[Senate Hearing 114-391]
[From the U.S. Government Publishing Office]
S. Hrg. 114-391
DEPARTMENT OF DEFENSE REFORM: OVERCOMING OBSTACLES TO EFFECTIVE
MANAGEMENT
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 17, 2015
__________
Printed for the use of the Committee on Armed Services
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COMMITTEE ON ARMED SERVICES
JOHN McCAIN, Arizona, Chairman
JAMES M. INHOFE, Oklahoma JACK REED, Rhode Island
JEFF SESSIONS, Alabama BILL NELSON, Florida
ROGER F. WICKER, Mississippi CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire JOE MANCHIN III, West Virginia
DEB FISCHER, Nebraska JEANNE SHAHEEN, New Hampshire
TOM COTTON, Arkansas KIRSTEN E. GILLIBRAND, New York
MIKE ROUNDS, South Dakota RICHARD BLUMENTHAL, Connecticut
JONI ERNST, Iowa JOE DONNELLY, Indiana
THOM TILLIS, North Carolina MAZIE K. HIRONO, Hawaii
DAN SULLIVAN, Alaska TIM KAINE, Virginia
MIKE LEE, Utah ANGUS S. KING, JR., Maine
LINDSEY GRAHAM, South Carolina MARTIN HEINRICH, New Mexico
TED CRUZ, Texas
Christian D. Brose, Staff Director
Elizabeth L. King, Minority Staff Director
(ii)
C O N T E N T S
__________
november 17, 2015
Page
Department of Defense Reform: Overcoming Obstacles to Effective
Management..................................................... 1
Walker, Hon. David M., Former Comptroller General of the United
States......................................................... 5
Punaro, Major General Arnold L., USMC (Ret.), Member of the
Defense Business Board......................................... 10
Spencer, Richard V., Former Member of the Defense Business Board. 30
Bisaccia, Lisa G., Executive Vice President and Chief Human
Resources Officer, CVS Health Corporation...................... 34
Questions for the Record......................................... 60
(iii)
DEPARTMENT OF DEFENSE REFORM: OVERCOMING OBSTACLES TO EFFECTIVE
MANAGEMENT
----------
TUESDAY, NOVEMBER 17, 2015
U.S. Senate,
Committee on Armed Services,
Washington, DC.
The committee met, pursuant to notice, at 9:35 a.m. in Room
SD-G50, Dirksen Senate Office Building, Senator John McCain
(chairman) presiding.
Committee members present: Senators McCain, Inhofe, Ayotte,
Fischer, Cotton, Rounds, Ernst, Sullivan, Lee, Reed, Nelson,
McCaskill, Manchin, Gillibrand, Blumenthal, Donnelly, Hirono,
Kaine, King, and Heinrich.
OPENING STATEMENT OF SENATOR JOHN MCCAIN
Chairman McCain. Well, good morning, all.
Before we begin, I'd like to briefly address recent events
of profound consequence to the work of this committee. Over the
past few weeks, the massacre in Paris, attacks in Beirut,
Baghdad, and Ankara, and the likely bombing of a Russian
airliner, now confirmed by the Russians, over Egypt have
signaled the beginning of a new phase of ISIL's [the Islamic
State of Iraq and the Levant] war on the civilized world. This
committee has held several hearings on U.S. strategy against
ISIL over the past several months, yet no administration
witness to date has presented a plausible theory of success to
degrade and destroy ISIL. With ISIL determined to launch more
attacks across the globe, we cannot afford more of the same
insufficient strategy. And in the coming weeks and months, this
committee will continue to focus our oversight on the urgent
development of a new strategy to achieve the decisive and
lasting defeat of ISIL.
The committee meets this morning to continue our series of
oversight hearings focused on defense reform. Today, we will
focus on reforming the management of the Department of Defense.
This is a perennial and enormously costly problem, precisely
because it's one of the most difficult. But, if the Department
is to meet the diverse and complex national security challenges
that our Nation confronts around the world both now and in the
future, it must make far more effective and efficient use of
its resources, especially when budgets are tight.
We're very fortunate to have a distinguished group of
witnesses to discuss how to overcome the obstacles to better
management in the Department of Defense: The Honorable David
Walker, former Comptroller General of the United States, who
has a long and very productive relationship with this
committee; Major General Arnold Punaro, member of the Defense
Business Board, as well as former Staff Director of this
committee, which he did a terrible job while he was a member--
--
[Laughter.]
Chairman McCain. Mr. Richard V. Spencer, a former member of
the Defense Business Board with a decades--with decades of
experience in the private sector; and Lisa Bisaccia, Executive
Vice President and Chief Human Resources Officer at CVS Health
Corporation. I'd like to point out that, while CVS has the
misfortune of being headquartered in the State of Rhode Island,
it does have more than 6,000 employees and over 500 pharmacists
working in Arizona, administrating some of our Nation's--
administering some of our Nation's most important Federal
health programs. And we're thankful for the work that they do.
