DoD’s current organization, infrastructure, legal and regulatory structure, and business practices were developed over the course of the Cold War, often through accretion. The Cold War was an era of great danger but relative stability. In contrast, the new era is one of rapid change and unpredictability. U.S. forces and the private sector defense industry have made great strides in adjusting to this dynamic new world, becoming more agile and responsive. But much of the rest of the defense establishment remains frozen in Cold War structures and practices.

DoD has labored under support systems and business practices that are at least a generation out of step with modern corporate America. DoD support systems and practices that were once state-of-the-art are now antiquated compared with the systems and practices in place in the corporate world, while other systems were developed in their own defense-unique culture and have never corresponded with the best business practices of the private sector. DoD’s reform processes have covered many areas in the past year. Three major reform efforts are the Defense Reform Initiative, the Management Reform Memoranda, and the Acquisition Reform Reinvention Goals for 2000.

On November 10, 1997, the Secretary of Defense announced a sweeping program to reform the business of the Department of Defense, from corporate headquarters at the Pentagon to the many agencies that support service members and their families. The Defense Reform Initiative requires the Department to adopt those business practices that American industry has successfully used to become leaner and more flexible in order to remain competitive. The resulting savings will help fund the Revolution in Military Affairs, including the development and procurement of a new generation of information-based weapons systems needed to ensure American military superiority in the future. The Defense Reform Initiative contains initiatives categorized in four major areas:

Over the past decade, the American commercial sector has reorganized, restructured, and adopted revolutionary new business and management practices in order to ensure its competitive edge in the rapidly changing global marketplace. It has worked. Today, American business is the envy of the world and productivity is at an all-time high. Now the Department of Defense must adopt and adapt the lessons of the private sector if America’s armed forces are to maintain their competitive edge in the rapidly changing global security arena.

DoD’s Revolution in Business Affairs includes reengineering business processes and adopting and adapting the best business practices of the private sector to the business of defense. The Defense Reform Initiative established the following goals:

Applying the lessons of the business world to the business of defense is a centerpiece of the Department’s reform plan. The security environment of the 21st century demands that DoD reengineer, leveraging the opportunities provided by information technologies to build a Department that is every bit as lean, efficient, and responsive as American corporations.

American business has learned that reengineering business practices requires the concomitant reengineering of the business headquarters. There are three central principles guiding the changes: Department headquarters should be flexible enough to deal with future challenges; the Office of the Secretary of Defense (OSD) should focus on corporate-level tasks; and operational management tasks should be pushed to the lowest appropriate level. As a result, all headquarters structures should be thinned, flattened, and streamlined, both to avoid the temptation to take on new non-core responsibilities and to provide the resources to organizations receiving the devolved functions.

As a result of reorganization:

In addition these actions will:

These organizational changes will enable the Secretary of Defense to more effectively fulfill his responsibilities to the President and the American people. They will improve oversight of the Department and ensure civilian control while enhancing civilian-military relationships. The reforms will empower managers at lower levels and free policymakers from operational responsibilities. They will free up resources to meet new challenges and ensure that DoD continues to have quality civilian and military personnel who are well prepared to respond to the changes of the future.

Competition is the driving force in the American economy. It forces organizations to improve quality, reduce costs, and focus on customers’ needs. Competition offers these same benefits to DoD and plays a critical role in the reform effort. U.S. bases and forces require support in a number of service areas. Buildings must be maintained; equipment must be repaired; checks must be written. Many of these activities are now performed by uniformed personnel or civilian government workers. Often, there is no reason why this work cannot be performed by the private sector. In such cases, following the example of America’s leading firms, DoD will benefit greatly by introducing the dynamic forces of competition into the procurement of support activities.

Within the Department of Defense, experience has shown that competition has yielded both significant savings and increased readiness. In response to the Quadrennial Defense Review, the Department initiated competitions involving more than 34,000 positions which will be completed between FY 1997 and FY 2000 and will pursue competitions for 30,000 positions in each of the next five fiscal years. By 1999, the Department will evaluate its entire military and civilian work force to identify which other functions are commercial in nature and could be competed.

To ensure that competitions between the public and private sectors occur on a level playing field, the government has established a formal process, outlined in Office of Management and Budget (OMB) Circular A-76 and its revised Supplement. The Supplement sets forth detailed, how-to procedures for conducting cost comparisons to determine whether commercial activities should be performed in-house, or by the private sector. The process mandates competition between the government organization currently doing the work and the private sector. As part of the process, the public sector organization is able to re-form into a Most Efficient Organization to compete. In order to win a competition, a private sector bid must be at least 10 percent lower than the public sector bid.

