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Putting Focus on the Business of Defense

May. 28, 2013 - 02:11PM   |  
By MICHAEL STEWART   |   Comments
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Listening to US Defense Secretary Chuck Hagel speak about the need to reform the Defense Department reminded me of times earlier in my career when similar warnings were issued, but not heeded.

Before joining DoD, I worked for two Fortune 100 companies hobbled by declining top lines and inefficient management practices. Since both grew up in an era of limited competition and an abundance of resources, neither had developed efficient, agile management structures. But suddenly, they were faced with an onslaught of more nimble, innovative and low-cost competitors, which provided better products and services.

Unable to compete effectively, one went bankrupt and the other has struggled to react to new threats.

The American corporate landscape is littered with similar examples where older companies were rocked by lower-cost, more innovative rival upstarts: legacy airlines vs. discount airlines; big steel vs. minimills; American carmakers vs. Imports; IBM vs. Apple, etc. In these cases, the older companies either adapted and reformed or ceased to exist.

I am not suggesting that DoD is about to go out of business, but the lessons learned in industry should not have to be relearned in DoD. It will have to work out how to do more with less to fulfill its mission in the current fiscal environment.

DoD’s budget is being slashed while it is facing increasingly competitive and complex threats. This means that DoD cannot institute quick fixes like across-the-board spending cuts. Instead, it has to look internally for fundamentally new ways to react.

Traditionally, DoD has viewed its superior technology and scale as its major strengths, but this is no longer sufficient. DoD now has to reform its management practices as a source of competitive advantage — getting more capability out of each dollar spent. Granted, this idea is nothing new, but its implementation has now become an imperative.

I understand that it is anathema to view DoD as a corporation, but at some level, the comparison is apt since a large part of DoD’s mission is to produce or supply war fighters with the best equipment. Unfortunately, if one listed the management practices of successful vs. unsuccessful companies in the 21st century, it is likely DoD would have more marks in the latter category, specifically:

* A heavily centralized corporate governance model where control is concentrated at the very top, creating enormous complexity, driving up costs, slowing decision velocity, and stifling agility and innovation.

* A culture where bad news is filtered out as it travels up the chain of command.

* Expending resources on non-core activities or capabilities.

* Multiple overlapping layers of redundant management.

* Taking too long and paying too much to acquire needed capability.

* Having labor skills continuously atrophy since there is little infusion of fresh talent above entry-level.

* Increasingly expensive cost of labor and benefits.

* Little understanding of the cost of doing business or of the major cost drivers.

To make matters worse, management in DoD is considered backwater. Due to the perception of limitless money available, efficient management practices weren’t critical to the success of DoD. More to the point, military members are trained to lead in battle, not manage a corporation. Very few have taken courses in human resources, finance, corporate governance, etc. Therefore, DoD has not developed a cadre of modern, professional managers.

Further complicating matters, the transformation strategy the department has been pursuing for at least a decade is not working. Instead of focusing on the underlying management problems, billions of dollars have been wasted and countless thousands of hours of senior executive time diverted because the strategy is based on implementing large, highly complex information technology systems — “transformation in a box.” These systems are notoriously risky and prone to failure.

What’s more, in DoD so far, they have merely “paved the cow paths” by automating old processes.

To truly transform, DoD needs to take a much more business-like approach. It should reconsider its corporate governance model, work to foster an innovative, risk-based culture, baseline its costs, understand its major cost drivers, rethink its human resources strategy and reform key problem areas.

DoD needs to learn from the best business leaders and business schools on how to be effective in the 21st century. It must work with Congress to reform outdated laws that inhibit DoD’s ability to compete.

Without an aggressive, business-focused transformation, DoD will become more akin to an industrial-age legacy company about to be disrupted by rival upstarts, rather than the agile, innovative and high-performing competitor the country needs. With the world becoming more complex, more competitive and full of rapidly improving rivals, the time to sound the clarion call is now.

Michael Stewart, director of transformation in the Office of the Deputy Under Secretary of the Navy/Deputy Chief Management Officer. These are his views.

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