The United States military is without peer in delivering
combat capability anywhere on the globe. Our soldiers, sailors,
airmen, and marines are the greatest fighting force the world
has ever seen. However, it's also the case that the management,
what is sometimes called the ``back office'' of the Department
of Defense, is in dire need of improvement. In constant
dollars, our Nation is spending about the same as we did three
decades ago. However, for this money today, we're getting 35
percent fewer combat brigades, 53 percent fewer ships, 63
percent fewer aircraft squadrons, and a lot more overhead. How
much more is somewhat unclear, because the Department cannot
even produce complete and reliable data on its overhead
expenses.
What we do know is, these reductions in combat power have
occurred while the Department's overhead elements, especially
its contracted workforce, have exploded. Nearly 1.1 million
personnel now perform overhead activities in the defense
agencies, the military departments, and the service staffs. And
the money spent on these overhead functions is staggering.
Indeed, of the top 10 entities that contract for business with
the Department of Defense, half of them are the Department's
own agencies. In annual dollars, the Defense Logistics Agency
does nearly twice as much business with the Department as
Lockheed Martin.
A few years ago, an analysis by McKenzie & Company found
that less than one-quarter of Active Duty troops were in combat
roles, with a majority instead performing overhead activities.
Recent studies by the Defense Business Board and others
confirmed that little has changed in this regard. The United
States tooth-to-tail ratio is below the global average,
including such countries as Russia, India, and Brazil. For
years, decades in some cases, the Government Accountability
Office [GAO] has identified some of the major overhead and
headquarters functions of the Department of Defense at being at
high risk of waste, fraud, abuse, and duplication of effort.
Business systems modernization and transformation, supply chain
management, contract management, infrastructure management, and
financial management have all been on GAO's high-risk list for
years. And yet, these problems have grown through
administrations of both party, and persist to this day.
It is not as if the Department has not tried to address
these problems. Indeed, it has spent billions of dollars to
bring so-called, quote, ``private-sector best practices'' into
the Department of Defense through the adoption of commercial
off-the-shelf information technology programs. Unfortunately,
these efforts have little to show for them. Information
technology programs intended to create lasting business
transformation at the Department have either collapsed from
their own weight and size, such as the Air Force's
Expeditionary Combat Support System, or were merely
reconfigured, at great cost, to replicate the inefficient and
outdated business processes that the Department of Defense was
already employing.
In order to improve its management skills and transform its
business process, the Department has also paid consultants and
contractors billions of taxpayers' dollars to conduct analysis
of problems in the areas of supply chain, logistics, financial
management, and contract management. Here, too, there is
precious little to show for the effort, which has persisted
over decades. But, despite this spending, none of the high-risk
areas that GAO has identified have been removed from that list.
What's worse, it's hard to address management problems when you
lack basic data that are essential to understanding and
diagnosing those problems. And yet, that is the case with the
Department of Defense.
Here is how former Secretary of Defense Robert Gates
described the dilemma. He said, quote, ``My staff and I have
learned that it was nearly impossible to get accurate
information and answers to questions such as, 'How much money
did you spend?' and, 'How many people do you have?''' The
result is not just greater inefficiency and wasted resources,
it also harms the effectiveness of the Department of Defense;
and thus, our national security.
The result of these shortfalls in information, as Secretary
Gates has explained, is that Department leaders and their
overseers in Congress cannot measure the results of our
national security policies or make judgments about priorities
for our military or accurately assess the tradeoffs involved in
different courses of action. If the Department cannot do these
basic things, it will struggle to be effective. We cannot
afford to continue on this way. The stakes are too high, and
the consequences of failure are too dire.
I thank our witnesses for helping us to better understand
these defense management problems and how to overcome them.
Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Well, thank you very much, Mr. Chairman.
Let me join you in thanking our witnesses for coming here
to the panel and to testify, with their great expertise, on the
difficulties of managing the largest organization in the world,
the Department of Defense, and how, more importantly, such
management can be improved, which it must be, as the Chairman
has pointed out.
Each of our witnesses has a unique perspective, both inside
and outside the government, and will help significantly improve
the committee's review of possible reforms to the Department of
Defense. Thank you all.
I'd like to extend a special welcome to Lisa Bisaccia. Lisa
is an Executive Vice President and Chief Human Resources
Officer for CVS Health Corporation, which the Chairman noted is
headquartered in Rhode Island, but it has a much larger
presence in Arizona. So, that's why they're--she--he's--she's
here today, I think.
Chairman McCain. I understand why they moved there.
Senator Reed. Yes, yes. Yeah.
[Laughter.]
Senator Reed. CVS is also the recipient of the 2015
Secretary of Defense Employer Support Freedom Award for its
support of employees who serve in the National Guard and
Reserves. So, thank you for joining us today, Lisa, very much.
The Pentagon, with its fundamental mission being the
defense of our Nation, is not a business, in a classic sense,
and it's unrealistic, in some respects, to believe it would
completely operate like a business. However, there may be
important process and organizational lessons learned from the
private sector that can and must help the Department to
accomplish their mission and our objective, which is make them
more effective in the face of new threats, globalization of
technology, and budget uncertainty.
Although DOD [Department of Defense] and commercial
industry measures success in different ways and we are under
different constraints, in terms of laws and regulations and
congressional oversight--that is, the Department of Defense--
there are still many challenges that the Department of Defense
shares with the commercial world. For example, both DOD and the
commercial sector are continuously striving to reinvent
themselves against external competitors. Both are trying to
attract and grow the best talent. And both are trying to find
the best partners so that their goals can be achieved as
efficiently and effectively as possible.
