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Sequestration as a Godsend: Operate the DOD as a Modern Business: Part III: The Reorganized Department of Defense

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

Part III: The Reorganized Department of Defense

J. Michael "Mike" Young

Continuing from Part I and Part II, this next section delivers the initial view of the restructured Pentagon.  This first phase moves existing structure to align it in the appropriate cost center or business unit. Following that alignment exercise, there will be a concrete view of the organizations to eliminate, merge, sand and polish to cut the overhead. This will not be easy; it will be the phase that is fraught with hand wringing, emotional diatribe, and cutthroat, hardnosed deal making…but it will be the easiest of the phases the DOD must go through to get to a state where they operate as a modern business entity.

“ Organizational structure has a certain inertia…the idea borrowed from physics and chemistry that something in motion tends to continue on that same path.  Changing an organizations structure is a daunting managerial task, and the immensity of such a project is at least partly responsible for why organizational structures change infrequently.

Organization Structure, Reference for Business, Encyclopedia for Business, 2nd edition, Howard Distelzweig as revised by Scott B. Droege

Even if everyone were in full agreement, changing the DOD organization would still be an extraordinary achievement. There is virtually 100% agreement that the DOD in particular, and government entities in general, are extraordinarily inefficient operating institutions.  To some degree, the body politic is able to say democracy is a messy way to govern; hence the institutions established to implement the will of the body politic are inefficient.  Given the current impasse between the Executive branch and the Congress it would be hard to argue otherwise.  In reality, the challenges are an effective smoke screen.  Public companies will tell you they could be more effective if they did not have to answer to its shareholders every quarter.  But one fact remains; public companies in business today survived the past thirty years because their shareholders held the executive leadership team’s collective feet to the fire to find ways to improve their operating margins by cutting overhead, improve the efficiency of their operations by leaning out the production and supply chain profiles and improve the speed an idea translates to a finished product or a need translates to an actionable solution set.

DOD shareholder consensus is far from the horizon and the DOD leadership has not embraced sequestration as an opportunity to get better at what they do. How to bring down the cost of national defense has drawn a number of outside opinions rendered on the subject, including my own.  One thing is sure; cherry picking solution sets will not get the job done.  The solution is not buried solely in a BRAC or un-funding benefits or cutting a certain workforce because it is easy.  The solution must be comprehensive and must affect all of the members of Congress; anything else is doomed. Since my view is the DOD should align along business lines, I’ll spend some time discussing businesses and cost centers and organizational structures before diving into the changes necessary to restructure the DOD along business lines.

A business (also called a company, firm and enterprise) is a legally recognized organization designed to provide goods and/or services to consumers.

Each business has foundational needs as depicted in the figure below:

  • The outside of the circle represents tasks or functional disciplines that every business needs to be successful 
  • Inside the circle (the business) color coded silos represent the interrelationships between the various functional disciplines

The purpose of the figure is to graphically depict a few founding truths:

  • People are the most important element of a business, consuming a sizeable portion of cash flow
  • Availability of money drives the engine that sustains the business
  • The leaders and managers are accountable for the use of the funds provided by corporate
  • All businesses have fundamental functions independent of the product or service they offer the market
  • Any function can be a business or a business unit unto itself with all the attendant depicted functions within
  • Regardless of whether a business outsources functions to other businesses within or outside the corporation, every penny of funding consumed, donated, invested, or saved are accounted for and controlled and must pass professional audit without qualification

All companies have profit centers and cost centers

A profit center is a unit of a company that generates revenue in excess of its expenses. This is in contrast to a cost center, which is a unit inside a company that generates expenses with no responsibility for creating revenue. The only expectation a cost center has is to lower expenses whenever possible while staying with a specific budget that is determined at the corporate level.  Sounds easy enough, but in practice…

“The very nature of a cost center contains structural disincentives that work against optimization. Everyone recognizes, and many have experienced, the cost center rewards for working hard to control costs and ending the year well under budget. The amount under budget is added to the planned reduction and the result becomes next year’s objective. That’s the reason there is so much last minute spending, wise or not, in a cost center. The reward [less money for next year] works against optimizing, doing exceptionally well, and ending up significantly under budget.

John Mitchell, Profit or Cost Center Mentality: Is the Difference Important? , Maintenance Technology Magazine, December 1998

One only need to look at the red eyes, tousled hair, five o’clock shadow and harried caffeine whisper of the DOD purchasing community from 20 August until 27 September of every year, to know this describes the DOD management practices to a “T”.  DOD needs to find a way to modify their organizational constructs to minimize the structural disincentives.

Researchers have identified four basic decisions leadership must make as they develop an organizational structure.

  1. Divide the organization’s work into specific jobs
  2. Group the jobs

Functional Groups: Using functions as the basis for structuring has the advantage of efficiency.  The disadvantage of functional groupings leads to a narrow departmental view; organizational goals may be sacrificed in favor of departmental goals.  Coordination across functional boundaries can become a difficult management challenge particularly when the organization grows and spreads to multiple locations.

Geographic Groups: Makes centralized coordination more difficult, but allows the firm to promote a more local focus.  Regional experience is often excellent training for management at higher levels.

Customer / Market Groups: If you sell or service specific customers or markets, companies align along those market or customer portfolios. 

Matrix Structure: This is a common structure for engineering / construction and software development firms.  Essentially you have project managers out selling projects.  When they get one agreed upon, they pull in people from all of the various functional departments to put a team together to build the project.  The people have two bosses.  One is the PM for the job and the other is the Director of the department.

