The End State

Modernizing the Department of Defense (DOD) organization using known blueprints from the marketplace will allow the DOD to remove $100 billion from its annual baseline budget without cutting a single weapon system program. Pretty bold statement, but take it to the bank

The Department of Defense (DOD) approach to organization was once the organization construct most copied by large corporations in the 1950s. Back when General Motors was the largest employer in the country, the competitive landscape did not change very often, and firms were able to sell everything they made to the domestic market. This management construct was put in place to reduce the chance to make mistakes and preserve the status quo. Most companies produced their overall profit and loss statements for the company as a whole, masking how each business unit fared. To say the competitive landscape has changed significantly since the 1950s would not do it justice.

Over the past 30 years, in response to investor insistence for clarity, global competition, and a customer with access to aJI the information necessary to make an educated value-driven decision on whether to buy from company A or company B, the worlds largest public corporations modified their organizational and accounting constructs to be more agile, autonomous, self-contained, accountable, and successful. Global conglomerates opted to set up semi-autonomous strategic business units (SBU) who are solely responsible for their success or failure. In concert with the organizational change, companies adopted profit center accounting practices whereby each business unit inside the corporation is a stand-alone unit responsible for its profitability, allowing management and its investors to see exactly which units are doing well and which ones are not. To survive, they slashed overhead, merged organizations, eliminated whole echelons of management, increased individual productivity, optimized its supply chain, and provided its investors complete transparency to its management and business successes or shortcomings in near real time.

In organizational terms, the DOD, its five Under Secretaries, fifteen Defense Agencies, ten Joint Combatant Commands, and its three Service Secretariats remain organizationally in the backwaters of the middle of the last century. Each employs a traditional topdown autocratic, bureaucratic, mechanistic line and staff organization. The organization by design is slow to move on an opportunity, slow to innovate, slow to respond to complaints about product or service, risk averse, and often if not always has very complex and confusing chain of command. The old organization cannot keep up with the speed of change. The old organization is bloated with overlapping and duplicative functions. The old organization does not provide incentives to the employees to improve their productivity. The old organization does not incentivize management to flatten their organization; in fact, it incentivizes them to do the exact opposite. The old organization is not easy to understand who does what, to whom, and when. The focus is blurred and accountability suffers as a result. Note the term "old;" unfortunately it is really "current."

The richness of the United States and its citizens' willingness to spare nothing to ensure the country is able to preserve its way of life is legendary. In President Kennedys inaugural address 50 years ago, he advised the world ". . . that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty." No one questions the military's or the country's willingness to do what it takes "to assure the survival and the success of liberty." To date, the Defense Department has taken his words "we shall pay any price" literally to mean send money and people. Admiral Mullen, the Chairman of the Joint Chiefs (CJCS) has gone on record stating the national debt is the number one threat to our national security; and yet the fundamental military combat strategy in all venues is to never go to a knife fight with a knife.

Something has to give. The country faces the worst economic conditions in 80 years; it has $17 trillion of debt. The country incurred most of that debt to fight wars, provide money for infrastructure enhancements to facilitate trade, incubate new technologies in all disciplines, and provide social support programs for its citizenry. One would think, because of the state of our nation's economy, that the President, DOD, and Congress now have the closest thing to a "burning platform" to make radical change in the way DOD and the Services operate internally as well as the way they each work with the Congress to manage the nations defense. The President called it "our generation's Sputnik moment" is his 2011 State of the Union address. If one took a poll of the DOD employees the day after the speech, do you think we would find the vast majority of the DOD community "burning" to lead the charge toward remaking the DOD into the most cost-effective, efficient, and accountable military in the world?

On the emotional level, how do DOD, Services, and Congress see and feel the need to change? Virtually all of the discourse on how to effect change tells us substantive change cannot grow roots unless the senior leader is leading (not managing) and championing change and the people involved have a cathartic experience that provokes an emotional response that helps them see and feel the need to do something. It is not hard for the change agents to see and feel the problem. The challenge is how to viscerally connect with a significant portion of the organization.

On the analytical level, the question before DOD and Congress is how do they acknowledge these facts and produce a politically acceptable management model? What model will allow the DOD to maintain civilian control of the military establishment, collapse duplication of common skills and management echelons, and still provide Congress the visibility into how DOD manages their investments and the President the capability to support the country's global national security agenda? The core challenges facing the DOD today:

* Congress imposes administrative requirements that by their very nature introduce a lot of work for the sake of information and oversight. This is their way to impose their will upon and manage DOD and the Services and hold them accountable. Unfortunately, it perpetuates illogical procurement practices that ultimately increase the landed price of the asset.

* DOD may not make any changes without Congressional approval. How many businesses would survive if they had to go to their stockholders to get approval each and every time they wanted to close a factory, lay off people, hire a CEO, promote an executive, buy a product, or change the way they are organized?