During last week's hearing, Jim Locher proposed that DOD
adopt the concept of cross-functional teams, a private- sector
innovation that is designed to integrate representatives with
relevant organizational components to rapidly address a
specific problem or set of problems. Mr. Locher made the point
that there is currently no place in the DOD where such
functional expertise can be brought together quickly by the
Secretary or Deputy Secretary of Defense. I hope today's
witnesses will build upon that discussion by relating examples
from their corporate experiences that will help us better frame
the question we need to ask, the scope and the changes we need
to make, and the likely resistance we will face when we do so.
Specifically, I hope that our witnesses will touch on
organizational individual incentives that encourage a culture
of continuous improvement and innovation in the DOD workforce.
For example, Can such an effort be supported through changes in
management policy, organizational structures, hiring, training,
and compensation practices or increased engagement with the
commercial sector? I hope, also, that our witnesses will shed
light on methods for attracting and employing the most
effective workforce for all DOD missions, ranging from
operational warfighting, to performing cutting-edge research,
to managing a huge and complex defense enterprise.
I think that the common thread connecting these issues is
the importance of good, modern, innovative management and
governance. And I'm confident that DOD and this committee can
learn a lot from the commercial experiences in these areas. And
I look forward to your testimony.
Thank you, Mr. Chairman.
Chairman McCain. I welcome the witnesses.
Mr. Walker, welcome back.
STATEMENT OF HON. DAVID M. WALKER, FORMER COMPTROLLER GENERAL
OF THE UNITED STATES
Mr. Walker. Chairman McCain, Ranking Member Reed, members
of the Armed Services Committee, thank you for the opportunity
to be here today.
My testimony will be based upon my experience as head of
GAO, a former member of the Defense Business Board, and a
senior strategic advisor with PricewaterhouseCoopers today.
But, these will be my personal views.
Chairman McCain. Before you continue----
Mr. Walker. Yes, sir.
Chairman McCain.--all the written testimony of the
witnesses will be made part of the record.
Please proceed.
Mr. Walker. Thank you. Thank you, Senator. I will move to
summarize.
As you mentioned, Mr. Chairman, DOD has seven high-risk
areas directly. It also shares two other high-risk areas. DOD,
in its latest January 2015 report, noted that they are making
progress to differing degrees, but yet none of the items have
come off the list in recent years. GAO has consistently stated
that the responsibility for the overall business transformation
effort needs to be a full-time endeavor, and it needs to be led
by a person with an appropriate level of expertise and prior
experience. The new Under Secretary of Defense for Management
and Information position is at a higher level, but I am
concerned that the way that it's structured will not maximize
the chance of success, nor will it maximize the ability to
integrate a number of other submanagement functions within the
Department of Defense.
Specifically, I believe that the new position should be at
the Deputy Secretary level and that all key DOD-wide management
functions should report to this position. By doing so, it would
result in a reasonable separation of duties and span of control
for the two resulting deputies. Specifically, the existing
Deputy would be focused on policy and external matters, and the
new Deputy would focus on internal and management matters,
including all business transformation initiatives. The new CEO
[chief executive officer] should be appointed based upon
specific statutory qualification requirements. In my view, it
is highly preferable that that CMO [chief management officer]
have both public- and private-sector experience. And ideally,
the new Deputy for Management and CMO would have a term
appointment of 5 years, with a performance contract. The above
approach is much more consistent with what GAO and I
recommended 10 years ago to help accelerate and better
institutionalize the large, complex, and multidimensional
business transformation effort within DOD.
Importantly, it will take more than one person. Any--one
CMO is not going to make the difference to achieve sustainable
success. DOD needs to review and reconsider its approach to the
appropriate appointment process and reporting lines for the
military services and fourth-estate CMOs, as well. In my view,
all military service and fourth- estate CMOs need to be
appointed by the Secretary of Defense, with the advice of the
new DOD Deputy for Chief Management Officer. These appointments
should be based, also, on statutory qualification requirements,
and should involve a requisite period of time with a
performance contract.
Based on my past experience, the DOD is currently organized
and operating under management models that were prevalent in
the 1950s, and it's been doing so for many years. It's also
clear that an increasing portion of DOD's budget is being
allocated to administrative and overhead costs, and DOD still
has far too many uniformed personnel in civilian positions. As
a result, there needs to be a fundamental review and
reassessment of the current organizational structure,
operational and personnel practices within DOD. Specifically,
there needs to be a baseline review of all current
organizations and key positions to determine their continued
appropriateness.
In addition to that, we know that more and more of the
budget of DOD is being spent on healthcare, disability, and
other types of costs. These programs also need to be reviewed
and reconsidered.
I can--I have firsthand experience in making
transformational change happen in the government. At DOD--
pardon me--at the GAO, for example, we engaged in a similar
transformation effort. The result was as follows. We reduced
our footprint by a third. We eliminated a layer of management.
