Mergers, acquisitions and private equity are important engines for innovation in the defense market as retired Air Force Gen. Hawk Carlisle sees it.

For this episode of Project 38, the National Defense Industrial Association's CEO explains to our Nick Wakeman how the lure of a return on investment needs to be a consideration as the government regulates M&A activity.

Carlisle believes domestic investors should be attracted to fund young innovative companies, which after some development and nurturing are then sold to larger U.S. defense firms. That type of investment scenario thrives in the commercial world.

But today’s defense environment is still structured around a 1960s-era system for planning, programming, budgeting, and execution that Carlisle says needs to change.