* Civilian control of the military has led to an organizational approach where civilian and military staffs are virtual mirrors of each other.

* There isn't any distinction between a business and a cost center.

* Office of the Secretary of Defense (OSD) staff manages a number of line organizations dírecdy engaged in warfighting and support.

* The military "Christmas tree:" Echelons of command remain in spite of advances in technology that would logically allow them to eliminate the extra layer of dialogue.

* Each echelon of command replicates the staff structure above, again in spite of the enabling technology to remove and/or consolidate them.

* Compensation plans do not provide the workforce with any incentives to optimize.

* The existing culture agrees philosophically that there is waste, but it is someone else being wasteful.

There are four phases DOD will need to successfully complete in order to transition from the most expensive and lethal military to operate and maintain to the most efficient, sustainable, and lethal military to operate and maintain. These phases are not serial once DOD starts the first phase.

Phase I will be the easiest to execute, but hardest to start. This is the building block phase. This is where the DOD leaves the comfort zone of its current manifestation, decides to take the leap into the unknown, re-organizes the corporation along SBUs, and separates cost centers from business entities. This phase will produce a minimum five SBUs and three cost center groups. It eliminates duplicative staff between OSD and the Joint Staff. It eliminates the practice of having staff manage line organizations. It eliminates duplicative staff between the Service Secretariat, the military HQ staff, and rhe major commands. It consolidates a number of headquarters staffs whose lines of work are closely related. Using the Army as an example, they will be able to dose a minimum of 25 center or command headquarters in this phase. And it completes the transition to joint objectives as envisioned by the Goldwater-Nichols legislation of 1987.

Phase II will be much harder and will have more emotion involved. It still is an organization alignment exercise, but this one will explore and eliminate echelons of command because technology enables them to do so. This is where the military Service Chiefs will have to bite the bullet on their watch and lead the effort to winnow down the senior officer "Christmas tree." This is also where DOD will adopt a much leaner management model within the remaining companies themselves. Lean is defined as "doing more with less. Use the least amount of effort, energy, equipment, time, facih'ty space, materials, and capital - while giving customers exactly what they want." It is designed to remove duplicate functions at each management level. It is designed to eliminate waste in any business process. In this phase, again using the Army as an example, they will be able to close 30 command headquarters. Of the commands remaining, their staff structure will become much leaner. Each HQ will have a commander, a director of operations, a director of industrial support, and a director of community support. The director of operations fills the role of commander in his/her absence.

Deputy CGs will disappear. Everyone will work in the command center; there is no staff. They will not replicate cost centers below the SBU.

Phase III, which has proven to be intractable to date, centers on getting the internal DOD businesses to operate collectively and collaboratively on a unified business platform. The savings achieved in the first two phases will appear trivial compared to the savings phase ?? will deliver. Again using the Army as an example, this is where the Army will take advantage of the enterprise resource planning (ERP) software they have selected by adopting an entirely different approach to fielding software across the Army.

Phase IV will be the hardest because it will require Congress and DOD to collaborate and agree to modify business practices in areas of budgeting, acquisition, spending, resource management, asset management, and compensation plans. This section is a summary of types of things that need to be addressed, since in reality, this section alone could be the subject of another paper.

Given the challenges noted above, it would seem that unless the DOD and by inference the Service Secretaries take a step back and view themselves as a group of business teams that could be led, evaluated, managed, and compensated in terms of a business, progress toward providing the kind of visibility, efficiency, and accountability one would expect from a publicly traded company will languish. More importantly, each team needs to find the gut-wrenching event that makes it clear to the team members what is at stake if they are not successful. And Congress must be a partner willing to take a fresh look at how they work with the DOD. They can no longer treat the DOD as a jobs program for their respective districts. It is time Congress and the Defense Department drop the gloves, open the books, evaluate how they work with each other, and move out briskly to effect the needed changes: the status quo will not do any longer.

PHASE I

Walt Kelly's immortal phrase coined on an Eardi Day poster in 1970 really does capture the essence of the challenge facing DOD. "We have met the enemy . . . and he Js us." The arrogance of the status quo has been and still is easily the single most common source of impediments to human progress; and it is not constrained to any specific discipline. The history of scientific progression is littered with examples of arrogance stifling alternative views that conflict with accepted thinking. The history of religion is rife with horrific pogroms intent on stifling or even worse, eradicating, those who choose to worship their deity in their own way. The fact that the same chemicals that constitute your physical self also govern your emotional self is a fact that even today is difficult for many to accept. When your emotions become unbalanced, you are a whack job in need of adult supervision in a lockup; when your lungs fill with fluid, you are sick and in need of care.

