Small Wars Journal

Sequestration as a Godsend: Operate the DOD as a Modern Business: Part II

Wed, 07/10/2013 - 7:27am

Sequestration as a Godsend: Operate the DOD as a Modern Business: Part II

J. Michael "Mike" Young

Phase I: The Building Blocks

DOD is Big Business

In Part I, I gave you a thumbnail sketch of how the current management structure of the DOD is a mish mash of businesses and cost centers.  Make no mistake; the DOD is a huge business apparatus.  The DOD consumes goods and services from all walks of US businesses as well as the businesses of the host nations where DOD sends its people. It has organizations that provide for the procurement of these requirements for every professional service and or commodity imaginable.  If we were to define the DOD in commercial terms, we should be able to agree that it is a massive, global conglomerate, which by definition is a corporation or company that is made up of a number of different, seemingly unrelated businesses. A lot of people focus on the annual budget figures of DOD.  Not many realize DOD spends just south of $1T annually because of previous year appropriations.  Think about it; the DOD puts $1T into the economy each year.  This is like crack cocaine to the members of Congress.  In and of itself, this largesse has corrupted Congress’ ability to think clearly about what is best for the country; President Eisenhower’s admonition... “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist,” has come home to roost.  We now have a military with a multi-national, multi-union represented workforce of 3 million people including their contract/temp employees, a multi-billion dollar payroll in multiple currencies, over 100,000 domestic & international suppliers, millions of contracts in multiple languages and currencies, 3000 installations around the globe, and trillions of dollars in assets, facilities, real estate, real property, and environmental liabilities. They work with and transport the most sensitive, most lethal, and most hazardous products in the world.  They provide insurance and retirement programs, recreational programs, child care, run kindergartens and high schools, manage 401K’s, and provide medical, dental, housing, veterinary, and social services to its military families and retirees.  They manufacture, they re-manufacture, they maintain, they run utilities, make potable water from seawater, provide sewage treatment, manage private communication networks, research labs, and the list goes on. They manage cities both afloat and ashore with all the attendant requirements one would expect from their home town plus services that are specific to the military mission.  They build bridges and dams, levees, and manage waterways.  And they deploy portable cities and/or build cities out of the desert and provide the same services they do at home.  If you have ever been involved in moving a city and its population half way across the earth and start operating overnight, you have to be impressed…as far as I know, no other country has the means to accomplish this…but we cannot afford the overhead to sustain it.  Eight years ago the cost to outfit one common solider for battle was $125K/year.  Today that cost is now $325K per year. Every dollar that is mismanaged or spent needlessly is lost for truly needed requirements. If the last 10 years proved anything, it had to prove we need boots on the ground.  We cannot afford to cut boots on the ground.  We have to address the indirect costs to support the boots on the ground. Fixed costs are a burden that eliminates innovation and flexibility. Every rule that needlessly adds cost to a process is a rule we need to eliminate unless the law requires it; even then we should challenge the need for the law if it drives costly process.

The business acumen and fidelity of the DOD is and has been under scrutiny from the GAO, the Congress and the public for a long, long time. The Congress has passed a number of reform measures with the clear intent to improve the visibility over the DOD business operations. The Government Performance and Results Act of 1993 (GPRA), the Chief Financial Officers Act of 1990 (CFO), the Paperwork Reduction Act of 1995 (PRA), and the Clinger-Cohen Act of 1996 all represent efforts to “encourage” DOD to get its arm around its business operations.

Frustrated by the lack of progress, with the FY05 National Defense Authorization Act (NDAA), Congress imposed specific requirements upon the DOD to support and advance the Department’s Business transformation efforts.  In response to the 2005 legislation, DOD established the Business Transformation Agency (BTA) to produce a common DOD enterprise architecture, provide business systems investment management control, and create a transition plan to implement the common architecture. The BTA, by its fifth year of operation had become a $150M agency with 600 people (90% are contractors), and indeed put together all of the artifacts and processes called for in the legislation.  Not surprisingly, their enterprise transition plan is aligned along functional staff stovepipes:  Personnel Visibility, Common Supplier Engagement, Acquisition Visibility, Materiel Visibility, Financial Visibility, and Real Property Accountability.  In effect their model reinforces a system replacement methodology and a business paradigm that reflects the current organizational construct of the department and the manner in which innovation is funded.  And yet the primary approach to addressing business modernization was to adopt ERP.  The value of Enterprise Resource Planning (ERP) is lost in this paradigm.  The value comes from integrating the business processes with the two resourcing cost centers (HR and CFO) and establishing work flow and edits to ensure all concerned understand the move that has been made in a single logical system.

After five years of building architectures, transition plans and instituting a business system investment control process and religiously reporting to Congress every six months on their progress, Congress concluded that while the BTA was performing per instructions, there was something missing: leadership interest.  Subsequently, in the FY 09 Duncan Hunter National Defense Authorization Act the Congress mandated each Service designate the Under Secretary of the Service as the “Chief Management Officer”, again with the idea that someone needs to be in charge of the build, buy, sell, employ, sustain, service and retire elements of the DOD business.  Of course Congress also imposed an onerous amount of reporting requirements so they may monitor progress; so they invented the Deputy Chief Management Officer knowing full well, the Under Secretary would not engage in that level of detail.   The DCMO absorbed the functions of the BTA when it was dissolved in 2011.  Long story short; the DCMO is not the answer either.  As I write there is a Senate proposal to make the DCMO an Under Secretary to give it parity with the other Under Secretaries.  It will not work either.  Additionally, the proposal recommends placing the DOD CIO inside the Under Secretary for Management since most of what the DCMO focuses on is business modernization systems. That won’t work either.