  1. Decide how many people and jobs should be grouped together
  2. Decide how to distribute decision-making

For the most part of this century, large diversified organizations have pretty much centered on line and staff organizations and these tend to be aligned one of two ways: by function or by division.  Functionally aligned organizations tend to lump into groups such as operations, sales & service, logistics, purchasing, engineering, real estate, finance, HR, R&D, product development, and manufacturing.  These organizations are considered traditional or bureaucratic, or mechanistic or command & control.  That would describe the DOD in a nutshell.  The other traditional organizational construct is by division.  This model was more in line with a business unit concept, but a large corporate staff controlled it.  The divisions were not empowered to operate autonomously. 

With the Internet, social networks, Twitter, the information flow is no longer top down.  In fact, the leadership is more likely to find out about stuff at the same time everyone else does. To that end there have been some other organizational designs applied successfully in the past twenty years.  All of them emphasize flexibility, self-actualization, unconstrained communication and sharing of ideas.  These new organizations go by various names: team structures, matrix structures, projects structure, autonomous internal units, boundary-less and learning organizational structures.  The good news is there is no longer a one-size fits all mentality insofar as organization constructs goes.  There is sufficient evidence that traditional firms can adopt as little or as much of the new stuff as they want.  The good news for the military is that its work force easily understands the disruptive technology available today and can adapt readily.  The bad news is the leadership has not faced the problem yet. 

In earlier segments of this paper, I mentioned every business has cost centers and profit centers.  The question is what makes a cost center a cost center and a profit center a profit center.  How did I conclude which one should go into what bucket?  There is not a pat answer to this question.  Every traditional cost center can become a viable business entity…as long as some one is willing to pay for the service.  That is the one differentiating factor.

Experience and research leads me to this conclusion: the organization model that has met with the most success over the past twenty years has the following attributes:

It has an independent Board of Directors

It has a very small conglomerate / corporate staff

Its core business units operate virtually autonomously

Each business unit organizes based upon the business model that is most efficient for that line of work

It has centralized cost centers that provide for governance, policy, strategy, and communications

It employs transfer pricing to manage the cost centers

It uses technology to reduce the labor quotient of its cost centers

It embraces a wide span of control, thus eliminating echelons of management, reducing overhead and facilitating subordinates’ independence to operate

Its success or failure is not subjective; concrete results are visible to the entire organization

In order to address the cost center mentality, the DOD organizations need to restructure along business lines that can be managed as a business whose employees are incentivized to accomplish work efficiently.  To accomplish this, the SECDEF needs a leadership model that will allow his team to merge the multiple echelons of staff in existence today.  In concert with that change compensation plans designed to reward employees for reducing the price of national security need to be in place.

The traditional US management model is “one guy is responsible for everything.”  All roads lead to the CEO.  In the US public traded firms, the Chairman of the Board is also the CEO.  Underneath the CEO are the President and Chief Operating Officer.  All businesses and support cost centers report to this person.  If DOD went with the typical US model, the SECDEF would be the Chairman and CEO, the DEPSECDEF would be the Vice Chairman of the Board, and the Chairman of the Joint Chiefs of Staff (CJCS) would be the President and Chief Operating Officer and all of the Under Secretaries and Service Secretaries would report to the CJCS.  Most likely this approach is dead on arrival. 

There is a leadership model that is common in Europe and especially in Germany that offers promise.  Their public corporations have two boards: a supervisory board and an executive board.  The supervisory board is elected by the shareholders to provide oversight over the executive board.  Their supervisory board is made up of 16 people who each have four-year appointments.  The Chairman of the Supervisory Board is the leader of the company.  The Supervisory Board decides how many members are appointed to the Executive Board and who is to serve as chief executive officer (the CEO or co- CEOs). The chairperson of the Supervisory Board regularly meets with the Executive Board or the co-CEOs to discuss their strategy, current progress in business, and risk management. Under the current distribution of responsibilities among Executive Board members, the two co-CEOs share overall responsibility for Company strategy and corporate communication. The CEOs speak for the Company.  In addition, one of the two co-CEOs holds the global field operations portfolio and the other holds the product development portfolio.

If DOD were to adopt the prevailing European corporate governance model, which employs a co-CEO approach, they could work within the intent of the founding fathers and always have civilian control of the military.  Using this model would allow the DOD and the Services to re-organize along discrete business lines.  The Defense Secretariat would change to look like the below:

Defense Secretariat

Secretary of Defense = Chairman of the Supervisory Board

Deputy Secretary of Defense = co-CEO of Executive Board for product development & resourcing

Chairman Joint Chiefs = co-CEO of Executive Board for sales, support & service

Once we separate cost centers from businesses and adopt the leadership model that that combines the political and military leadership, we can roll up to an Executive Vice President & Group President (Under Secretary of Defense) whose role is to keep track of each corporation’s input (Army, Navy/USMC, USAF) to that line of business.  The Principal Deputy (Political) would manage the product development and resourcing of the business and the Military Deputy (Joint) would manage the daily business operations for that line of business.

Office of the Secretary of Defense

Under Secretary = Executive Vice President & Group President

Principal Deputy under Secretary (Political) = Principal Deputy for the business product development & resourcing

Principal Deputy under Secretary (Military) = Principal Deputy for business operations

Using a board structure also presents an alternative method to collaborate with Executive Branch, Congress and the public at large.  Neither the Executive Branch nor the Congress is pure in their motivations to modernize and make the DOD more efficient. They both impose countless projects upon the department in response to the members’ role to generate business for the state or district they represent or the executive branch’s role to secure votes for legislation.  This is not news, but it is the poster child for how NOT to run a business.  The $1T spend of the DOD is just too much for the Congress to make rational decisions on what is best for the country.  If the Executive Branch were to invite the Congressional leadership to participate in an apolitical context and sit on the DOD Board of Directors, and the Legislative Branch agreed to do so, there seems to be an opportunity to improve the dialogue.  President Thomas Jefferson warned against allowing institutions to calcify: “I am not an advocate for frequent changes in laws and constitutions, but laws and institutions must go hand in hand with the progress of the human mind … with the change of circumstances, institutions must advance also to keep pace with the times.”