And so it is with organizational change. Things like "if it ain't broke, don't fix it" perpetuate the status quo. "Its good to be king." "I like things just the way they are." "The stockholders are happy, I'm happy." History tells us that without outside forces pushing the envelope, the status quo will own the day. In the main, the only thing the status quo needs to diminish the challenge is to ignore it or at the very least scoff at the person promoting the idea as some insipid intellectual lightweight. Nothing of value could possibly come from such a dolt. But should the idea start to gain some followers, it also tells us the status quo will spare no fury and leave no stone unturned to squash the upstart who has the temerity and gall to present an idea that challenges the way the status quo does things.

The paper declares unequivocally that the Congress of the United States and its Defense Department must embrace radical organizational change in light of today's economic challenges. It spares no punches. The US has die finest military in the world; and yet, were it not for countless improvements in the technology of war and conflicts that didn't fit the model of conflict they prepared and planned for to shock the status quo, it would still prepare to fight the Spanish American War on horseback. IfBG Billy Mitcheu, USA, were still alive, he could relate.

One of the sacred tenets of our Constitution calls for civilian control of the military. Beginning with President Washington, each subsequent President has deemed it appropriate to have a cabinet to help him manage the business of government. There have been several iterations of this model, but the basics are the same. The political leadership has its staff, and the military leadership has its staff. Some will say it is a "partnership," but the fact remains that each staff duplicates the other. The overriding premise of this construct has been two-fold. The nation's military is under civilian control, and the civilian leadership jealously guards this prerogative. That said, the military is equally jealous about its self worth and has always felt that it had to have its own staff to "interpret" the political guidance to the field commanders so that military people could relate to military people.

After 20 years at war, the political and military echelons in DOD and the Service Secretariats have never worked more closely and in concert even though diese two entities still operate as separate staffs. If Secretary Gates brought in Jack Welch, the legendary former CEO of General Electric, how do you think he would structure us? What would be the art of the possible if they were to look each other in the eye and say, "Do you think this construct has oudived its useful life?"

In order to begin the transition from the current management model to one that is more accountable, DOD will need to put in place an executive management team modeled after the publicly traded companies. AH publicly traded companies and most private companies have an outside board of directors. Their role is to represent the shareholders' interests, provide advice and counsel to the Chairman of the Board as he/she works with the CEO leading the company, secure an outside audit firm to inspect the books, and in many cases determine the company's executive management team.

The traditional US management model is "one guy is responsible for everything." AJl roads lead to the CEO. In US publicly traded firms, the Chairman of the Board, more often than not, is also the CEO. Underneath the CEO are the President and Chief Operating Officer. All businesses and support cost centers report to this person. If DOD went with the typical US model, the Secretary of Defense would be the Chairman and CEO, the Deputy Secretary of Defense would be the Vice Chairman of the Board, and the CJCS would be the President and Chief Operating Officer; all of the Under Secretaries and Service Secretaries would report to the CJCS. Given the need for civilian control, this model would not be feasible.

If DOD adopted a prevailing European public corporate governance model, they could work within the intent of the founding fathers and always have civilian control of the military. Their public corporations have two boards: a supervisory board and an executive board. The supervisory board is elected by the shareholders to provide oversight over the executive board. The Chairman of the Supervisory Board is the leader of the company. The Supervisory Board decides how many members are appointed to the Executive Board and who is to serve as chief executive officer (the CEO or co-CEOs). The chairperson of the Supervisory Board regularly meets with the Executive Board or the co-CEOs to discuss their strategy, current progress in business, and risk management. The executive board in technology companies is often chaired jointly with co-CEOs. One CEO is responsible for operations (delivery) and customer relations (outside), and the other CEO is responsible for product development and resourcing (inside).

In addition to providing a model for leadership, adopting the board could also be employed as the medium to collaborate with Congress. In so doing, it would seem reasonable that Congress would be amenable to repealing the myriad of laws that introduce so much nonproductive work over and above what is already an excessive overhead structure. By eliminating all of the reporting in exchange for adopting the standard industry requirement to report progress every quarter, Congress would have a steady view of the comings and goings at DOD. It seems reasonable that Congress would be willing to drop the "colors of money" management approach in exchange for access to the books. Lastly, DOD should be compelled to certify their statements each quarter as well as file an annual report to the stockholders.

DOD MAY BE SCOPED TO FIVE STRATEGIC BUSINESS UNITS

Businesses are organized along common principles. All businesses have profit and cost centers. Whether the business is for profit or a nonprofit is of no relevance; the business fundamentals are still the foundation for success. Companies still need people to do the work, leaders and managers ro develop, and resources to produce and/or deliver capability (service) or product, account for and control the outcome, and provide the unqualified audit of the "books" for open stakeholder and regulatory review. The successful large global multinational conglomerates that have met and dealt effectively with the rate of change in the 21st century have moved to a SBU construct at the macro level. This model empowers each leader of their respective SBU to semi-autonomously manage their organization. Hire, fire, train, organize, budget, account, innovate, produce, and profit are all in his/her control. Similarly, each business unit within the SBU has the same autonomy.