The DOD or military services answer to virtually any business modernization problem they have faced in the past twenty years has been to throw technology at it the problem.  To wit: there has not been any progress towards optimizing the manner in which the DOD and its Services go about their daily work.  Clearly, we need to find a way to improve how much it takes to operate the DOD.  You might say the goal should be to ask for less money each year in real $ terms and still maintain readiness.  President Eisenhower is reported to have said during budget drills in 1956, “I say the patriot today is the fellow who can do the job with less money.”  If the DOD figures out how to squeeze the “costs” out of the DOD, they will in turn become much more attuned to what it takes to get its suppliers to take cost out of their businesses. It just isn’t that easy and the commercial markets have scars to prove it. 

Traditionally most companies produced their overall profit and loss statements for the company as a whole, without making each business unit accountable for generating a profit and assigning discrete indirect costs specific to the product or service being sold.  This has changed quite a bit in the past twenty years.  In the commercial market, investors provide money to companies in exchange for voting stock and seat(s) on the board. They are investing to make money. Savvy traders who see more value in the parts of a company than the company as a whole have hijacked many companies.  A large portion of these firms managed their books traditionally.  By that I mean they reported out the company profits / losses and overhead at the highest level.  The effect of this practice is to mask the winners and losers within the corporation.  In response, by and large companies today have adopted profit center accounting practices precisely because of what has happened to companies in the past.  In this model, each business unit inside the corporation is a stand-alone unit responsible for its profitability.  This allows management to see exactly which unit is doing well and which ones are not. 

The aggressive firms have embraced activity base costing (ABC) as well.  This is different from traditional costing in that it endeavors to more precisely assign indirect costs to the product or service being sold.  As a process it is more accurate and more complex than the traditional costing method.  Simply stated, the ABC method allocates indirect costs to activities and then to products produced by these activities based on their usage of the activities.  So if your annual bill to maintain your plant machinery that produces product is $1M and you produce 10000 batches (activity) per year your indirect cost per batch would be $100/batch of product. If a batch equals 500 units per batch, and you sell by the individual unit, your indirect maintenance costs per unit would be $.20/unit.

The changes in accounting practices mirror the organizational changes that have taken place in large multinational corporations.  More and more firms are opting to set up semi-autonomous strategic business units who are solely responsible for their success or failure.  Depending upon the industry, several organizational constructs have arisen within these SBUs.   But we still have cost centers.  And industry has not stopped with just trying to account for the profit/loss centers.  They recognize that cost centers are necessary, but they need some means to ensure the cost center is operating at peak efficiency because every dollar spent with the cost center eats gross profit.  There is a management accounting principle known as transfer pricing; it represents the price one business unit or cost center of a company will charge another business unit or cost center within the company in exchange for goods or services.  This technique allows the business entity to quantify its value, even though it does not sell any products to or perform services for an outside customer. If done properly the transfer price will account for the true value of the service or product. This practice also allows a firm to evaluate their make or buy decision in context to what it would cost to do it in house or go outside for the service or product in question.  This management practice on the surface seems like the best of both worlds.  Insofar as providing a means to account for the inputs and outputs of the work center, it does the job.  By itself, transfer pricing does not provide an incentive to take costs out of the work center to improve the cost to price ratio.  The people inside the cost center need a reason to improve other than the traditional “I told you to improve or else.”

What Do You Do When the Whole Company Operates Like a Cost Center?

Theoretically the DOD should not make money.  It is a public institution that depends upon its very existence through the will of the people to fund for national defense.  For the most part the public replenishes the operating budget every year.  In the market place, this model is considered a cost center. A common definition of a cost center in accounting terms says that it is part of a company that does not produce direct profit; a cost center adds to the cost of running a business.   In fact though, the Congress has authorized and funded revolving funds or working capital funds to allow federal agencies to operate year over year without having to concern itself with annual appropriations.  The Congress allows the working capital funds to charge a service fee over and above the cost of the item, normally aligned with expected inflation rates.  By definition these profit centers should be zero profit centers.  There are challenges with the system though.  First and foremost, these agencies that have no counterpart on the outside tend to be monopolies.  They have no direct competition.  Agencies that cater to the individual, personal wallet, like the Defense Commissary Service or the Exchanges compete with Wal-Mart or Target.  Agencies like Defense Logistics Agency compete with no one. Another challenge to the working capital funds system is the management rules. As an example, days of sales outstanding (DSO) tend to be rather lengthy in the DOD model, which in the commercial space is a sure sign that the company may have a cash flow challenge.  This problem is directly tied to a rule that says the buyer does not have to pay until they use the service or product.  If you buy something, take delivery and put it on the shelf and don’t issue it for a year, you can use that money to do something else.  In the meantime, the supplier is devoid the funds needed to replenish the stock. And the fees tacked on to the price/unit go up beyond the inflation rate to ensure there is working capital to support stock replenishment.  Even if DOD and the Congress changed the rule to allow point of sale transfer of funds, it still does NOT provide incentives for the business unit or cost center to improve the cost to price ratio.  The only way to do that is make it worth their while.

The human cost of efficiency, productivity, and value realization tends to be overlooked in any organizational re-alignment.   It is easy to do if you are the person looking at the numbers.  It is a much tougher sell to the person who will soon be organized out of a job.  Internal re-organization under the guise of “we should do this to survive” will only take you so far.  There has to be a partnership between the leadership and the rank and file. That partnership must include individual incentives and a competitive environment.

The bottom line is the DOD needs to find a way to incentivize its labor force to optimize their individual operations.  It needs to expand the use of transfer pricing across the entire department and find a way to increase the internal competition between its three corporate entities as well as within.  It also needs to convert funding for all civilian billets to fee for service vice direct appropriation. To accomplish this, they have to first re-organize the DOD as a global commercial conglomerate, flatten its organizational structure and adopt organizational constructs that optimize the use of capital and resources while providing the country the national defense it requires.  In doing so, they cannot be any ambiguity as to what the goals and objectives are for each business unit.  We can define success if the business unit can be led, managed, audited, and graded with tangible dollar outcomes.  Then we put in play the “incentives” to institutionalize and embrace optimization as a way of doing business going forward.

