

“The strategy that created the most value, at that time, was the proactive strategy, which at that time was [mergers and acquisitions], and hence why we see [mergers and acquisitions] as part of the landscape,” Chao said.

And to the extent that mergers and acquisitions is somewhat constrained by government policy, innovation this time around will show up in business model innovation, Chao said, and it will be related to products.

He said he could trace the top 10 defense companies back to the 1930s, noting very little change at the top from that perspective.

“The only times when the industry changes are when new technology shows up,” he said.

Older defense companies are tied to the aircraft age, and the newer ones were tied to the technology age. “The next batch was services, and we can all try to imagine what’s going to be the next wave,” Chao said.