WASHINGTON — When Patrick Shanahan arrived at the Pentagon as the new deputy secretary of defense in July 2017, his impact was unclear. A career in Boeing had brought Shanahan in contact with both the defense and commercial divisions, but he had never worked inside the department — and now he was in charge of driving internal reforms for Secretary of Defense Jim Mattis.

Fourteen months after arriving, Shanahan sat down with Defense News to discuss his first year, his priorities for year two and “systemic” change that he hopes will outlast his tenure.

You’ve talked in the past about acting as the chief operating officer for the Pentagon. What does that mean in terms of long-term goals?

As you can imagine in a place like this, the scale is enormous. So it’s not about a communication plan, it’s actually about how do you change the nature of the work, or where resources are applied, to actually undergo the change and start to put the strategic changes into place. It’s very easy in a complex environment like this to get distracted. The tactical can consume an enormous amount of time. But my job is really to drive change at scale, and there’s a formula for doing that. And the formula really has to do with change [that] must be systemic.

It's all about the system and then the reinforcing mechanisms to make that change enduring. Without a system, things fall apart when the leader moves on. The system or the environment shouldn't be dependent on the leader's presence.

Lay out how you tried to get at that in the first year.

There’s a tactical side of this, and then, kind of, back to the systemic change. The systemic change that we’re really driving in the department is to really have a real robust sustainment system, deliberately, because you can only pick so many things in terms of where you spend your time.

What you want to avoid in an organization is setting too many goals. Picking the right goals forces you to get many other things right, so if you’re very deliberate on what you choose, you can get a multiplying effect. If you over-engineer a solution, it creates confusion in organizations. So we said: “What’s the most important thing?” Generate readiness, that’s what the [National Defense Strategy] calls out for. Drive operating costs down.

After the initial burst of readiness focus, you wanted to turn to modernizing systems within the department. Are you satisfied with the pace of the modernization pushes?

Well, I think it could have gone faster. The big go-to [when I started] was just like other large organizations: Get a strategy in place and move out on the most important elements of the strategy. The longest lead items are modernization, and then the most urgent need is when you have North Korea, all the things going on in the Middle East, readiness.

So in terms of my time now, now we’ve got those things underway, I wanted to make sure the foundation was laid for IT. That was the most important one. I’m over-the-moon happy with what we’ve been able to do with CYBERCOM, [but] I’m super frustrated that we can’t go faster on basic things like the cloud. Defense Health Agency, you have to be risk-balanced on health care. And I’d like to go faster on logistics.

There are a number of things that are foundational to being able to achieve enterprise solutions that, you know, are going through the procurement process. There isn’t anybody intentionally standing on the air hose, but government procurement is very deliberate. And so there’s a number of those that we have to refine. So I wish that would go faster.

How do you prioritize between health care, IT and the broader logistics areas?

In terms of health care, that’s the biggest. Again, it’s back to systemic; how do we reduce the number of pharmacy systems? How do we get common procurement? In the health care area, it’s not about changing the quality of care. How do you consolidate back-office costs? How do you leverage procurement?

The IT one to me is the most interesting. When you think about the biggest leverage for us in the future, most of everything we do is software-driven, how do we get — it’s not like just a common architecture, but it’s the right platforms and the right level of integration so that we can inoculate ourselves from the cyber standpoint, have the means to do high-end computing so that when we do have those algorithms for AI, that the time frame in which you need to make those decisions, the computing environment supports that.

So we have for our digital modernization a really great road map. Now that we have that, we can start kind of consolidating [data centers], we can start to move to Office 365. We can get to a common financial system.

You spent years at Boeing, and when talking about getting aviation rates up, you’ve said commercial practices could help. What does that look like?

Implementing commercial best practices at DoD starts with a mindset. Instead of developing our own unique solutions to every problem, we should use commercial best practices whenever it makes sense. Examples of this cover almost every aspect of what we do at the DoD. In reform, we are using category management to better ensure that we get the best price for goods and services across the enterprise, and don’t buy the same thing for different prices in different places. In sustainment, we are deploying the same techniques to Navy aviation depots that are used to maintain commercial airplanes. In space, we are seeking to leverage low-cost access to space and the rapid innovation we are seeing in low-cost satellites. In digital modernization, we are moving to the cloud for speed, security and scaling that it provides.

You’ve mentioned the need to avoid having the services develop duplicative systems. How do you square that with the fact the services got more acquisition power under the recent acquisition reorganization?

The circle gets squared with relationships. [Look at] Army Futures Command, with Gen. [John] Murray developing some of these agreements. He’s going to have the acquisition responsibility, but what we’re going to do as a department is agree that he’s going to use these interfaces and standards. Because what’s happened in the past is they’ll have a need date and we’ll have not been responsive to giving them what they need, and so they have to move out by virtue of the schedule that they committed to. That’s the horizontal play that we’ve got to work to here in the department. If we get that, then we’re joint beyond anybody’s wildest dream.

You’ve said the F-35 fighter jet’s maintenance costs are one of your biggest concerns. How do you tackle that?

We know long term, the biggest challenge for the F-35 is not going to be the performance of the aircraft, it’s going to be affordability. So let’s start those habits right away. What’s unique about the F-35 here is we’re at the front end. You know how I always say at the back end? “I wish we had done [something different].” We’re at the very front end. In the next two years, we double the fleet. And if we don’t really have a robust, high-performing sustainment system, it’ll divert attention of the F-35 program from other critical areas like development or production, and it’ll create disruption in the supply.

Are you satisfied with how Lockheed Martin is proceeding on the program?

I’m never satisfied. We can always get better performance. And I think we need to deliver more to the war fighter and the taxpayer. It’s not a “us or them” [situation], it’s a “we owe it to the people.” And everyone is heads-down focused on doing that.

You intended to have the defense budget finalized around Dec. 1, 2018, at a $733 billion level, and then President Donald Trump announced it will actually be at $700 billion. How do you intend to make this work?

No salami slicing. It’s not about sending a memo to the departments: “Here’s your [cut], come back in a week.” That is not how we’ll go around that exercise. We’re just finishing up the $733 [billion budget], and now we’re working that in parallel to come up with: “This is what $700 billion looks like.”

Is it safe to say the savings are going to have to come from modernization priorities?

At the most foundational level, the easiest thing to defer are things you haven’t started. Which, almost by definition, is a lot of the modernization. But modernization has many elements to it. So there’s some important capabilities you might want to deliver that you don’t have to defer. It’s not that modernization is monolithic. You might say: “Well, this portion, we’re just going to have to delay, or in this region of the world we’ll have to go slower.” We’re not going to go backwards on the hard work that we’ve done, on the readiness that we’ve recovered. We’re going to keep generating that lethality.

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

More In Interviews