We consolidated 35 organizational units into 13. We upgraded
our management, information, and knowledge- sharing system. We
revitalized our recruiting, training, and succession planning
functions. We infused new talent from the private sector and
elsewhere in government into the agency. We restructured our
performance management reward systems. We reduced our personnel
by 13 percent. And, despite that, our outcome-based results
were tripled during that period of time. This approach is
transferable and scalable within government if you have the
right people in the right jobs for the requisite amount of
time, which we don't in DOD at the present point in time.
The DOD culture is very mission-focused and chain-of-
command-oriented. When a decision is made to take a specific
action, no matter what the nature of the action is, and when
it's no longer realistic or when there have been changes in
conditions on the ground or within the Department, there is a
hesitancy to change course. There's also a hesitancy to tell--
to state the ground truth with regard to where things are. And,
as a result, there are significant expectation gaps that exist
within the Department with regard to major management and other
activities. These expectation gaps result in additional cost
and other adverse outcomes.
In summary, DOD personnel are capable, caring, and totally
committed to the mission of protecting the national security
interests of the United States. We have good people in a bad
system. We also have the best military capabilities in the
world, and no one else is close at this point in time. At the
same point in time, the Pentagon has become a bloated
bureaucracy, and overhead costs are way too high. There are too
many layers, players, and hardened silos in the DOD. This is
both undesirable and unsustainable. The Pentagon needs to be
streamlined and simplified in order to free up resources for
direct mission- critical activities. This will involve deciding
what needs to be done, who needs to do it, and how best to
accomplish the objective between public- and/or private-sector
personnel, as well as how we measure success.
We can succeed in this effort, but we need to have the
right people in the right job for the requisite period of time,
and we need to change our performance measurement reward
systems to incent innovation and to hold people accountable for
real results or the lack thereof.
Thank you again, Mr. Chairman. More than happy to answer
the questions of this committee.
[The prepared statement of Mr. Walker follows:]
Prepared Statement by Hon. David M. Walker
Chairman McCain, Ranking Member Reed, and members of the Senate
Armed Services Committee, thank you for the opportunity to testify
today. My testimony is based on my past positions of Comptroller
General of the United States and head of the U.S. Government
Accountability Office (GAO), as a prior member of the Defense Business
Board (DBB), and my current position as a Senior Strategic Advisor for
PricewaterhouseCoopers' (PwC) Public Sector Practice. While my comments
are based on my experience in all of these positions, they represent my
personal views and not the views of the respective organizations.
Today's hearing is on business transformation and management
challenges within the U.S. Department of Defense (DOD). As you know,
DOD has by far the most items on the GAO's High Risk List.
Specifically, DOD has seven direct high risk areas (i.e., Business
Transformation, Systems Modernization, Infrastructure Management,
Supply Chain Management, Financial Management, Weapons Systems
Acquisition, and Contract Management). DOD also shares certain
Government-wide High Risk items (e.g., Human Capital, Real Property).
These high risk areas cost the DOD and American taxpayers many billions
of dollars every year in waste and inefficiency.
Importantly, GAO has noted in its most recent High Risk Report
Update that progress is being made on these High Risk areas to
differing degrees. GAO also noted that the leadership within DOD has
been much more supportive of the needed transformation efforts in
recent years, especially in connection with the financial management,
supply chain management and contract management areas. However,
according to the GAO's latest High Risk Report dated January 2015, the
DCMO office had a limited impact on accelerating the business
transformation process up to that point in time. Importantly, there has
been significant turnover in this office since its creation. Peter
Levine was confirmed as the current DCMO in late May. He has been fully
engaged in a range of business transformation efforts. GAO has not
issued a report on the DCMO office's activities since his confirmation.
GAO has consistently stated that the responsibility for the overall
business transformation effort is a full-time endeavor that needs to be
led by a person at an appropriate level with requisite prior
experience. The new Under Secretary of Defense for Management and
Information position has the potential to make a bigger difference if
the right type person is appointed. However, I am concerned that this
new CMO (PAS Level 2) position is not structured to maximize the chance
of success or in a manner that could help to facilitate a needed
delayering and integration of the key management functions within DOD.
Specifically, I believe that the new position should be at the
Deputy Secretary level and that all key DOD-wide management functions,
including the Comptroller, AT&L, Personnel and Readiness, Information
Management, etc. should report to this position. By doing so, it would
result in a reasonable separation of duties and span of control for the
resulting two Deputies. Specifically, the existing Deputy would be
focused on policy and external matters and the new Deputy would focus
on internal and management matters, including all business
transformation initiatives
The new CMO should be appointed based on specific statutory
qualification requirements. Such requirements should include the
individual having significant leadership and operational management
experience as well as a demonstrated track record of achieving
transformational change. In my view, it is highly preferable for the
new CMO should have both public and private sector experience given the
nature of the DOD and its key stakeholder groups. Ideally, the new
Deputy would have a term appointment (e.g., five years) with a
performance contract. Under this approach, you would also have an
opportunity to reconsider the proper level and titles for various
positions that report to the new Deputy - CMO.