We need a broker: the Defense Supervisory Board of Directors.

The DOD Supervisory Board could be the primary means for the DOD, the Executive Branch and the Congress to collaborate.  The Board would report out to the public once a quarter in a statement similar to that used by public companies listed on the stock exchanges.  Having a DOD BOD is not required to implement the recommendations you will see, but it would certainly go a long way toward streamlining the enormous amount of data being exchanged between each other. 

With this approach the DOD could be managed with three cost center groups and five strategic lines of business. Instead of 12 direct reports from the cost centers, I would bundle them into three groups: Corporate Governance, Corporate Strategy, and Corporate Communications.  Similarly the Strategic Lines of Business would fall into five groups:

         USD, Recruiting, Training & Education

         USD, Product Development & Manufacturing

         USD, Global Deterrence and Assistance

         USD, Industrial Support & Repair

         USD, Community & Professional Services

These DOD SBU’s would work with each of their Service counterparts to ensure their collective successes.  The various Defense agencies and Defense Field activities designated as combat support and/or logically consistent with the role and mission of the Joint community would move to either the existing Joint Combatant Commanders, new Joint Commands or to a Service Secretary designated to provide that capability for the entire community at large.

For the next several pages, I will describe the realignments necessary to revamp the leadership and management structure of the DOD staring with the cost centers and concluding with the business units.  Earlier, I said that this would be done in two phases.  The first phase would be devoted to moving the various components from cost centers to businesses and vice versa.  The second phase would be devoted to consolidation or elimination to reduce redundancy, improve utilization, and reduce echelons of control.  In the interest of time and space I will discuss both phases at the same time.

________________________________________________________________

Department of Defense Structured as Modern Business Conglomerate

Defense Secretariat

Secretary of Defense and Chairman of the Supervisory Board

Deputy Secretary of Defense & Co-CEO for Resourcing and Business Portfolios

Chairman, Joint Chiefs of Staff & Co-CEO for Operations

DOD Cost Centers:

According to Investopedia, the definition of a cost center applies to a department within an organization that does not directly add to profit, but which still costs the company money to operate. Cost centers only contribute to a company's profitability indirectly, unlike a profit center, which contributes to profitability directly through its actions. This type of department is likely to be one of the first targets for downsizing because, on the surface, it has a negative impact on profits.  Cost centers and profit centers are typically treated differently within an organization. Because a cost center doesn't produce a profit directly from its activities, managers of cost centers are responsible for keeping their costs in line or below budget.  To measure their effectiveness in keeping costs down, best of breed organizations employ transfer pricing to account for the cost center expenses; the cost center bonus plan is based in part on their ability to reduce their annual impact on the profit centers.

In this model, the cost centers that make up the corporate staff composition have three roles: set the table team (Governance); plot the future team (Strategy); and interact with the community team (Communications). 

DOD Corporate Governance Office

The team focused on setting the table is responsible for enabling the lines of business to operate legally, morally, efficiently, effectively, and pass an unconstrained audit annually.  The team makeup is CFO, CPO, GC, and CIO.  This is your Corporate Governance Office.  The USD, CFO would chair this office. 

  1. USD, Chief Financial Officer (CFO)
  2. ASD, Chief Information Policy Officer (CIO)
  3. ASD, Chief Procurement Policy Officer (CPO)
  4. ASD, General Counsel (GC)

The following alignment should take place to establish this group.

  1. Repurpose USD, (C) as USD, CFO
    1. Transfer CAPE to USD, CFO
    2. Transfer Office of Economic Adjustment to USD, CFO
    3. Transfer DFAS to USD, C&PS
    4. Transfer DCAA to USD, C&PS
    5. Transfer DRMI to USD, RT&E
  2. Repurpose DOD CIO to ASD, CIO
    1. Transfer DISA to Joint Intelligence, Networks & Cyber Assurance Command (new)
  3. Transfer Acquisition Policy from USD AT&L and establish ASD, CPO
  4. Transfer Defense Legal Service Agency from GC to USD, C&PS

Then there is the group responsible for looking into the future to help guide the company’s strategic direction.  The team responsible for this segment is the CSO, DIO, CIG, and CTO.  The Chief Strategy Officer would chair this office.

DOD Strategy Office

  1. DUSD, Chief Strategy Officer (CSO)
  2. ASD, Chief Technology Officer (include R&D) (CTO)
  3. ASD, DOD Intelligence Officer (DIO)
  4. ASD, Chief of Corporate Initiatives Group (CIG)
  5. ASD, Chief Logistics Officer

The following alignment should take place to establish this group.