How I Approached Understanding the Current Model

In May 2008, I was interested in formulating a paper that would discuss the best approach to deploying ERP in the Army. At the time I was on contract with PEO EIS, AMC G6, Army OBT, and ARDEC to help them restructure the Army ERP effort.  You will hear much more on that topic in later sections.  Delving deeper into the subject, it became apparent that even if the Army were successful in getting ERP deployed, its organizational alignments would limit the effectiveness of software’s capability to streamline and execute modern business techniques and processes. So I dug into the Army organization, starting with learning about the then most recent Army organizational changes revolving around combat forces and how to make them more self-sufficient and mobile. I started there because I knew from experience that the smaller the organization the more focused it was on results; hence the structure takes on an operational bent as opposed to protect the assets bent.  As I plowed through the myriad of organizations at the various levels, it became apparent that the DOD drives some of these organizational constructs; so I dug into the DOD organization. Of course, I then discovered that Congress has a huge say in how the military establishment is organized…Needless to say, the challenge is larger than a breadbox. 

As I mentioned the Army is in the latter stages of significant restructuring effort to make a brigade the main fighting force element for the Army.  It became evident during the Bosnian crisis that using the Division as the main fighting element carried too large a logistics footprint for too few gunfighters.  As it turns out, the Army structured the Brigade Combat Teams (BCT) just as you would if you were building a new business…with some caveats. 

The Brigade Combat team structure is elegant as well as simple.  The combat maneuver brigades are of four types: infantry, combined arms (mechanized), Aviation, and Stryker.  There are three types of combat forces in a BCT: maneuver battalions, artillery batteries, & cavalry (recon) squadrons. Within each BCT are two to three maneuver battalions. In business parlance, the combat forces are the manufacturing plants producing a type of product that when combined with outputs from the other manufacturing plants, produces a product that is larger than the sum of the pieces; in this case the military plants produce combat power that can be brought to bear anywhere, anytime in multiple scenarios.

Supporting these combat forces is a brigade special troop’s battalion and a brigade support battalion. The support battalion represents the capital assets and the means to deliver and sustain the product (the combat power).  The current composition of the support battalion is medical, transportation/distribution, and field maintenance.  Move them, supply them, sustain them and fix them.  This exact paradigm is repeated every day in every manufacturing plant in the world.  Additionally, the BSB goes one step further and assigns a dedicated forward support company (FSC) to each of the combat force battalions. This is exactly how suppliers support Wal-Mart today, and we all know how efficient that construct has proven. Each FSC is composed of an ammo platoon, fuel platoon, food/water services platoon, medical platoon, and a distribution platoon.  They are embedded in their customer’s organization. This is a recent (last two decades) innovation in customer service led largely by the realization that the customer is # 1.  That wasn’t always true when the US industries could sell everything they made.  When global competition heated up, and world became flat, the consumer had more options available.   Furthermore, industries started looking at ways to reduce their fixed base costs; any reduction there went straight to the bottom line.  Improvements in communications technology and collaboration tools has led the leaders in business to embrace outsourcing & extended supply chain arrangements.  Now customer service took on another dimension; the customer in this case was an entire business.  The service industry exploded as a result and companies started to collocate with their partners to maximize and optimize the relationship as well as the service.  The BSB FSC model replicates this industry best practice.

The final leg of the triad is the brigade special troop battalion.  This battalion provides the services associated with overhead (cost centers) in an organization such as HR, Finance, and Legal Services, Security, IG, and Civil Affairs, as well as industrial support operations in Engineering, Networks, Military Intelligence, and EOD. 

In addition to these brigades, there are a number of “type” brigades that are specific to the business they perform:  Generally speaking the support or service brigades are attached to the numbered Army and the combat type brigades are attached to the Corps/Divisions.    Once again, these type brigades represent “businesses.”  In civilian parlance, I could go out and rent these specific capabilities to augment my internal capabilities.  Or I could “outsource” the entire capability to one of these businesses.  Or I could buy this capability to round out my organization. 

Above the BCT is a rather lengthy operational & support chain of command.  From an operational view, first there is a Division, followed by a Corps, followed by a Joint Theater Command, followed by the Joint Regional Command, followed by the Chairman, Joint Chiefs, in coordination with USD, Policy, followed by the SECDEF.  Title 10 of the US Code states the Service Secretaries are responsible for outfitting, training, equipping and sustaining their forces in the field.  Before the Goldwater-Nichols Act in 1987, the Numbered Army was the organization that fought and supported the Corps & Divisions and reported to the Joint Regional Commander; now the Numbered Army is an adjunct support organization that responds to Corps support requirements, and reports through the Service chain of command. Currently, the chain of command for the Numbered Army Commander is direct to the Chief of Staff of the Army.

Using this as a guide, I took a look at how the “corporation” (Army) and the conglomerate (DOD) were organized.  Not surprising, the organizational structure is not as precise as one that they devised to optimize the brigades.  It seems reasonable to me as a going in position that whether you are in garrison or deployed, there should be as little difference in the interplay between supporting and supported as possible.  From this analysis, I learned several things.  First, I noticed that while the BCT construct was fairly robust, it still relied heavily on “brigade staff” talking to “battalion staff.”  It still retained a lot of overhead.  To me, it seemed redundant to have the staff; the commanders of the BSB and BSTB had all the expertise required to receive guidance from the Commander or the XO.  Second, I noticed the mix in the BSTB required a rather wide span of control in a number of areas that did not have similar traits. This mixing of “metaphors” was problematic.  Looking at this helped me formulate the groupings you will see later on in the paper.  Third, I noticed that the Army retained the traditional chain of command echelons even though they had taken the steps to make the BCT a self-sufficient combat organization.   So this look into the BCT helped form the basis for my subsequent analysis.  There are four overarching tenants: eliminate “staff”; eliminate echelons of management; consolidate / merge like business entities, and align like businesses under common governance with authority to execute independently. 