The above approach is much more consistent with what GAO and I
recommended about 10 years ago to help accelerate and better
institutionalize the large, complex and multi-dimensional business
transformation effort within DOD. I respectively suggest that Congress
reconsider the nature of this new Level 2 position and the related
possibility for restructuring related management positions and
functions so they could be effective at the beginning of the next
Administration. Importantly, it will take more than one key person (DOD
CMO) to achieve sustainable success. DOD needs to review and reconsider
its approach to the appropriate appointment process and reporting lines
for the Military Services and ``Fourth Estate'' CMO's as well.
In my view, all Military Service and Fourth Estate CMO's need to be
appointed by the SecDef with the advice of the DOD CMO. These
appointments should also be made based on statutory qualification
requirements and should be for a specified term with a performance
contract. The SecDef should be able to use his/her temporary
appointment authority to fill these positions in a timely manner but
that authority should be modified to be able to make such appointments
for up to five years. This approach would help to enhance the quality
and consistency of DOD CMO's while also increasing continuity within
these key positions. The resulting CMO's should have dual solid line
reporting authority to the head of the Service or Fourth Estate entity
and to the DOD CMO. Any resulting conflicts would be resolved by the
SecDef, as and if necessary.
Based on my past experience, the DOD is currently organized and
operating under management models that were prevalent in the 1950s and
has been doing so for many years. It is also clear that an increasing
portion of DOD's budget is being allocated to administrative and
overhead costs. For example, according to the Congressional Budget
Office (CBO), Defense Health Agency, BAH and housing, and total
civilian compensation costs, costs grew by 101 percent, 59 percent and
35 percent in excess of inflation during the period 2000-2014,
respectively. The DOD still has far too many uniformed personnel in
civilian oriented positions. In addition, DOD's escalating health care,
disability and other employee benefits related costs are crowding out
the ability to enhance force structure and modernize weapons systems.
As a result, there is also a clear need to restructure these programs
in a fair and equitable manner.
Given the above, there needs to be a fundamental review and
reassessment of the current organizational structure, operational and
personnel practices within DOD. Specifically, there needs to be a
baseline review of all current organizations and key positions to
determine their continued appropriateness. Some need to be eliminated
and others need to be consolidated. This fundamental review and
reassessment needs to be driven from the top with the clear support of
the Secretary of Defense (SecDef) and the committees of jurisdiction in
Congress.
I have some first-hand experience making this type of
transformational change a reality in the federal government. For
example, when I was Comptroller General we undertook a comprehensive
review and reassessment of GAO's organization and operational
practices. The objective of this effort was to modernize GAO's
organization and operations to improve performance in a time of
resource constraints. Among other things, I wanted GAO to maximize its
mission related resources with adequate but controlled mission support
capabilities. My philosophy was to minimize the number of layers,
players and organization entities in order improve both flexibility and
accountability. This transformation effort resulted in, among other
things, an elimination of 1/3 of GAO's footprint, elimination of a
layer of management, the consolidation of 35 organizational units into
13, an upgrade of our management information and knowledge sharing
systems, a revitalization of GAO's recruiting, training and succession
planning functions, an infusion of new talent within the agency, a
fundamental restructuring of GAO's performance management and reward
systems, and a 13 percent reduction in the number of personnel. At the
same time, GAO's outcome-based results more than tripled during my
tenure. This type of transformation effort is transferable and scalable
within government, including within DOD, but it takes a commitment from
the very top, the right type people to lead it, and adequate time and
resources to achieve sustainable success.
Importantly, some progress is being made in certain business lines
within the DOD that has resulted in real cost reductions and service
improvements. For example, major process improvements and
accountability mechanisms within USTRANSCOM have resulted in about $1.5
billion in real savings and 10-20 percent service level improvements.
This type of cost reduction focused process improvement and performance
enhancement is also transferable and scalable. Progress has been made
in other business lines in the past, including NAVSEA. The real
question is - ``How can we best proliferate and sustain these business
transformation efforts and promote continuous improvement within DOD.''
Despite the above, the American people continue to see periodic
examples of clear waste and mismanagement within the federal
government, including within the DOD. One recent example is the multi-
million dollar warehouse in Afghanistan that was built even though it
was not needed and is still not being used. While this does not involve
a lot of money given the size of the DOD budget, it is symbolic of a
systemic problem within the DOD that needs to be addressed.
The DOD culture is very mission focused and chain of command
oriented. When a decision is made to take a specific action, no matter
what the nature of the action is, efforts are undertaken to do so even
when the action is not realistic or no longer makes sense. Many people
within DOD hesitate to speak candidly and to advise their superiors to
change course when current conditions and subsequent events dictate
that a change in course is clearly called for. In addition, there are
too many cases where DOD leaders are told what people think they want
to hear rather than what that need to hear based on the ``ground
truth''. As a result, there are too many cases where expectation gaps
exist and bad news comes as a surprise. Furthermore, when failure and
mismanagement occurs, there is rarely anyone who is held accountable.
This is simply unacceptable and it serves to undercut the American
people's trust and confidence in government.
Another key cultural challenge is the fact that too many people in
DOD think they have a ``veto'' over key cross organizational
initiatives within the department. Additional steps need to be taken to
make it clear that the responsible official for major DOD
transformation issues has the full support of the SecDef and playing
``rope a dope'' or attempting to exercise ``pocket vetoes'' are
unacceptable practices that will not be tolerated. This includes people
at all levels, including PAS positions. My previously mentioned
recommendations to establish a second Deputy level CMO position and to
integrate and modify the reporting lines for various internal
management functions can help to address this problem.