  1. Repurpose Director of Net Assessments as the DUSD, Chief Strategy Office
  2. Transfer DDRE from USD, AT&L and establish ASD, CTO
  3. Transfer DARPA from USD, AT&L to ASD, CTO
  4. Transfer DTIC from USD, AT&L to ASD, CTO
  5. Repurpose ATSD for Intelligence Oversight as the ASD, DIO
  6. Repurpose USD, (I) and establish a new specified Joint Command, Joint Information, Intelligence & Cyber Assurance Command (USJIICACOM) under USD, GD&A
  7. Transfer NRO, NSA, DIA, DSS, and NGA to (USJIICACOM)
  8. Establish Chief of Corporate Initiatives office
  9. Transfer policy from USD, AT&L, ASD MR&L to new ASD, Chief Logistics Officer

The third group is responsible for marketing the company to the public, working with the employees, managing corporate workload, and working with its investors is the team composed by HCM, LL, PR and Director of Administration & Management.  The DUSD, HCM would chair this office. 

DOD Communications Office

  1. DUSD, Human Capital Management (HCM)
  2. ASD, Legislative Affairs
  3. ASD, Public Relations
  4. ASD, Director of Administration & Management (A&M)
  1. Transfer WHS from Director, A&M to USD, IS&R
  2. Transfer PFPA from Director A&M to USD, C&PS
  3. Transfer Defense Media Activity to USD, RT&E

DOD Strategic Business Units:

Following the leadership model I described earlier the executive team for each strategic business unit would align as follows:

USD, Recruiting, Training & Education (RT&E) = EVP & Group President

PDUSD = co-CEO for product development

CG RT&E (Joint) = co-CEO for sales, support & service

USD, Product Development & Manufacturing (PD&M) = EVP & Group President

PDUSD = co-CEO for product development

CG PD&M (Joint) = co-CEO for sales, support & service

USD, Global Deterrence & Assistance = EVP & Group President

PDUSD = co-CEO for product development

CG GD&A (Joint) = co-CEO for sales, support & service

USD, Industrial Support & Repair (IS&R) = EVP & Group President

PDUSD = co-CEO for product development

CG IS&R (Joint) = co-CEO for sales, support & service

USD, Community & Professional Services (C&PS) = EVP & Group President

PDUSD = co-CEO for product development

CG C&PS (Joint) = co-CEO for sales, support & service

These business units represent profit centers in the DOD context. A profit center is a section of a company treated as a separate business. Thus profits or losses for a profit center are calculated separately. A profit center manager is held accountable for both revenues, and costs (expenses), and therefore, profits. What this means in terms of managerial responsibilities is that the manager has to drive the sales revenue generating activities which leads to cash inflows and at the same time control the cost (cash outflows) causing activities. This makes the profit center management more challenging than cost center management. Profit center management is equivalent to running an independent business because a profit center business unit or department is treated as a distinct entity enabling revenues and expenses to be determined and its profitability to be measured.  This leads me to make this point.  All of the strategic business units will become fee for service organizations.  That would include the operational business; before you go “NO WAY”, here is the logic.  The Services spend a lot of money to field, employ, maintain, and sustain combat capability.  Virtually every conflict we have ever engaged in has come with funding from Congress to execute the conflict; either by direct funding or through the sales of war bonds.  That funding should be used to pay the Services for their “Service” to the fight.  Instead of allocating that “supplemental” money to each of the Services as Congress does today, that money should be allocated to the COCOM to pay for the service/force they require. 

USD, Recruiting, Training, and Education (RT&E) (Resourcing)

Of all of the Defense Secretariats I analyzed, none were close to being as complex as USD P&R.  First and foremost the USD P&R is a conflicted organization.  It has the HR cost center, which by ITSELF is not a trivial endeavor.  They are responsible for policy concerning a workforce 2.2M active, guard and reserve military employees, 583K DOD civilians and 2.7M retirees of which 2.1M are military.  Additionally, there are 130K non-appropriated fund employees the bulk of who work for the Service exchanges and MWR activities.  Many of its staff agencies implement policy through the Defense Human Resources Activity (DHRA).  The policy workload is substantial not only because of its size, but much of DOD HR policy is established in public law. Looking at their overall scope these three strategic lines of business exist.  In order to restructure the following steps would be required:

  1. Repurpose and rename USD, P&R to USD, Recruiting, Training, & Education and manage these business portfolios:
  • DUSD, Recruiting, Training, Education
    • ASD, Recruiting
    • ASD, Training
    • ASD, Education and University Management Services
  • DUSD, Talent Management & Assignments
  • DUSD, Defense Media Activity

2. Establish a new cost center DUSD for HCM in the new DOD Communications Office.

  • Transfer ASD Military Personnel Policy (MPP) to DUSD (HCM)
  • Transfer ASD, Civilian Personnel Policy to DUSD (HCM)
  • Merge ASD, MPP and ASD, CPP
  • Transfer ASD, Community & Family Policy to DUSD (HCM)
  • Transfer Department of Defense Education Activity  & Department of Defense Dependents Schools from ASD Community & Family Policy to USD, RT&E  (ASD, Education and University Management Services)
    • Transfer Medical Benefits Policy to DUSD, HCM
  • Transfer Defense Commissary Agency (DECA) to USTRANSCOM
  • Transfer Armed Forces Retirement Home to USD, Community and Professional Services (USD, C&PS)
  • Transfer ASD, Reserve Affairs less Reserve Policy, to the NGB
    • Transfer Reserve Policy to DUSD, HCM
    • Partition the Defense Health Agency and establish a new Joint Command under USTRANSCOM: Joint Medical Services Command (JMCS)
    • Transfer Clinical Services to (JMCS)
    • Transfer Hospital and Medical facility Management to USD, C&PS
  • Transfer Medical Education oversight to ASD, Education
  • Transfer Medical University & professional education management to ASD, Education
  • Transfer Medical & life insurance operations to USD, C&PS
  • Transfer Medical Research to ASD, CTO
  • Transfer Defense Travel Management Office (DTMO) operations to USTRANSCOM
  • Transfer MWR to USD, (C&PS)
  • Transfer AAFES, NEX, CGEX, MCX to USTRANSCOM
  • Merge the Exchange Services
  • Transfer Chaplain activities to USD, C&PS
  • Dismantle DHRA and distribute functions to appropriate cost centers or businesses
  • Repurpose USTRANSCOM as the Joint Industrial Support Command