Where Do We Start? 

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 to develop, 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. 

In business terms, the DOD is the NFL, the Secretaries each own a team, and the Chief of Staff is the head coach.  The output of their work is a team.  The NFL establishes the rules of governance.  The owners ensure the team has the best facilities, is the best trained and educated, best-conditioned, most intelligent, best outfitted, and best cared for team within the budget the owner provides.  The coach makes sure the team is capable of taking on all comers one on one and capable of fitting into a larger team capable of taking on other NFL like organizations around the world.

The successful large global multi-national conglomerates that have met and dealt effectively with the rate of change in the 21st century have moved to a Strategic Business Unit (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.  Semi-autonomous implies 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.  By and large, these 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 SBU’s do not need this overhead. They focus on the business…their customers.

Finally all public 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 determines the company’s executive management team.

What all of these companies recognized is their approach enabled the leadership to focus on their respective businesses.  They learned that if they focus and align more precisely, efficiency followed. Focus bred efficiency.  They also learned 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. 

We need to understand how the DOD looks today before moving to an alternative.  DOD has given the task to produce combat capability to the three Service Secretaries.  The Services are aligned along the physical dimensions within which they are expected to provide the joint force commanders with combat capability; the Air Force is responsible for air combat capability; the Army responsible for ground combat, and the Navy for surface and undersea combat. These organizations, the Army, Navy, and Air Force, outfit, train, equip and field combat units and/or combat support/ combat service support units and make them available to the CJCS and his field commanders.  Sounds simple, but it isn’t.  Each of the Services has their own augmentation organizations for their core missions.  For example, the Army doesn’t just do ground combat; they have an aviation arm that provides tactical airlift, close air support, air rescue, aero medical evacuation, unmanned and manned battlefield surveillance, and insertion and extraction support.  By definition the Navy has its own ground force: the US Marine Corps; and they have the same air augmentation forces as the Army along with fixed wing air refueling capability.  If you think that is entertaining, the advent of remotely piloted vehicles or drones has all of them lining up at the trough.  Last but not least, each of the Services provide for the support and sustainment of the forces that deliver the core mission of each Service.  That means every joint operation can and very often does have three or four independent combat support and combat service support echelons supporting their individual Service fighting team.  In the case of the Army, not only does the theater Army provide support services, the organizations whose traditional role is to attend to sustainment in CONUS, have deployed to bring about industrial support in theater.  Not only is this a big deal just from the duplicative efforts, it really, really complicates the theater view of the support lines of communication.  US TRANSCOM, largely responsible for moving the men and materiel into theater has zero visibility of shipments from AAFES, DLA Prime Vendors, and Foreign Military Sales, not to mention the shipments leaving the in-theater storage facilities.

You Could Say DOD Has Three Companies:  Army, Navy and Air Force

Not really.  DOD runs as a separate entity as well.  The DOD Agencies, some seventeen of them, provide combat and combat service support to the war fighter.  Collectively they don’t share much.  It doesn’t take a rocket scientist to see that the current organization duplicates an awful lot of things.  And they don’t run their organizations as businesses.  They run their organizations as functional silos that are highly biased towards the mission without attendant regard for the cost of getting there. 

The Global War on Terrorism has demonstrated there is lots of sameness in each of these verticals.   The Air Force and Navy have provided the Army vehicle operators, EOD, Civil Engineers, Security Forces, and contracting specialists to name a few.  The last couple of BRAC determinations acknowledged that installations that abut each other but are in different services should be merged and managed as a joint base.  BRAC has also driven joint specialty training initiatives and has instructed the Services to outsource to the private sector housing management and certain commodity management such as tires as well.  DOD is actively pursuing a merger of the individual Service medical professions as well as the TRICARE insurance operation into a Defense Health Agency.  So the question before us is how do we acknowledge these facts and produce a politically acceptable management model that will allow the DOD to collapse duplication of common skills and management echelons and still provide the President and the Congress the capability to support the President’s national security agenda. First, a quick review of the DOD, Joint Staff, and the Army constructs.  Following that a discussion on the management model.

The DOD Organization Today

The Secretary of Defense supplies the President with the tools to ensure the President is in a position to defend the nation’s interests at home or abroad.  The SECDEF relies upon 9 combatant commanders for national defense, global deterrence and humanitarian assistance. These commanders receive forces and support for them from within OSD, which is composed of five Under Secretaries, the Joint Staff, twelve assistant Secretaries/Directors and the three Service Secretaries who report to the SECDEF.  Under these offices are seventeen Defense Agencies, and 10 Defense Field Activities.  The SEC ARMY, SEC NAVY, SEC AIR FORCE, and OSD, provide forces to the joint combatant commands and provide support and sustain them while engaged.  Below is a skeletal top level view of the DOD organizational structure and the Secretary of the Army, representing a Service organization.  If you are interested in seeing how each of these top levels explodes out, take a look at this section at the end of the article.


Department of Defense Organization Structure

Defense Secretariat

Secretary of Defense

Deputy Secretary of Defense & Chief Management Officer

Deputy Chief Management Officer

OSD Special Staff

General Counsel

                        Defense Legal Services Agency

DOD Inspector General

                        Defense Criminal Investigative Service

            Assistant Secretary of Defense for Legislative Affairs

Department of Defense Chief Information Officer (CIO)

                        Defense Information Support Agency

                        White House Communications Agency

            Director, Administration & Management

                        Washington Headquarters Services

                        Pentagon Force Protection Agency

Assistant to the Secretary of Defense for Public Affairs

            Defense Media Activity

            Assistant to the Secretary Net Assessment

Director of Cost Assessment and Program Evaluation

Director of Operational Test & Evaluation

Assistant to the Secretary of Defense for Intelligence Oversight

Under Secretaries of Defense

Under Secretary of Defense for Policy

Defense Security Cooperation Agency (DSCA)

Defense Prisoner of War / Missing Personnel Office (DPMO)