In March 1996, OMB revised the A-76 process providing for streamlined cost comparisons, fixed overhead rate for in-house cost estimates, and several technical changes to standardize work to compare like units to each other. By describing the work in standard terms, i.e., full-time equivalents (FTEs), a fair comparison can be made. FTEs are equal to one work-year for a given job.

DoD will increasingly rely on the competitive powers of the marketplace. This means:

The Department is encumbered with facilities no longer needed. These facilities drain resources that could otherwise be spent on modernization. To this end, a three-pronged strategy is required: close excess infrastructure; consolidate or restructure the operation of support activities; and demolish unneeded buildings.

During the 1980s, American corporations reduced their plant and office space as part of their effort to reorganize, restructure, and reform their business practices. DoD needs to make similar infrastructure reductions.

The Defense Reform Initiative calls for the following:

The Defense Reform Initiative and a commitment to continual reform are essential to ensuring that defense enterprise and military forces are fully modern, in every sense, and fully capable of executing their elements of the strategy.

Chaired by the Deputy Secretary, the Defense Management Council is the Secretary’s primary mechanism for ensuring that defense reform initiatives are carried out. The Council will be responsible for recommending major reforms still needed, ensuring the implementation of those already identified, and continuing oversight of the defense agencies. The Council’s duties include:

Early in 1997, the Deputy Secretary issued a series of 17 Management Reform Memoranda covering a wide range of areas. The purpose of the effort is to achieve additional streamlining of DoD infrastructure and reengineer numerous DoD business processes. These initiatives will result in sweeping changes in such areas as acquisition, education, information sharing, transportation, travel, and facilities and property management. The Defense Management Council is charged with overseeing implementation of the Management Reform Memoranda.

Department of Defense Acquisition has identified 12 specific goals as the cornerstones of its National Performance Review Reinvention Impact Center to focus reformation of business affairs over the next three years. Premised on the objectives of the President and Vice President’s Blair House Papers of delivering great service, fostering partnership, and internal reinvention, each goal identifies a measurable outcome with significant return to the Department in terms of reducing cost and time. Achieving the goals will enable the Department to increase its investment accounts and realize required modernization without requiring a topline increase in budget authority. The following are the 12 goals which are further examined in future chapters.

Goal 1: Deliver new major defense systems to the users in 25 percent less time.

Goal 2: Achieve visibility of 90 percent of DoD materiel assets while resupplying military peacekeepers and warfighters and reducing average order to receipt time by 50 percent.

Goal 3: Simplify purchasing and payment through use of purchase card transactions for 90 percent of all DoD micropurchases while reengineering the processes for requisitioning, funding, and ordering.

Goal 4: Create a world-class learning organization by offering 40 or more hours annually of continuing education and training to the DoD acquisition related work force.

Goal 5: With no topline budget change, achieve annual defense procurement of at least $54 billion toward a goal of $60 billion in 2001.

Goal 6: In the spirit of fostering partnerships and community solutions, DoD will complete disposal of 50 percent of the surplus property baseline and privatize 30,000 housing units.

Goal 7: Decrease paper transactions by 50 percent through electronic commerce and electronic data interchange.

Goal 8: Reduce total release of toxic chemicals by a further 20 percent.

Goal 9: Eliminate layers of management through streamlined processes while reducing the DoD acquisition related work force by 15 percent.

Goal 10: Define requirements and establish an implementation plan for a cost accounting system that provides routine visibility into weapon system life-cycle costs through activity based costing and management. The system must deliver timely, integrated data for management purposes to permit understanding of total weapon costs; provide a basis for estimating costs of future systems; and feed other tools for life-cycle cost management.

Goal 11: Dispose of $2.2 billion in excess National Defense Stockpile inventories and $3 billion in unneeded government property while reducing supply inventory by $12 billion.

Goal 12: Minimize cost growth in major defense acquisition programs to no greater than 1 percent annually.

The goals established in the three defense reform efforts above are predicated upon the functions currently performed by the Department. These functions may change as a result of the plan the Secretary is required to submit to Congress in accordance with the requirements of Section 912 of the National Defense Authorization Act of 1998. Should the functions performed by the Department change, the goals will be adjusted. In addition, new goals may be established as the Department continuously improves its business processes in order to ensure that the Department has both the resources and infrastructure it needs to meet the challenges of the 21st century.