The need to transform America's military capability encompasses more than strategy and force structure. Transformation applies not just to what DoD does, but how DoD does it. During the same period that the security environment shifted from a Cold War structure to one of many and varied threats, the capabilities and productivity of modern businesses changed fundamentally. The Department of Defense has not kept pace with the changing business environment.
A transformed U.S. force must be matched by a support structure that is equally agile, flexible, and innovative. It must be a structure in which each of DoD's dedicated civilian and military members can apply their talents to defend America - where they have the resources, information, tools, training, and freedom to perform.
Transforming DoD's outdated support structure is a key step in achieving a more capable fighting force.
- DoD maintains between 20 and 25 percent more facility infrastructure than needed to support its forces - at an annual excess cost of $3 to $4 billion.
- DoD's financial systems are decades old and not well interconnected, and accounting and auditing processes would struggle to meet the standards of generally accepted accounting principles.
- DoD's business processes and regulations seem to be engineered to prevent any mistake. By doing so, these regulations often discourage taking any risk.
An infrastructure that needs to be streamlined to match the new reality, financial systems that limit the ability to see and manage the enterprise, and processes that discourage action and reasonable risk at the working level are hallmarks of a mature enterprise that must be transformed. While America's business have streamlined and adopted new business models to react to fast-moving changes in markets and technologies, the Defense Department has lagged behind without an overarching strategy to improve its business practices.
To redress this situation and lead the Defense Department's revitalization process, the DoD has established the Senior Executive Council (SEC) led by the Deputy Secretary of Defense and consisting of the Service Secretaries, and the Under Secretary of Defense for Acquisition, Technology and Logistics. The SEC will steer the Defense Department through what will be a challenging period of change. The Defense Department has also created a Defense Business Practices Implementation Board to tap outside expertise as the Department moves to improve its business practices.
To focus these efforts, the Defense Department will institute programs to improve its performance in the following areas:
- Encourage talent to enter and stay in the military and civilian service; and
- Modernize DoD business processes and infrastructure.
Encourage Talent to Enter and Stay in the Military and Civilian Service
Skilled, talented, and motivated people are the foundation of a leaner, more flexible support structure. Improving the skills of the existing workforce and recruiting, retaining, training, and educating new people must be a top priority. Many of the skills the Department needs are the same ones most in demand in the private sector. The Department must forge a new compact with its warfighters and those who support them - one that honors their service, understands their needs, and encourages them to make national defense a lifelong career.
Accomplishing this management imperative will require strong leadership and innovative thinking about how to attract, motivate, and compensate the workforce. It will require new rules for hiring and managing personnel. It will also require increased interaction with the private sector to ensure that the flow of people and knowledge between both sectors is enhanced.
Toward this end, DoD will develop a strategic human resources plan for military and civilian personnel. This strategy will identify the tools necessary to size and shape the military and civilian force to provide adequate numbers of high-quality, skilled, and professionally developed people.
In recognition of the changing demographics of DoD's military families and the changes that will be initiated as a result of this review, DoD will also review existing quality of life services and policies to guarantee that they have kept pace with modern requirements. The Government also needs to ensure that it fulfills its responsibility to fund quality programs required to sustain the force. Further, the Department will address the need to manage personnel tempo and improve military housing.
To create a world class health system, DoD has initiated a comprehensive review of all Defense and Service health agencies, management activities, and programs; and strengthened the TRICARE system to ensure better management and accountability. A coordinated, integrated, and adequately resourced health care system with an improved organizational structure will ensure the availability of contingency medical capabilities for active forces. It also will administer medical benefits to dependents and retirees in order to meet the needs of the force and expectations of the broader Service family.
The need to attract, develop, and retain civilian personnel is just as important. Many of the advances in private sector human resources management have not been incorporated into the DoD civilian personnel system. For civilian personnel, the human resources approach will include:
- Modernized recruiting techniques;
- More flexible compensation approaches;
- Enhanced training and knowledge management; and
- Career planning and management tools.
Modernize DoD Business Processes and Infrastructure
The Department of Defense must transform its business processes and infrastructure to both enhance the capabilities and creativity of its employees and free up resources to support warfighting and the transformation of military capabilities.