        Director, Defense Technology Security Administration (DTSA)

Under Secretary of Defense for Acquisition, Technology & Logistics

            Defense Contract Management Agency

            Defense Advanced Research Projects Agency

            Defense Logistics Agency

            Defense Threat Reduction Agency

            Missile Defense Agency

            Defense Technical Information Center

            DOD Test Resource Management Center

            Office of Economic Adjustment

Under Secretary of Defense for Personnel & Readiness

Department of Defense Education Activity

Defense Commissary Agency (DECA)

Army Air Force Exchange Service

Navy Exchange

Marine Corps Exchange

Armed Forces Retirement Home

            DOD Human Resources Agency

            TRICARE Management Agency

Under Secretary of Defense for Comptroller & Chief Financial Officer

            Defense Contract Audit Agency

            Defense Finance & Accounting Service

Under Secretary of Defense for Intelligence

            Defense Intelligence Agency

            Defense Security Service

            National Geospatial-Intelligence Agency

            National Reconnaissance Office

            National Security Agency/Central Security Service

Joints Chiefs of Staff

Chairman, Joint Chiefs of Staff

Joint Staff

Vice Chairman

Director Joint Staff

J1 Personnel: J2 Intelligence: J3 Operations: J4 Logistics

J5 Plans: J6 CIO: J7 Integration: J8 Resources

Joint Chiefs

Chief of Staff Army

Chief of Naval Operations

Chief of Staff, Air Force

Commandant, Marine Corps

Chief, National Guard

Combatant Commanders

Regional Operations & Assistance

US Pacific Command

US European Command

US Northern Command

US Southern Command

US Central Command

US Africa Command

Global Deterrence

US Strategic Command (USSTRATCOM)

     US Cyber Command

US Special Operations Command (USSOCOM)

Global Support

US Transportation Command

Service Secretaries

Secretary of the Army

Secretary of the Navy

Secretary of the Air Force


Each of the Service Secretaries have the same job description:  By law, the Service Secretary must be the sole owner of (A) Acquisition, (B) Auditing, (C) Comptroller (including financial management), (D) Information management, (E) Inspector General, (F) Legislative affairs and (G) Public affairs.  Although none of the Service Secretaries have an Assistant Secretary for Policy or an Assistant Secretary for Intelligence, by and large the remaining Service Secretary’s organizational constructs roughly equate to the construct in DOD which in itself makes sense were it not for the fact that the DOD model is a challenge. 

Each Service develops, delivers and fields combat capability along with the requisite support to sustain combat in the field as requested by the CJCS and its unified commanders; that is the business of each Service and that is where the organizational alignment is most like a business. 

Each Service sources from within to secure the required components that make up their specific type of combat capability.  This is where the organizational alignment is murky.  The Services manage the support businesses via a wide variety of combinations of Direct Reporting Units, Separate Operating Agencies, Major Commands, Service Component Commands that are aligned with the Joint Commands, and finally, the corporate staff divisions. 

The result of this approach is inefficiency, no true accountability for the resources used and a very marginal dialogue between the war fighter and the supporting cast. Using the Army Secretariat as an example, generally speaking, each Service Secretary has at least four Assistant Secretaries along with the nine deputy assistant secretaries/directors reporting to them. 


Department of the Army Organization Structure

Army Secretariat

Secretary of the Army

Under Secretary of the Army & Chief Management Officer

Deputy Chief Management Officer

The Army Secretary’s Special Staff

General Counsel                                

Inspector General

US Army Inspector General Agency

Office of the Chief Legislative Liaison

Administrative Assistant

Chief of Army Public Affairs

            Soldiers Media Center


Army Reserve Forces Policy Committee

Auditor General

Army Audit Agency

Small Business Office

The Army Secretary’s Staff

Assistant Secretary of the Army for Acquisition, Logistics, and Technology

United States Army Acquisition Support Center (USAASC)

Army Contracting Agency (ACA)

PEO Missiles & Space (M&S)

PEO Aviation (AVN)

PEO Ammunition (Ammo)

PEO Combat Support & Combat Service Support

PEO Command, Control, & Communications Tactical

PEO Enterprise Information Systems (EIS)

PEO Ground Combat Systems (GCS)

PEO Integration

PEO Intelligence, Electronic Warfare & Sensors

PEO Soldier

PEO Simulation, Training, and Instrumentation

JPEO Chemical & Biological Defense (CBD)

Chemical Materiel Agency

CG Army Medical Research & Materiel Command

Assistant Secretary of the Army for Installations & Environment (I&E)

Assistant Secretary of the Army for Manpower & Reserve Affairs (M&RA)

EEO Agency
EEO Compliance and Complaints Review Agency

Assistant Secretary for Civil Works

Assistant Secretary for Financial Management & Comptroller

Finance Command

Cost and Economic Analysis Agency

Army Chief of Staff

Chief of Staff, US Army

HQ Army Staff

Vice Chief

Director Army Staff

            Deputy Chief of Staff for Personnel (G1)

                        Army Human Resources Command

            Deputy Chief of Staff for Intelligence (G2)

            Deputy Chief of Staff for Operations & Plans (G3/5/7)

                        Army War College

                        Command & Control Support Agency

                        US Military Observer’s Group

            Deputy Chief of Staff for Logistics (G4)

                        Logistics Innovation Agency

            Deputy Chief of Staff for Resources (G8)

                        Center for Army Analysis

            Assistant Chief of Staff for Installation Management

                        Installation Management Command

                        Installation Support Management Agency

            Deputy Chief of Staff for the Corps of Engineers

                        Army Corps of Engineers

Army Chief of Staff’s Special Staff

United States Military Academy (USMA)

United States Army Test & Evaluation Command (ATEC)

Provost Marshal General

United States Army Criminal Investigation Command (USACIDC)

United States Army Military District of Washington (MDW)

United States Army Reserve Command (USARC)

Surgeon General

United States Army Medical Command (MEDCOM)