In my view, these cultural and accountability issues need to be
addressed head-on in the recruiting, training and performance
management systems within the DOD. These changes need to be combined
with enhanced incentives, transparency and accountability mechanisms
for major business transformation projects within the Department.
Individuals who make strong contributions should be recognized and
rewarded and those who fail to do their part or act irresponsibly
should be held accountable, including being demoted or fired in
appropriate circumstances.
I believe that additional steps need to be taken to gain additional
private sector expertise within the DOD in connection with major
transformation efforts. This would be a supplement to rather than a
substitution for the CMO positions noted previously and selected
independent contractor efforts. DOD could accomplish this through using
the temporary appointment authority that the SecDef has to appoint
persons at any civilian level to perform specified functions. This
could be particularly helpful in connection with addressing highly
technical information technology, financial management and other
operational matters. I had similar authority when I was Comptroller
General. I used it to fill critical mission and mission support
positions in a timely manner with qualified personnel. It clearly made
a difference in connection with the GAO's transformation effort and it
can make an even bigger difference in connection with the DOD's
transformation efforts.
Furthermore, adequate resources and control mechanisms need to be
provided to the individual who is responsible and accountable for any
major transformation initiative. As has been said, individuals must
have the authority, as well as reasonable levels of human and financial
resources in order to get the job done if they are to be held
accountable.
With regard to financial management and audit issues. I am
concerned that an ``expectation gap'' may exist regarding the current
state of the audit readiness efforts and when and how a successful
audit of DOD's consolidated financial statements can best be achieved
in a reasonably timely and cost-effective manner. One possibility is to
use the SecDef's temporary authority to bring in a retired audit
partner from a major CPA firm on a full-time basis to help with the
Department's FIAR efforts. I am confident that DOD could find a
qualified person who would be willing to give several years of public
service to his/her country in connection with this important
initiative. I am also confident that there are similar people in other
disciplines who would be willing to do the same in connection with
other key DOD business transformation initiatives if this approach was
made a priority within DOD. These could be great Capstone opportunities
for successful private sector leaders who have achieved financial and
other success and who want to do something for their country.
The new Chairman of the DBB recently asked me to suggest a few
areas that the DBB might best address. I suggested several, including
the FIAR and related financial management and reporting issues (e.g.,
financial reporting and the DOD audit, internal controls, cost
accounting and performance management information, and related
governance issues); DOD bureaucracy streamlining and shared service
opportunities; DOD/VA coordination and selected integration, and;
disability and retirement program reforms, especially retiree health
care for individuals who are working with no service related injuries
or serious impairments in light of the ACA. The Chairman has stated
that he would like to meet with me in the near future to discuss these
areas further.
The truth is, DOD personnel are mission focused and totally
committed to the mission of protecting the national security interests
of the United States. We have the best military capabilities in the
world and no one else is close to us at this point in time. At the same
time, the Pentagon has become a bloated bureaucracy and overhead costs
are way too high. There are too many layers, players and hardened silos
within DOD. This is both undesirable and unsustainable.
The Pentagon needs to be streamlined and simplified in order to
free up resources for direct mission critical activities. This will
involve deciding what needs to be done, which DOD entity should be
responsible, how best to accomplish the objective, whether it should be
performed by public and/or private sector personnel, and how we should
measure success. In addition, effective internal controls and related
performance management systems and accountability mechanisms need to be
in place to ensure the economy, efficiency and effectiveness of DOD's
ongoing activities. When the new CMO position is filled and
operationalized, that person needs to bring a ``tough love'' attitude
to DOD. They will also need to support of the Congress, the President,
and the SecDef in order to achieve sustainable success. We can succeed
in this effort with the right people and approach; however, it will
take years.
Thank you again for the opportunity to testify today. I would be
happy to answer any questions you may have.
Chairman McCain. General Punaro.
STATEMENT OF MAJOR GENERAL ARNOLD L. PUNARO, USMC (RET.),
MEMBER OF THE DEFENSE BUSINESS BOARD
General Punaro. Mr. Chairman, Senator Reed, members of the
committee, I, also, want to thank you for the privilege of
testifying on the urgent need to get the full cost of DOD's
massive overhead and infrastructure identified, analyzed, and
ultimately under control, but, most importantly, reduced from
both a cost and people standpoint.
Mr. Chairman, as part of my prepared statement you put in
the record, I included a presentation that I made as chairman
of the Defense Reform Task Force to Secretary Don Rumsfeld in
March 2001 with a series of recommendations on how to control
DOD's infrastructure, which, at the time, was $100 billion.
Today, it is $240 billion, and larger than the GDP [Gross
Domestic Product] of the country of Ireland. So, the growth in
defense infrastructure has been continuous. The tendency has
been to add, rather than subtract. As we have added more staff,
more layers, and more infrastructure, we have slowed the
decision process, expanded the number of players, and made the
over system more risk-averse at a time when we need to take
more risk and make quicker decisions. If we wait for certainty,
we will have waited too long and imperiled our warfighting
forces as they continue to decrease.