USD, Product Development & Manufacturing (PD&M) (Resourcing)

Much has been made about how the government buying process is broken.  Additionally, there is a general consensus that DOD needs people skilled in the art of purchasing.  The model in the military is that purchasing is not a mainstream career discipline with opportunities for advancement and diversification.  And there is a mindset that anyone who is acquisition certified could buy any product.  Specialization is not required.   In 2007 McKinsey & Company reported its findings from a survey of 200 purchasing executives in 2007.  The study concluded that the purchasing leaders were “five times more likely to employ purchasing managers with analytical expertise and general management backgrounds in addition to deep knowledge of a particular purchasing category.”  Additionally their purchasing managers were “six times more likely to have worked in another functional area like product development or engineering.”  Top companies also set clear career paths for their purchasers.  Seventy-six percent of the leading companies in the survey established training for their purchasers through functional rotations in other business areas to ensure they had wide business experience.   The bottom line is best in class purchasing is done by people who have been in the business and have used or managed the product they are now responsible for buying.

With the exception of ammunition, the military purchasing organizations don’t manufacture much; they do buy a lot and deliver those assets to the war-fighters to the tune of almost $400B/year.  If you look closer though, you will note that the vast majority of the dollar spend is for products that are “engineered to order.”  So in truth, this organization outsources manufacturing and for the most part, does not buy “make to stock” or “make to order” products.  To make matters even worse, the acquisition rules they promulgate actually are only optimized to do “engineer to order” programs.  So when they do find something off the shelf, they go through the same purchasing model.  It is pretty painful, time consuming and irrelevant.  It effect, the transaction costs to hire one person is exactly the same as the cost to hire 1000 people.  Regardless of the above, you really would not know what they bought looking at their organization at AT&L.  

The AT&L acquisition organization represents a business paradigm in many ways very similar to a consumer goods company like Proctor & Gamble or Johnson & Johnson.   Looking at their (P&G and J&J) respective corporate organizations, they are both very similar.  They manage by brand across regions.  They bundle the brands into three global product groups.  Each group manages product development, manufacturing and sales.  A fourth group provides customer service & industrial support across the three groups.  This fourth group also organizes around product and ensures the leadership is focused on customer’s happiness with the product, manages warranties and returns, and provides repair or replacement services as the situation dictates.  In the process, they capture statistical evidence around the products performance and sustainability and make the information available to the product team responsible for improving the product.  One might say that this model is not germane to DOD because they really don’t manufacture the product (brand) that they sell to the war-fighter; they buy it.  Look no further than WALMART and you will note that their buyers are brand based as well.  In fact all buyers for retail businesses operate essentially the same way. Each buyer knows every supplier of a specific type of product category and plays him or her off against each other to get the lowest price available.

This is certainly different than the way AT&L is organized today; with this in mind, it is clear that DOD should organize its product development & manufacturing organization around product lines below and repurpose to focus on managing the product development portfolio and transfer all policy organizations to the appropriate cost center group.

  1. Repurpose and rename USD, AT&L to USD, Product Development & Manufacturing (USD, PD&M) and manage these business portfolios:
  • DUSD, Aviation & Missiles
  • DUSD Ocean & Water craft
  • DUSD Tank, Automotive, Construction & MHE
  • DUSD Satellites, Communications & Electronics
  • DUSD Munitions & Weapons
  • DUSD Special Weapons
  • DUSD Individual Gear
  • DUSD Fuels, Lubricants & Chemicals
  • DUSD Medical Systems & Technology
  • DUSD Business Systems & Technology

2. Establish a DOD Chief Technology Officer (CTO) cost center. 

  • Transfer all research activities from AT&L to CTO to include Defense Science Board, DDRE, DARPA, DMEA and DTIC

3. Establish a DOD Chief Procurement Officer cost center.

  • Transfer all procurement policy staff from AT&L as needed.
  • Transfer MDA to USSTRATCOM
  • Transfer DTRA to USSTRATCOM
  • Transfer DCMA to USD, C&PS
  • Transfer ATSD, Nuclear, Chemical, & Biological Defense Programs to USD, GD&A

4. Establish a new Under Secretary for Industrial Support & Repair (USD (IS&R)).

  • Transfer all logistics & engineering activities to USD, (IS&R)
  • Transfer DLA to USTRANSCOM

5. Establish a new Under Secretary for Community and Professional Services (USD, C&PS)).

  • Transfer all Installations & Environment activities from AT&L to new USD, C&PS. 

USD, Global Deterrence & Assistance (GD&A) (Operations)

Defense Secretary Brown established the USD, Policy in 1977.  Prior to that time the SECDEF worked directly with the Chairman, Joint Chiefs.  The USD, Policy is responsible for the DOD global policy for regional operations, global deterrence, and humanitarian relief.  They also set the Rules of Engagement (ROE) and assign command relationships for each operation the SECDEF tasks the military to carry out. There are two assistant secretaries who share responsibility for global deterrence.  ASD for Special Operations is aligned with USSOCOM; ASD for Global Strategic Affairs is aligned with USSTRATCOM.  Also, USD (P) has a DUSD for Strategy, Plans and Force Development, which align with Joint Staff J5, J7 and J8 as well USTRANSCOM.  Last but not least, the DUSD for Policy Integration operates as the chief of staff for the Under Secretary and is the office through which guidance from the SECDEF and the USD (P) is distilled and distributed as specific direction to the Joint Staff. The Joint Staff, combined with the Combatant Commanders virtually mirrors the USD, Policy organization. Based upon the commonality of the two structures, it would seem most appropriate to combine these organizations into a single line of business, improve the accuracy and speed of information flow to and from the field.  Along the way, we will move organizations into logical collectives, so when we are done, we have businesses to run and not staffs to run businesses.