Chief of Chaplains (religious)

Director Army National Guard

Judge Advocate General (legal)

            Army Legal Services Agency

            JAG Legal Center & School

Army Commands (ACOMS)

United States Army Training and Doctrine Command (TRADOC)

US Army Accessions Command

US Army Initial Military Training

US Army Combined Arms Command

US Army Combined Arms Support Command

US Army Capabilities Integration Center

TRADOC Analysis Center

United States Army Materiel Command (AMC)

Army Contracting Command

Army Sustainment Command

Aviation & Missile Life Cycle Management Command

Communications & Electronics Life Cycle Management Command

Joint Munitions & Lethality Command

Tank Automotive Life Cycle Management Command

Research, Development & Engineering Command

Ammunition Research, Development & Engineering Center (ARDEC)

Aviation & Missiles RDEC (AMRDEC)

Communications & Electronics RDEC (CERDEC)

Tank & Automotive RDEC (TARDEC)

NATICK Soldier Center

Edgewood Chemical & Biological Center

Simulation & Training Technology Center

Army Research Lab

Army Material Systems Analysis Agency

Agile Development Center

Chemical Materials Agency

Joint Munitions Command

US Army Security Assistance Command

United States Army Forces Command (FORSCOM)

1st Army

I Corps

III Corps


1st ID

1st AD

3rd ID

4th ID

10th Mountain

101st Air Assault

National Training Center

Joint Readiness Training Center

20th Support Command (CBRNE)

32nd Army Air & Missile Defense Command

Air Traffic Services Command

Army Service Component Commands

United States Army Central (USARCENT) / 3rd Army

United States Army Europe (USAREUR) / 7th Army

United States Army North (USARNORTH) 5th Army

United States Army Africa (USARAFR)

United States Army South (USARSO) / 6th Army

United States Army Pacific (USARPAC)

United States Army Special Operations Command (USASOC)

Military Surface Deployment and Distribution Command (SDDC)

U.S. Army Space and Missile Defense Command/Army Forces Strategic Command (USASMDC/ARSTRAT)

Eighth Army (EUSA)

U.S. Army Cyber Command/ 2nd Army.

United States Army Intelligence & Security Command (INSCOM)

United States Army Network Enterprise Technology Command/9th Signal Command (Army) (NETCOM/9th SC (A))


This thumbnail sketch gives you a top level view of the agencies and field activities being run by OSD and the Army; but the names don’t really give insight as to what “business” they are in.   The DOD is in a lot of “businesses.”   Here is a list: Grocery Business ($6B); Medical & Life Insurance ($30B); Financial Services & Bill Pay ($2B); Audit ($?); Testing ($?); Legal Services ($?); Recruiting ($?); Training ($?); Education ($?); Construction ($?); International Retail Sales ($36B); Wholesale Sales ($18B); Network & Communication Services ($3B); Research ($200M); Repair & Refurbishment ($?); Medical, Dental & Veterinary Services ($?); Engineering ($?); Schools and Universities ($?); Utilities ($?); Bulk Fuel ($18B); Transportation ($10B); Hospital Management Services($?), Installation Management Services($?); Business Travel ($2B); HHG ($4B); Relocation Services ($?); Inspections ($?); Range Management ($?); Safety ($?); Food Services ($?); Consumer Retail Stores ($?); Real Estate ($?); Real Estate Management ($?); Waste Management ($?); Environmental Cleanup ($?); Energy management ($?); Roads & Grounds Maintenance ($?); Enterprise Asset Management ($?); Security Services ($?); Housing($?); Billeting ($?); Religious Services($?); Intelligence Services($?), Contract management services ($?); Product Design, Development & Manufacturing Services for Aviation ($?), Ocean & River Vessels ($?), Tanks, Automotive, MHE & Construction ($?), Satellites, Communications & Electronics ($?), Munitions, Weapons & conventional missiles ($?); Special Weapons & Ballistic Missiles ($?), Individual Gear ($?), Fuels, Lubricants, & Chemicals ($?), Medical, Dental & Veterinary tools ($?), Spare parts, consumables & strategic raw materials ($?) and last but not least Regional Combat Services (?$), Global Deterrence Services (?$), and International & National Humanitarian Assistance Services (?$).

Certainly we don’t want to try to manage 80 or more independent businesses at the top level.  Using the North American Industry Classification System (NAICS) as a guide to grouping businesses, I was able to describe DOD as a conglomerate with the following fifteen lines of business:

  1. Recruiting, Training, Education (Resourcing)
  2. Product Development & Manufacturing (Resourcing)
  3. Global Deterrence & Humanitarian Assistance (Operations)
  4. Network Operations, Cyber, Communications & Intelligence (Operations)
  5. Medical, Dental & Veterinary Services (Industrial Support (IS))
  6. Engineering and Construction Services (IS)
  7. Wholesale and consumer retail trade (IS)
  8. Warehouse management, storage, customs, transportation & distribution (IS)
  9. Equipment Repair & refurbishment (IS)
  10. Energy Management, Waste management & disposal (IS)
  11. Business Travel, HHG, Insurance, Payroll, Housing & Relocation Services (Community Service (CS))
  12. Inspections, Audits, Testing, Environment & Safety (CS)
  13. Legal, Contract Management, Financial & Physical Security Services (CS)
  14. Real Estate, Installations, Communities and Hospital Management (CS)
  15. Morale, Welfare, Religious & Recreation Services (CS)

Could DOD Combine Any of these Lines of Business? 

Yes.  No matter how one slices the business paradigm it always boils down to four threads:  Resourcing, Operations, Service, and Support; from the top all the way down to the Brigade Combat Teams.  Resourcing has two threads enabled by cash: people and capital assets.  It sets the table for the other three.  Without cash, people, and tools to produce and deliver the product and the trained individual, there isn’t a business to be had. 