To accomplish this, DoD's organizational structure will be streamlined and flattened to take advantage of the opportunities that the rapid flow of data and information present. As in business, entire functions need to be eliminated. Boundaries must be broken to accelerate change across the entire organization, promote cooperation, share information and best practices, and institutionalize change throughout the Department. In both the organizational structure and the military culture, DoD must find ways to encourage and reward innovation and risk-taking among fighting forces as well as support personnel.
On the support side, the task is to remove layers that no longer provide value added. To accomplish this, the Department will initiate efforts in the following areas:
- Streamline the overhead structure and flatten the organization;
- Focus DoD "owned" resources on being excellent in those areas that contribute directly to warfighting;
- Modernize the DoD-wide approach to business information; and
- Consolidate and modernize base infrastructure.
Streamline the overhead structure and flatten the organization. The Department of Defense is committed to reducing all of its headquarters staffs by 15 percent from FY1999 baseline as specified in section 921(b) of the FY2000 National Defense Authorization Act. DoD is currently developing a plan to comply with this goal. In light of emerging, new requirements associated with the U.S. war on terrorism, any savings realized from such reductions would assist the Department in meeting higher-priority needs.
The Department must also align, consolidate, or differentiate overlapping functions of the Office of the Secretary of Defense, the Services, and the Joint Staff. To do this, DoD will develop recommendations to eliminate redundancy.
The military departments also are evaluating changes in their headquarters structures to improve their ability to perform executive functions at lower staffing levels.
Two major institutional processes - the planning, programming and budgeting system (PPBS) and the acquisition process - create a significant amount of the self-imposed institutional work in the Department. Simplifying these processes will support a streamlining of the entire organization. The Department has already taken the first step by conducting a concurrent program and budget review. DoD will explore options to fully redesign the way it plans, programs, and budgets. DoD has already begun streamlining the Defense Acquisition Board (DAB) process, including reducing funding for acquisition-related studies and analyses by 10 percent and eliminating 31 of 72 acquisition-related advisory boards.
The goal throughout this set of initiatives is to reduce the complexity of the Department of Defense, which has been driving the increase in the relative size of the overhead structure. In fact, the goal will be to increase measurably the tooth-to-tail ratio over the next five years. DoD will measure success by comparing the headquarters personnel totals to dollars spent on headquarters and headquarters personnel versus warfighting forces.
Focus DoD "owned" resources on excellence in those areas that contribute directly to warfighting. Only those functions that must be performed by DoD should be kept by DoD. Any function that can be provided by the private sector is not a core government function. Traditionally, "core" has been very loosely and imprecisely defined and too often used as a way of protecting existing arrangements.
Over the last several decades, most private sector corporations have moved aggressively away from providing most of their own services. Instead they have concentrated efforts on core functions and businesses, while building alliances with suppliers for a vast range of products and services not considered core to the value they can best add in the economy. The Department has experimented with this business practice with some success (e.g., providing vertical replenishment at sea, oilers manned by civilians, or food and other services in forward deployed areas). Aggressively pursuing this effort to improve productivity requires a major change in the culture of the Department.
DoD will assess all its functions to separate core and non-core functions. The test will be whether a function is directly necessary for warfighting. The review will divide these functions into three broad categories:
- Functions directly linked to warfighting and best performed by the federal government. In these areas, DoD will invest in process and technology to improve performance.
- Functions indirectly linked to warfighting capability that must be shared by the public and private sectors. In these areas, DoD will seek to define new models of public-private partnerships to improve performance.
- Functions not linked to warfighting and best performed by the private sector. In these areas, DoD will seek to privatize or outsource entire functions or define new mechanisms for partnerships with private firms or other public agencies.
The Department has already taken steps to outsource and shed non-core responsibilities, including the privatization of military housing and the privatization of utility services for military installations. In addition, DoD will create a small team to develop alternatives to the Agency or Field Activity model that permits the Department to produce cross-DoD outputs at a significantly lower cost.
Defense Agencies. Over time, the Defense Agencies have served to consolidate functions common to the Services. This process has resulted in better, more integrated outputs and has helped to modernize the Department's business processes. To improve the business practices of the Defense Agencies, DoD will begin a review of the Agencies to seek efficiencies. Transformation roadmaps for Defense Agencies will be developed keyed toward agencies planned contributions to helping DoD meet the critical operations goals outlined earlier.