There is one difference in the USD (P) and the COCOM construct.  USD (P) has three regional policy teams that align with the six COCOM regional joint commands.  ASD, ISA is responsible for Europe, Middle East, Russia & Eurasia, which coincides with USEUCOM and USAFRICOM.  They also run a $38B foreign military sales business on the side. ASD, HD&ASA is responsible for the western hemisphere and homeland defense, which coincides with National Guard Bureau, NORTHCOM and SOUTHCOM as well as coordinate all federal civil agencies for Defense support.  ASD, A&PSA is responsible for Asian and Pacific security affairs, which aligns with CENTCOM and PACOM.   During WWII, the leadership divided the world into three pieces:  everything right of the US was Eisenhower’s; everything left of the US was McArthur’s; everything in the middle (US) was Marshall’s.  Today, most global firms align the world along three demarcation lines consistent with how USD (P) is aligned. 

  1. Repurpose and rename USD, (P) to USD, Global Deterrence & Assistance (GD&A) and manage these business portfolios:
  • Regional Operations & Assistance
  • Global Deterrence
  • Global Support
  • Merge the National Guard Bureau HQ with NORTHCOM HQ and SOUTHCOM HQ
  • Establish US Americas Command (AMERICOM)
  • National Guard Bureau Operations
  • NORTHCOM Operations Center
  • SOUTHCOM Operations Center
  • Merge AMERICA’s Command Staff with USD (P) ASD, HD & ASA
  1. Merge EUCOM and AFRICOM
    • Establish US European, Middle East and Africa Command (EMEACOM)
  • EUCOM Operations Center
  • AFRICOM Operations Center
  • Merge EMEACOM Command Staff with USD (P) ASD, ISA
  1. Merge PACOM and CENTCOM
    • Establish US ASIAPAC Command (ASIAPACCOM)
  • PACOM Operations Center
  • CENTCOM Operations Center
  • Merge ASIAPAC Command Staff with USD (P) ASD, A&P
  1. Upgrade US Cyber Command from a sub unified command to a COCOM.  Establish new Joint Command: US Joint Information, Intelligence and Cyber Assurance Command (USJIICACOM)
    • Transfer DISA from DOD CIO to USJIICACOM
    • Transfer DIA, DSS, NGA, NRO, NSA/CSS from USD (I) to USJIICACOM
    • Merge with US Cyber Command HQ
    • Transfer AF Space Command from USSTRATCOM to USJIICACOM
    • Merge COCOM staff with USD (P) ASD, GSA, DASD Cyber Policy
    • Merge COCOM staff with USD (P) ASD, GSA, DASD Space Policy
  2. Realign US STRATCOM
    • Transfer MDA from USD, AT&L to USSTRATCOM
    • Transfer DTRA from USD, AT&L to USSTRATCOM
    • Transfer US Cyber Command to USJIICACOM)
    • Transfer ATSD, Nuclear, Chemical, Biological Defense Programs from USD AT&L to USSTRATCOM
    • Merge COCOM staff with USD (P), ASD, GSA DASD Countering WMD
    • Merge COCOM staff with USD (P) ASD, GSA, DASD Nuclear & Missile Defense
    • Transfer US SPACE COM from US STRATCOM to new USJIICACOM
  3. US Special Operations Command (USSOCOM)
    • Merge COCOM staff USD (P), ASD, SO & LIC staff
  4. Repurpose US Transportation Command as US Industrial Support Command (USISCOM)
    • Transfer DLA from USD, AT&L to USISCOM
    • Transfer Defense Commissary Agency (DECA) from USD P&R to USISCOM
    • Transfer AAFES, NEX, MCEX, from USD P&R to USISCOM; merge HQs into Joint Exchange Service
    • Transfer DSCA from USD, (P) to USISCOM
    • Merge HQ DSCA with DLA HQ
    • Transfer Defense Health Agency from USD P&R to USISCOM; repurpose as US Joint Medical Services Command; transfer insurance operations from DHA to USD, C&PS
  • Transfer Defense Prisoner of War / Missing Personnel Office (DPMO) to JMSC
  1. Transfer Joint Operations Planning to DUSD, Strategy, Plans & Force Structure; merge with staff from Joint Staff and each COCOM
  2. Repurpose USD (I) to become a cost center: Defense Intelligence Officer
  3. Repurpose ASD, CIO to become a cost center: Chief Information Officer
  4. Merge USD (P) DUSD SP&F staff with Joint Staff (J5/7/8) and COCOM Staff (J5/7/8)