That said, resourcing does not run the business or makes the strategic decisions as to where the business is headed or what it needs to do to sustain the business.  The Operations team leads that paradigm.  But an operation is not an island, either.  In order to conduct operations in the field (manufacturing plant), one needs support for the capital resources (people, equipment and facilities provided by cash, people and tools) that are in action producing product(s). 

This means an industrial support line of business needs to get them to the field (move them), make sure they have what they need to sustain the plant and its people (feed them), provide for their needs while they are manufacturing product (fight them), and repair the manufacturing and support equipment and their people as needed to restore them to the assembly line in the plant and keep the plant running efficiently and effectively (fix them and fight them again). 

In addition to providing industrial support to its core businesses, each business recognizes that they have a need to provide a work and family environment that nourishes their employees.  They need to feel safe and protected, feel like they are given equal opportunity to succeed, receive benefits and perks that encourage them want to be part of the team for the long haul, have a means to redress issues in the workplace, and have corporate education and social activities that include the employee’s family.  These represent the community support centers of a business, for without them, it is very difficult to attract quality employees.

DOD May be Scoped to Five Strategic Business Units (SBU)

Looking at the figure below, 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 & services portfolio, depicted in brown and green, provides the means necessary to make sure the operations business continues to operate smoothly and without delay and provides for the well-being of the employees.

To summarize, we should now see that we will need to address two core challenges: the first challenge, the vast number of duplicative layers of staff, needs to be addressed on two fronts.  We need to find a leadership model that will allow the political and military staffs to converge and stay in keeping with the constitutional requirement to maintain civilian control of the military.  From there we need to determine what are the cost centers and businesses of the DOD and then repurpose the conglomerate and corporate teams to manage businesses.  Once the initial realignment is complete, the task is to take a look at where technology advancements have not been adopted to lean out and optimize the operational chain of command and to look for opportunities to merge like organizations.

About the Author(s)

J. Michael "Mike" Young is a logistician with a major in business software that facilitates business operations (logistics). A twenty-year veteran of the US Air Force, Mike has a B.A. in Political Science from the University of Georgia and knows enough about object oriented programming, user interface, and database design to keep out of trouble.



Sat, 10/22/2022 - 7:31am

The second part of the series on the Pentagon's strange operating procedure is devoted to modern business management lessons that can be learned from the Department of Defense. So you can get Fastexpert for the best realtors sacramento ca tips for their construction work. The DOD has conducted a decades-long middle-management revolution to create an efficient and effective organizational structure, which has allowed it to operate like a well-oiled machine despite its lack of funding.


Wed, 12/22/2021 - 5:35pm

Informative article. The Department of Defense is big business with many divisions and departments. I can imagine how difficult it is to manage such a large structure. I am interested to know what management methods are practiced in this business AND Whether SLA is used. I recently read on about Service Level Agreements and Their Role in Business. It turns out to be very important for the successful running of both small and large-scale businesses.

Biggs Darklighter

Tue, 07/16/2013 - 11:37pm

It's no secret that military culture is hard to change. Gen. Odinero didn't wake up one day and decide to disband JFCOM, he had to be directed to do it by the SECDEF. The good news is that at least Odinero is sounding more realistic about the budget then alot of the other service chiefs. Yes, the budget cuts will get worse, much worse I think. Not sure how even SF or SOF over all will come out of it. If they disbanded SOCOM they could certainly reinvest that money better in operational forces. Not a silver bullet solution though. I think the Marine Corps will come out OK. They have always operated on the cheap because they were forced to in the past and never had anything like Army's budget to blow, although the Corps took a step back with the EFV...nobody is perfect.

Ned McDonnell III

Tue, 07/16/2013 - 1:38pm

In reply to by Vitesse et Puissance

MAJ Young's article seems a little out of place in a Small Wars Journal but thinking through the benefits of sequestration is not. As C+P points out, sequestration can start to show where the flesh ends and the bone begins. As those findings emerge, and metrics are devised and applied (hopefully with relevance), I would be hardly surprised if Special Forces comes out as efficient as far as material consumption is concerned but very labor intensive. The latter will be inevitable because its mission is one from the bottom, up.

C+P brings out a good point: aggregated data (i.e., the top-down view) tend to blur individual performance and overlook cultural inefficiencies, such as procurement, both of which percolate from the bottom, up (i.e., emanate from individuals or small groups). Studies indicate that artificially, but externally, imposed constraints of time and resources can drive innovation by catalyzing resourcefulness and adaptation. S.B.U.s were invented thirty years ago by Westinghouse, now long gone.

S.B.U.s fail to hold individual projects accountable across a larger organization. This is a cultural problem because in the D.o.D., like any organization too large to be managed, many may be hesitant to admit the poor performance of a project. People in that unenviable position rightly understand that others view the projects as a personal extension of the manager, team or unit. That is to say: judge the project, judge the man.

The long and languorous history of the F-35 may be a potent illustration. The technology is now available to take a portfolio approach not to agglomerations of activities (S.B.U.s) but to specific projects themselves. Then, with the right culture in place, failing projects – honestly reported – could be cancelled to free up resources toward better projects open to bigger gains with additional investments. The manager who wisely surrenders resources is to be rewarded.

Yet viewing cost accounting and project management as a tool for prudent resource allocation is a lot to expect in a culture (far from unique in the D.o.D.) that views the admission of failure not only as an admission of failure but also as an unwillingness to stand up for something (i.e., cowardice). Again, to judge the project is to judge the woman. Interestingly, I am working in a Science Center (as a Peace Corps volunteer) in México of four hundred people, max.

Culture is proving really difficult to change here, an institution the size of a medium entreprise. Entreprise resource management, which this Center has, should be a snap for an institution of this size. It is anything but. The Center is now moving to Entreprise Project Management. Only time will tell if the marvelous software, provided by honest and hard-working outside consultants, will change behaviors or whether culture will subvert the software.