Defense Working Capital Fund. DoD will develop a plan for improving the effectiveness of the Defense Working Capital Fund. The fund was created as a pricing mechanism for the military services to procure goods and services from Defense Agencies. The notion of paying for outputs is right minded. However, the Fund mechanism subsumes a number of elements in its pricing mechanism (for example, the expected cost of mobilization), which masks the peacetime cost of outputs.
Modernize the DoD-wide approach to business information. Today's technology makes the accurate, timely flow of information possible. Pushing this information down will enable decision-making at the right level and will, in turn, support the flattening and streamlining of the organization. DoD must keep its information, communication, and other management technologies on a par with the best, proven technologies available.
The Department's business activities include financial as well as non- financial operations and systems. Non-financial business operations and systems include those that support the acquisition, medical, maintenance, transportation, property, inventory, supply, and personnel communities. However, the Department's financial and non-financial operations and systems do not work together effectively to produce the most desirable business management information. Correcting this deficiency will require a broad set of initiatives.
DoD will create a Department-wide blueprint (enterprise architecture) that will prescribe how the Department's financial and non-financial feeder systems and management processes will interact. This architecture will guide the development of enterprise-level processes and systems throughout DoD.
Regular periodic consultation with the U.S. Comptroller General has been initiated to gain insight and support for improving the Defense Department's financial processes. DoD will also continue to work with Congress to better coordinate financial management oversight activities.
Consolidate and modernize DoD facility infrastructure. Currently, DoD has 20 to 25 percent more facility structure than it needs to support its forces. Due to budget constraints over the last decade, much of that infrastructure has begun to age beyond acceptable levels. Dollars that could be spent on more urgent transformation priorities are being used to maintain installations that may no longer be needed.
To reduce waste and inefficiencies, facilities must be restructured to support multi-Service missions. In July 2001, the Department announced an Efficient Facilities Initiative (EFI). EFI will enable the U.S. military to match facilities to forces, meet the threats and challenges of a new century, and make the wisest use of limited defense dollars. EFI ensures the primacy of military value in making decisions on facilities and harnesses the strength and creativity of the private sector by creating partnerships with local communities. All military installations will be reviewed, and recommendations will be based on the military value of the facilities and the structure of the force.
The EFI will encourage a cooperative effort between the President, the Congress, and the military and local communities to achieve the most effective and efficient base structure for America's Armed Forces. It will give local communities a significant role in determining the future use of facilities in their area by transferring closed installations to local redevelopers at no cost (provided that proceeds are reinvested) and by creating partnerships with local communities to own, operate, or maintain those installations that remain.
Consolidating facilities will focus funds on facilities that are actually needed and help to reduce the recapitalization rate of those that remain to a level closer to DoD's goal of 67 years. Consolidation will also save an estimated $3.5 billion annually.
Compress the Supply Chain. American businesses have achieved some of their greatest efficiencies and savings by reforming their supply chain processes to remove steps, reduce inventories, and cut costs. By scrubbing their warehousing, distribution, and order fulfillment processes, they have cut out "non-value-added" steps. The Department has made some recent advances in reducing inventories of common consumable items and in promoting practices like direct vendor deliveries. However, DoD still maintains large inventories that could be substantially reduced by applying an array of supply chain practices. This could include use of industrial partners responsible for life cycle support of a weapon system or commodity item. DoD also incurs significant overhead costs for functions that vendors could perform. Performance- Based Logistics and modern business systems with appropriate metrics can eliminate many of these non-value-added steps. DoD will implement Performance-Based Logistics to compress the supply chain and improve readiness for major weapons systems and commodities.
Reduce Cycle Time. Every reduction in cycle time brings improvements in efficiency and reductions in cost. Industry has figured out how to get their average delivery time down to 24 to 48 hours; the government customer should get the same or better from the government supplier. Private sector benchmarks should set the standard for government providers, whether the function is processing and paying a bill, moving a part from a supply center or depot to a field unit, or making the transformation from concept to employment.
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