Before leaving this section, it is important to note the organizational staff structure of troops in the field has not really changed since the beginning of the republic.  Today virtually every organization is wedded to the Napoleonic staff structure; to use a phrase coined by the US Fire Service, “200 years of tradition, unimpeded by progress” comes to mind. True the Congress introduced and formalized the concept of a Joint Chief of Staff to coordinate the military activities as well as create the Department of the Air Force, and take the Secretary of War (Army) and the Secretary of the Navy and subordinate them to the new position of Secretary of Defense in 1947.  The SECDEF inserted USD-Policy between the Secretary and the Joint staff in 1977 and Congress clarified the roles of the Services versus the Joint Chiefs in 1987 with the Goldwater-Nichols Act.  But if you look at the traditional chain of command without the new organizations created in 1947 and 1977, it still goes from the President to the Secretary, to the Regional Commander, to Theater Commander, [via USD, Policy to CJCS / JS] to Numbered Army Commander, to Numbered Corps, to Numbered Division, to Brigade, to Battalion to company to platoon to squad. In the old days the regional commander, theater commander and numbered Army commander were all in the same service.  The Regional and Theater commanders are now always joint commands and the Services provide them the operational units along with their needed combat support and service support units required to enable that team to generate the requested power projection that is coordinated and precise. In the old days the numbered Army fought the Corps and Divisions and managed its own sustainment.  Now the numbered Army’s role is now that of a full time industrial support command responsible for sustaining the Corps in the field since joint doctrine still adheres to the Services supporting their own combat forces.

With Goldwater – Nichols, the department now essentially has two sides to it.  The operational side is managed by the combination of the USD (P), the Joint Staff and the Combatant Commands.  The investment and sustainment (institutional) side is managed by a combination of the OSD, Service Secretaries, the military Chiefs of Service and the Major Commands whose role is to provide forces to the Combatant Commands and to provide support to those forces in theater.  In the institutional Army, there are six layers of command before you get to an operating unit.  In the operational Army, there are seven before you get to a brigade commander.  In both of these structures the count is just the top level…commander to commander.  It does not account for the coordination effort to get from one echelon to another. They both have the same staff structure: the Napoleonic staff structure…at every echelon. Each command, regardless of its level replicates the same staff structure as its higher headquarters and this includes the OSD secretaries and Service secretaries.  Even at the OSD level, where they do not follow the Napoleonic structure per se, one only need to look at each USD and you will find an organization that is responsible for budgeting, facilities, HR, legislative affairs, etc.  Similarly, each Army Major Command and its subordinate commands, as well as each Army Service Component Command and their subordinate commands duplicate each other in every sense.  Essentially, the business entities that support the operational side of the military have the same “staff” structure that has been in existence in the operational field combat organizations since Napoleon’s day.  Napoleonic staff structures, which are redundant in combat organizations under the premise that it ensures effectiveness, have the opposite effect in an institutional (business) structure; they tend to generate work in the institutional structure that provides questionable value.  But for my money the same holds true for the operational commands. 

Every command down to the company level in the Army today has a common staffing profile: 

Commander

Deputy Commander

Chief of Staff

Special Staff: PR: CH: SG: JAG: MP: Protocol: Command Sergeant Major (CSM)

Staff: G1: G2: G3: G4: G5: G6: G7: G8:

Operations Center

There have been a number of discussions in the operational commands about the effectiveness of the Napoleonic structure in today’s combat environment.  One such paper, published in April 2001, “CUTTING THE STOVEPIPES: An Improved Staff Model for the Modern Unified Commander” written by Major Eric M. Mellinger, USMC goes through the history of the military staff organization, citing a number of references promoting the notion that the Napoleonic staff structure is outdated.  His paper culminated in a real world example where a combatant command walked away from the Napoleonic staff structure. 

Special Operations Command modified its staff structure to improve its ability to respond to a crisis.  They have a Board of Directors with the Assistant Secretary of Low Intensity Conflict as a member and have consolidated staff into logical units of work called “knowledge centers” that are complimentary.  There are four operating units and one staff unit.  They combined acquisition and logistics into one center, intelligence and communications into another center, plans, policy, and operations into a third center, requirements and resources into a separate center, and a headquarters support center.

DOD can take this approach much further.  Instead of the standard 15 staff offices in each command, these new commands and any subordinate commands should adopt the following construct:

Commander: CSM

Director of Operations

Director of Industrial Support & Repair

Director of Community & Professional Services

Operations Center

In this model, the Director of Operations is the next senior person in the organization, eliminating the requirement for a Deputy Commander.  The two support staff agencies will coordinate the support for the Director of Operations.  All staff will work in the operations center where all of the information associated with the command is visible.  Cost center support will come from the central corporate cost centers.  Operations center staff responsible for industrial support and repair and community & professional services will come from the organizations subordinate to the Command.  Deputy Commanders disappear.  Chiefs of Staff disappear.

Not only will the model change the sheer number of people on each corporate staff, it will improve the ability to respond to the rapid-fire changes necessary to manage in today’s volatile world.

USD, Industrial Support & Repair (IS&R) (Support)

This business portfolio is largely based upon ASD, LM&R, portions of ASD, I&E, and portions of ASD, HA.  But in this construct, they are not generalists.  There are very specific lines of businesses that will have very definite KPI attributes whose collective role is to provide industrial support to the operations in the field.  That 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).