We must distinguish between working hard and working well.
And with the fiscal pressures we face, with the strategic
challenges erupting all around us, with the operational demands
accumulating on the force, we can no longer afford the luxury
of a growing imbalance between what we must feel operationally
and what we feel managerially. We need to generate more combat
power from our military end strength and the fiscal resources
associated with it, not less. And today we are fielding less in
what I have called the ever-shrinking fighting force.
So, I applaud the committee for taking a hard look at this
problem. But, any Pentagon reforms will be insufficient without
serious reforms in the Congress as well as reforms in the
National Security Council and OMB [Office of Management and
Budget]. And I've put a long list of my recommended reform in
these areas in my prepared statement.
A major problem in defense today, as you pointed out, Mr.
Chairman, is the internal composition of the defense budget,
how the internal Pac-Man of growing costs in personnel,
acquisition, and overhead are gobbling up our warfighting
forces. In constant dollars, we are spending more today than we
spent at the peak of the Reagan buildup, roughly 30 percent
more, but the warfighting forces are 40 to 50 percent smaller.
You've made this point very clear. However, defense-wide
spending has gone from 5 percent to 20 percent of the budget.
And again, infrastructure running about 240 billion, with over
a million people. The defense agencies have grown in number,
scope, and cost. And they're not just defense agencies, these
are large business enterprises that account for over 20 percent
of all the money that DOD spends. And you have the ballooning
of the defense agencies, the OSD [Office of the Secretary of
Defense], the combatant commands, and many other overhead
organizations. The Office of the Secretary of Defense alone, we
believe, has 5,000 people. Some argue it's even higher. The
Defense Department would probably argue it's lower. And there
are too many layers in the bureaucracy. Twenty-eight layers
of----
Chairman McCain. Excuse me. You said the Office of
Secretary of Defense has 5,000 people?
General Punaro. Mr. Chairman, all our analysis shows that
if you add the number of military, civilians, contractors, it's
roughly between 5- and 8,000. Typically on their books at
Washington Headquarters Services, they tell you it's either
2,200 or 3,000. And so, if you add in the DOD IG [Inspector
General] and associated, it could be 10,000 people.
Chairman McCain. Thank you.
General Punaro. Twenty-eight layers, way too many.
Another problem is--David Walker has pointed out--too many
of our Active Duty military personnel, over 330,000 Active Duty
military, are performing commercial activities that could be
done by civilians or contractors, and frankly, many not done at
all. So, before listing my recommended course of actions, you
need to address the basics of DOD infrastructure and overhead.
How big is it? How much does it cost? What size do you want it
to be? Questions are easy. The answers are very difficult. Let
me give you my suggestions on some of the answers:
Number one, establish a firm benchline of headquarters
organizations and activities, including OSD, JCS [Joint Chiefs
of Staffs], combatant commands, defense agencies and field
activities, service headquarters and commands, including the
layers of management. Mr. Chairman, we have got to come to an
agreement on the definitions and the baseline.
Number two, then require DOD to report, in the Annual
Defense Manpower Requirement Report, all categories of
personnel in the overhead and infrastructure functions.
Number three, also require DOD to report the Annual Defense
Manpower Requirements Report, the fully burdened and lifecycle
costs of all categories and personnel. Not the budgeted costs,
but what the true cost to the taxpayer is over the lifecycle of
these personnel for Active Duty, Guard and Reserve, defense
civilians, defense contractors, and federally funded research
and development. These are the people that work in the
overhead.
Number four, legislate end strengths for military,
civilians, and contractors to be assigned to and employed by
the various overhead and infrastructure functions once these
headcount costs are firmly established. And I know there will
be a lot of pushback when you say, ``Let's legislate end
strengths for overhead.'' But, in the late '70s, there were no
end strengths for Active Duty, personnel, or Guard or Reserve.
This committee put them into law, and they've worked pretty
well, so I believe that's something that you could do.
Number five, reduce the number of senior officials to
include the number of Under Secretaries, Principal Deputies,
Deputy Assistants, Deputy Unders, and other layers, while
improving the supervisor-to-led ratios.
Number six, review the Goldwater-Nichols legislation in the
context that the joint approach is now accepted and our most
senior military leaders no longer need all the strictures of
the legislation. Organizations, processes, and restrictions
brought in by that legislation could be eliminated.
Number seven, approve another round of BRAC [Base
Realignment and Closure] using an improved process. Carrying
excess facilities costs billions of dollars every year.
Number eight, reauthorize the A-76 process. Congress should
lift the moratorium on A-76 public/private competitions, but
revise the procedures to make it fair.
Number nine, eliminate duplications. There are numerous
places in the Pentagon----
Chairman McCain. Let me----
General Punaro.--where we have significant----
Chairman McCain. Let me--for the benefit of the record,
describe A-76.
General Punaro. Mr. Chairman, I'm not a--the A-76 is the
opportunity where a local base commander will look at a
commercial function and decide whether it ought to be done by
government employees or it ought to be contracted out. And they
will have a competition. The way the Office of Management and
Budget has written the rules, there's always tilted towards the
government. They get a 10- to 20-percent advantage on cost. So,
most of big companies don't even want to go through with it,
because it's kind of rigged. And Congress doesn't like
outsourcing the government jobs, so they put a moratorium on
them. So, we don't even do the competitions anymore.