Looking at the figure above, the operations business as depicted in gold is the reason the founders formed the company. It is what they do. The operations business has outsourced resourcing and support internally to the conglomerate. The resourcing business, enabled by money, secures the company capital assets depicted in silver, and the people depicted in red deemed necessary to conduct the business in the market that the company was formed to compete. The support and services portfolios, depicted in brown and green, provide the means necessary to make sure the operations business continues to operate smoothly and without delay and support for the well-being of the employees.

With this in mind, the DOD and its three corporate entities each could be repurposed to operate five unes of business and cut the budget by $25 billion. The Defense operations business (Global Defense and Assistance) outsources its resourcing requirements to two business entities: Recruiting, Training, and Education for its people and Product Development and Manufacturing for its equipment. It also outsources its support requirements to two others: Industrial Support and Repair for its resources and Community and Professional Services for its infrastructure. Using the same leadership model as the Defense Secretariat, DOD may repurpose the existing USD staff construct into one that is more discrece and identifies exactly what the USD is focused upon. Likewise, each SBU in each Service rolls up to its corresponding Executive Vice President and Group President (Under Secretary of Defense), whose role is to keep track of each corporations input to that line of business.

1. USD, Recruiting, Training, and Education (RT&E) (Resourcing)

- Recruiting, Training, Education

- Business Travel, Personal Property, Payroll, Housing, and Relocation Services

- Talent Management and Assignments

2. USD, Product Development and Manufacturing (PD&M) (Resourcing)

- Aviation and Missiles

- Ocean and Water Craft

- Tank, Automotive, Construction, and Material Handling Equipment

- Satellites, Communications, and Electronics

- Munitions and Weapons

- Special Weapons

- Individual Gear

- Fuels, Lubricants, and Chemicals

- Medical Systems and Technology

- Business Systems and Technology

3. USD, Global Deterrence and Assistance (GDScA) (Operations)

- Regional Operations and Assistance

* US Asia Pacific Command (USASlAPACOM)

* US Europe, Middle East, and Africa Command (USEMEACOM)

* US America's Command (USAMERICOM)

- Global Deterrence

* US Strategic Command (USSTRATCOM)

* US Special Operations Command (USSOCOM)

- Global Support

* US Joint Industrial Support Command (USJINSCOM)

* US Intelligence and Network Operations Command (USINETOPSCOM)

4. USD, Industrial Support and Repair (IS&R) (Support)

- Medical, Dental, and Veterinary Services

- Engineering and Construction Services

- Wholesale and Consumer Retail Trade

- Warehouse Management, Storage, Customs, Transportation, and Distribution

- Equipment Repair and Refurbishment

- Energy Management, Waste Management, and Disposal

- Network Operations, Communications, and Intelligence

5- USD, Community and Professional Services (C&PS) (Support)

- Inspections, Audits, Testing, Environment, and Safety

- Legal, Contract Management, Insurance, Financial, and Physical Security Services

- Real Estate, Installations, Communities, and Hospital Management

- Morale, Welfare, Religious, and Recreation Services

As mentioned, this model empowers each leader of their respective SBU to semi-autonomously manage their organization. Semi-autonomous implies that there is some overarching framework to which all the business leaders must conform. That is true. The framework represents the cost centers of the corporation. Typically, every organization has three functional cost center groups.

The most common is the "set the table" group. They are responsible for framing the rules by which the company will operate. The second group is the "plot the future" team. The third group is the team that communicates with the public.

Today companies rarely, if ever, replicate cost centers below corporate because technology allows consolidation without impacting the conduct of business and provides as good or better service. That means the SBUs do not need this overhead. They focus on die business . . . thcir customers.

What all of these companies recognized is that dieir approach enabled the leadership to focus on their respective businesses. They learned that if they focus and align mare precisely, efficiency followed. Focus bred efficiency. They also learned that their investors would not tolerate a board of directors that convened to just rubber stamp the CEO's desire. They insisted on accountability and a voice at the table.

A SERVICE ORGANIZED INTO FIVE SBUS MODELED AFTER THE DOD

Similarly, at the corporate level (Army, Navy, and Air Force), this model allows each Service Secretary to collapse die Sectetary staff, the military counterpart HQ staff, and the MACOM HQ staff responsible for operating the line of business from tliree echelons of staff into one SBU at the Secretariat level. Using the Army as an example, the Army Secretariat would look like this:

Secretary of the Army = Chairman of the Army Supervisory Board

Under Secretary = co-CEO for product development and resourcing

Chief of Staff, Army = co-CEO fov sales, business operations, support, and service

The leadership of each Vine of business would look like this;

ASA, Recruiting, Training, and Education

(BT&E) = EVP and Group President