And all this in a group of people the size of a company or two! How much more difficult with the D.o.D. with its million-plus payroll? Also, and I do not mean to question people's integrity here, but how realistic is it to expect a MAJ, LTC or COL as a project purchasing officer to say no to one of the large defense contractors, for whom (s)he may want to work someday? Were I in that position, I could easily see me exercising the same bias without being aware of it – especially if the people in that defense contractor are fellows with whom I feel comfortable.

Frankly, I have no idea how to slice through this knot of culture and too-big-to-manage. If my perception is accurate, however, further well-intended and costly efforts to rein-in the military-industrial complex are likely to be much ado about nothing – no, much ado about another few million bucks down the drain – for the reasons aptly observed by C+P. Where I differ from C+P is that I see the evil logic of sequestration as one of perspective.

To me, sequestration is a de-tox to get off the procurement boom of the last ten years. Fact is, in that uninformed aggregate, D.o.D. expenditures are coming down about as much as previous periods of post-conflict demobilizations. As with any de-tox, the logic may seem evil to the drunkard but not so to the attending physician. Yet, I am willing to bet that, when all of this soul-&-cent searching winds down, the Special Forces will have vindication not vodka on its breath.

MAJ Young, thank you for a thought-provoking article.

Vitesse et Puissance

Mon, 07/15/2013 - 2:17pm

This guy lost me by the time he compared DoD to the NFL. The defense budget debacle is a severe but largely self-inflicted wound. Well meaning attempts to reform our way out of the problem or mitigate its consequences by getting small only exacerbate the issue. Now, we are still a long way from the problem faced by the Emperor Justinian, who couldn't - or wouldn't pay his troops during the Gothic War, and ended up fighting for 20 years instead of just 2 years because when the troops sweren't paid, they would revolt and join the defeated barbarians. No, we're not that bad off.

Seriously though, everyone tries to do this top-down, when the real answer is bottom up ? Does DoD have any idea how many Microsoft Office licenses it owns ? Does it have any ability at all to manage its software assets ? How can you possibly do the cost side of a return on investment analysis if all you count is end items and program lifecycle costs ? Now, the truth is that cost modeling makes my head swim - but if you have no hard data, it is all based on assumptions, and we all know where that leads.

Sequestration has a kind of evil logic to it - if you cut deep enough, and fast enough, you end up finding out where the pressure points are - you end up learning how to fix the system by breaking it. Rearranging the deck chairs may be aesthetically pleasing, and may offer some transitory opportunties for cost savings. But unless you are actually going to enforce asset visibility from the very top to the very bottom of the enterprise, such ventures avail nothing useful in terms of efficiencies. You will still have bottlenecks and slack resources - you won't even know where they are in your organization, much less be able to eliminate them.

Enjoy your unpaid vacation while you can, DoD, the next crisis is just around the corner. Just remember the dying words of Septimius Severus, who after raising the Roman soldiers' pay by two thirds, told his sons on his deathbed, "Be good to one another, enrich the soldiers, and damn the rest." (Severus did this by debasing the sliver content of Roman coins.)

Biggs Darklighter

Sun, 07/14/2013 - 9:48pm

In reply to by thedrosophil


You can bet someone in the Army or DoD would raise the bogus threat of a possible Russian invasion of Alaska to justify USARAK but an invasion from Martians might be more realistic these days. Can someone tell the Army the Cold War is over? Alaska is big, so what. Texas is big and were actually being invaded by narco terrorists and illegal immigrants from all points south of the border, not north to Alaska. We have NORTHCOM and 5th Army to watch over Alaska.

The number of Army GO's over all in the Pacific is so redundant its criminal. Lets look at some:
-8th Army: 6 Generals. Oddly enought some of these guys are reservists who get free junkets to the far east once a month for their training assemblies. Not sure what the difference is between a wartime DCG and a "regular" DCG is but either way 8th Army has both for some reason.
-USARAK: 1 General
-USARPAC: 6 Generals, 2 of which are Reserve Component (1 National Guard and 1 Army Reserve). Guard guy probably lives there, reserve guy gets free vacation to Hawaii every month..sweet.

That's a total of 13 Army Generals ABOVE division level alone. Plenty of redundancy. Need a general in Japan? We have plenty of Generals for any kind of activity there. Wedged between 8th Army and USARPAC, US Army Japan is clearly not needed. 8th Army or USARPAC could post one of its Theater Support Commanders in Japan to fill the need for high presence. 19th TSC is right across the drink in S. Korea, God forbid he have to move his office for the sake of taxpayers and operational readiness.


Sun, 07/14/2013 - 3:53am

@Biggs: It's worth remembering that Alaska is 1) the geographically largest state, 2) the state most exposed to potential foreign aggression, and 3) the only state that's geographically separate from the rest of the United States (other than Hawaii, which is packed with troops). I suppose a justification could be made for having a general there to command both locally stationed forces and additional deployed forces in the event of an engagement. Despite the inevitable shouting about "Network-Centric Operations" and "Strategic Airlift" making a locally based four-star obsolete, two truths from our forefathers remain: 1) there is nothing new under the sun; and 2) the grammar of war changes, but it's logic is static. Similar arguments could be made about our commitments to the defense of Japan, with the added consideration that the general commanding the (currently) small Army contingent in Japan would have further diplomatic duties that could require high rank; the question for me, then, would be whether that high-ranking position was a redundancy when co-located with the large Department of the Navy (USN and USMC) contingent in Japan.

Just a few thoughts. :)

Biggs Darklighter

Sat, 07/13/2013 - 5:41pm

Great article and long overdue. The Joint force and the Army especially could learn from this and to flatten its numerous superfluous headquarters that exist in DoD structure. Case in point:

SOCOM-Why do we need it if we got rid of JFCOM? They both focused on being a Title 10 force provider.

US Army Japan and US Army Alaska: What's the point? We have 2000 troops in Japan. We need a General for that? As for Alaska, why does a state need an Army HQ? A US Army Texas or North Carolina could be more justified.