  • DUSD Medical, Dental & Veterinary Services
  • DUSD Engineering and Construction Services
  • DUSD Wholesale and consumer retail trade
  • DUSD Warehouse management, storage, customs, transportation & distribution
  • DUSD Equipment Repair & refurbishment
  • DUSD Energy Management, Waste management & disposal

1. Establish a new USD, for Industrial Support & Repair

  • Transfer ASD, LM&R from USD AT&L and repurpose to manage this portfolio
  1. Equipment Repair & Refurbishment
  2. Warehouse Management, storage, customs, transportation, port management & global distribution
  3. Wholesale & Consumer Retail Sales
  4. Real Property Disposal & Demilitarization
  • Transfer ASD, HA to USD, IS and repurpose ASD, HA to manage this portfolio
  1. Medical, Dental, & Veterinary Clinical Services
  • Transfer ASD, I&E from USD AT&L and repurpose ASD, I&E to manage this portfolio
  1. Civil Engineering & Construction Services
  2. Waste Management, Environmental Cleanup & Disposal

USD, Community & Professional Services (C&PS) (Support)

This new Under Secretary, would pull together all of the corporate services into a single organization to achieve focus, provide a common model and grouping into related business.  You will note as you read the recommendations to effect this change, you will see how many businesses were in cost centers.  One area that has been pretty embarrassing to the department over the past ten years of war has been the fact that these “people” situations have been overlooked in the big scheme of things.  Soldiers living in squalor, even worse wounded warriors living in squalor, auditors getting too close to the people they were auditing, insurance companies taking advantage of next of kin, contracting officers taking bribes, Arlington Cemetery scandal, payroll challenges because the spouse died, but the system took a while to find out…no need to beat on it.  We just need to focus on it.

  • DUSD Inspections, Audits, Testing, Environment & Safety
    • Transfer Director, Defense Technology Security Administration (DTSA) from USD (P) to USD C&PS
    • Transfer Defense Technical Information Center (DTIC) from USD AT&L to USD C&PS
    • Transfer DOD Test Resource Management Center (DTRMC) from USD AT&L to USD, C&PS
    • Transfer Defense Contract Audit Agency (DCAA) from USD (C) to USD C&PS
    • Transfer DOD Inspector General from OSD to USD C&PS
  • Transfer Defense Operational Test & Evaluation Center from OSD to USD, C&PS
  • DUSD Legal, Contract Management, Insurance, Financial & Physical Security Services
    • Transfer Defense Legal Services Agency from OSD General Counsel to USD C&PS
    • Transfer all lawyers on the OSD staff to DLSA
    • Transfer Defense Contract Management Agency for USD AT&L to USD C&PS
    • Transfer Pentagon Force Protection Agency from OSD A&M to USD C&PS
    • Transfer Defense Health Agency (TRICARE Insurance) from USD P&R to USD C&PS
    • Transfer Service Group Life Insurance from USD P&R to USD C&PS
    • Transfer Defense Finance and Accounting Service from USD (C) to USD C&PS
    • Transfer Defense Criminal Investigative Service from OSD IG to USD C&PS
  • DUSD Real Estate, Installations, Communities and Hospital Management
    • Transfer Washington Headquarters Services from OSD A&M to USD C&PS
  • DUSD Morale, Welfare, Religious & Recreation Services
    • Armed Forces Retirement Home
    • MWR
    • Mortuary Support and Military Graves Services
  • DUSD, Business Travel, HHG, Payroll, Housing & Relocation Services
  • Transfer Real Estate and Installations Management from USD AT&L to USD C&PS
  • Transfer Hospital Management from USD P&R to USD C&PS
  • Transfer MWR from USD P&R to USD C&PS
  • Transfer all education and university facility management from any DOD activity to USD C&PS
  • Transfer Insurance & Payroll services from USD P&R to USD C&PS
  • Transfer Business Travel, HHG, Relocation Services and Housing from USD P&R to USD C&PS
  • Transfer Environmental Health and Safety from any OSD activity to USD C&PS

Summary

By merging dozens of staff activities into logical groups the DOD can reduce its staff footprint by 50%.  This is not too far from what happens when a company buys another company and merges back office operations, sales, and R&D.  In this model for the DOD, merging took place on several fronts: the pure policy groups moved from each of the areas they existed in the current model and blended into three cost center groups: one group is responsible for governance; one group is responsible for strategy and R&D; one group is responsible for communications. 

The second merging was in the operational swim lane.  By merging USD (P), the Joint Staff, and the J5/7/8 staff of each COCOM, DOD would get its second group of staff reductions.  By merging the COCOMS from six to three, they get a third set of staff savings.  By repurposing the US Transportation Command to a Joint Industrial Support Command, DOD would bring a large number of stand-alone Agencies with their attendant support structure into a single entity.  By creating a new Joint Command for Information, Intelligence, and Cyber Assurance, they would merge several stand-alone Agencies / Commands. 

Finally, each of the COCOM’s HQ and their subordinate commands, Defense Agency or Field Activity HQ’s can further reduce its staff footprint by adopting the four person staffing profile: Commander: Operations: Industrial Support & Repair: Community & Professional Services and rely upon the centrally administered cost centers for overhead support.

Once the initial transfers are complete, there will be sufficient overlap in several of the Agencies; once the employees start to see that operating efficiently can actually improve their wallet, the DOD could sustain further improvements; with inspired leadership, it could become the mantra for the DOD.

If you made it this far, you are a glutton for punishment because this is clearly a very tedious description of moving the chess pieces around.  One could say it is tantamount to moving the deck chairs on the Titanic, because there still won’t be enough lifeboats when we are done.  To me it is as an exercise to build lifeboats from the chaos; each consolidation reduces the need for a lifeboat.  Each echelon of coordination eliminated will eliminate the need for lifeboats.  Lining up the organization to concentrate on managing business units with clear financial mandates will eliminate lifeboats.  Providing incentives for employees to report out the progress in reducing the overhead needed to deliver the product or service will eliminate thousands upon thousands of lifeboats.  Replicating this paradigm across each of the Services will eliminate hundreds of thousands of lifeboats.  To illustrate the next section will demonstrate how the US Army could restructure using the same concepts applied to the DOD.

 

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.