The Costs of Too Much
As the new administration establishes itself in Washington, many are pushing to increase defense spending – more ships, planes and people. A National Interest report late last year questioned this recent push for more, arguing that policymakers were overstating threats, relying too heavily on the military for national interest goals, and using outdated measures for optimal defense spending. As a military, we surely need to be honest with ourselves and to policymakers about the best shape and size of the force for the 21st century. In addition to threats and national security objectives, our honesty should also account for the hidden damage that “too much” can have on our organizations. There are agency costs associated with excess; fixing doesn’t always require more.
I was reminded of agency costs over the past few weeks as I prepared to teach my first semester of Corporate Finance at West Point. I remembered being on the receiving end of a similar course a few years earlier in business school, and wondering how the course could possibly relate to my experiences as an Army officer. I found the connection when my professor shared a paper written by Harvard professor Michael Jensen in the 1980s. Jensen’s premise was simple but powerful. With excess came agency costs – poor management decisions that ultimately hurt the company’s shareholders. Lower the amount of free cash, and managers became more efficient with their capital.
The Jensen paper brought me back to a command and staff meeting that I attended in 2012. Talks of sequester were in the news, and those talks turned into reality for our aviation battalion. Now, we had a budget to worry about, a limited number of flight hours with which to train and a mandate to reduce the size of our units. And we still had to prepare for an upcoming deployment. Doom and gloom were in the air when our commander addressed sequester during the meeting. He challenged us to show him “a unit that can trim 10 percent, and I’ll show you an organization that can rise to new levels.”
My first reaction was to write my commander off as a “yes-man.” How often are we asked to do things that we don’t want to do by leaders who seem too eager to take on the task? And before a deployment, when our soldiers were preparing to put it on the line in harm’s way…how could cutting resources ever make sense?
Up to this point, in the heart of the 9/11 wars, resources were unlimited. If we wanted to fly from Fort Campbell, KY to Missouri on a training mission, we could do so. If we needed extra rounds of ammunition at the aerial range, no problem. Our only operating limits were the maintenance requirements of our airframes and the endurance of our aircrews. The same held true on the ground. Can’t pass your physical fitness test – don’t worry…we need you for the deployment. You already have one person filling this manning slot – that’s OK…we’ll need two in Afghanistan. This attitude of excessiveness was pervasive, and I viewed it with optimism. I was on the receiving end of a grateful nation who was allocating its precious resources to me as I prepared for a deployment.
But after reading Jensen’s article in business school, I thought back to my commander and realized that he was on to something much deeper. There is an inherent cost when we have too much. “Excess cash” leads to waste, and waste is just as damaging to an organization as any cost-cutting measure.
When I think back to what happened after my commander’s directive to “do more with less,” I can’t help but hear the lessons of Jenson’s article ringing in my ear. We trained more efficiently, developed more leaders, pushed soldiers out of the organization who didn’t need to be there anymore, and gave top-performers new roles with new responsibilities. We became a better organization when we were forced to optimize.
In a country that has seen its civil-military divide grow considerably over the past 40 years; it’s hard to ask a military to do more with less. There’s a curtain that separates veterans from civil society, and it’s convenient to applaud and resource the thing that fights the battles that so many don’t see. The fact that the military was excluded from the recent federal hiring freeze speaks to this point. It’s also convenient for us in the military to accept the cash and ignore the costs that come from a “more is better” attitude. Looking ahead, a little inconvenience could go a long way.