Chairman McCain. Thank you.
General Punaro. Eliminate duplications. There are numerous
places in the Pentagon where we have significant duplications
of effort. An obvious place is the overlaps that exist between
OSD and the Joint Staff. Also in the military departments
between the military and civilian staff.
Number ten, reduce the 28 management layers. Between OSD,
the Joint Staff, Service Secretaries, military staff, the
combatant commanders and their staffs, and the various standing
groups and committees, such as the Joint Requirements Oversight
Council, Command Action Groups, there are far too many
management layers populated by well-meaning official and
officers who feel they have a major role in any issue, large or
small.
And the last two, number eleven, carefully examine best
business practices. The DOD needs to learn from world-class
organizations which have to compete in the global economy, keep
costs low, and deliver products on time and on cost. I've
listed a chart that outlines these: focus on core functions,
use flat structures, use performance goals, and control
headcounts.
And finally, Mr. Chairman, revise the executive branch and
Senate processes for recruiting, confirming, and appointing
personnel that need to go in these very key top management
positions. The Packard Commission said all of their key
provisions that they put in were tied to getting individuals in
government with significant experience in running large,
complex organizations and technical programs. And it's very,
very difficult to both recruit those kind of individuals now or
get them through the vetting process.
So, thank you, Mr. Chairman and Senator Reed and the
committee, for giving me this opportunity. And I'll look
forward to your questions.
[The prepared statement of General Punaro follows:]
Prepared Statement by General Arnold L. Punaro
the urgent need to reform and reduce dod's overhead and infrastructure
Mr. Chairman, Senator Reed, members of the committee, I want to
thank you for the opportunity to appear today to discuss the urgent and
overdue need to get the full costs of the Defense Department's massive
overhead and infrastructure identified, analyzed, and ultimately under
control, but, most importantly, reduced from both a cost and a people
standpoint.
Using DOD's own definition, its overhead and infrastructure is over
40 percent of the total annual DOD budget--$240 billion. If these
overhead costs were a gross domestic product, it would rank ahead of
the country of Ireland. DOD's infrastructure has more people working in
it than the entire population of Senator Reed's home state of Rhode
Island--one million.
At the same time, we need to reverse the trend of what I have
called the ``ever shrinking fighting force.'' We need to increase the
size, readiness, and response time of our war fighting forces while
developing 21st century command and control of these forces.
I appear exclusively as a private citizen and not as a member of
the Defense Business Board, or Chairman of the Secretary of Defense
Reserve Forces Policy Board, or Chairman of the National Defense
Industrial Association. I believe, however, my personal experience is
relevant to your inquiries. I have 24 years working with the Senate
Armed Services Committee, 35 years in the United States Marine Corps (4
active, 31 reserves), 14 years as a senior executive of a Fortune 250
company, and six years as a small business owner advising Fortune 50
companies. I have both chaired and served on multiple commissions
analyzing these issues and making recommendations in the areas of your
focus today.
Let me emphasize that my comments today do not reflect any
criticism of current or past Administrations or Congresses. This is not
a report card on individual leaders--these problems have built up over
decades. And despite many serious efforts in the Pentagon and in
Congress over the years, the bureaucratic and antiquated processes have
proven more resilient than the recommended reforms. Though we have
hard-working and dedicated military and civilian personnel ensuring our
nation's security every day, as a former Secretary of Defense told me
recently, ``Bad processes will trump good people every day.'' And we
have a proliferation of bad processes both in the Pentagon and in the
Congress.
A good example of this occurred after I left the SASC [Senate Armed
Services Committee] in 1997. I was asked by then Secretary of Defense
Bill Cohen to chair the Defense Reform Task Force. The other members
included Rhett Dawson, Jim Locher, Dov Zakheim, Kim Wincup, David Chu,
and Michael Bayer. Secretary Cohen wanted to bring world-class business
practices to the management side of the Pentagon. After eight months of
review, we reported to the Secretary that DOD needed to focus on core
functions, reduce multiple layers of management, eliminate the
duplication between OSD and the Joint Staff, control the headcounts in
the headquarters, and streamline the defense agencies among other
recommendations. Secretary Cohen was delighted with our results, saying
that this was exactly what he was looking for. But I pointed out to him
these were actually the conclusions of a Commission set up by President
Eisenhower in 1956, which included notable members such as General Hap
Arnold and Vannevar Bush, with Henry Kissinger serving as staff
director. Our Task Force came to the same conclusion they had some 40
years earlier and presented Secretary Cohen with five major studies on
how to reform OSD, JCS, the defense agencies, the military departments,
and the health care agencies. Because of the length of the original
study, I have attached a summary of a presentation we made to Secretary
of Defense Donald Rumsfeld in 2001. You will find recommendations to
reduce the size and duplication in OSD and the JCS, reducing the number
of senior personnel and multiple layers of management, streamlining the
defense agencies and installing performance-based management, and
divesting or eliminating non-core activities.
Almost twenty years after the work we did for Secretary Cohen, and
sixty years after the work Henry Kissinger did for President
Eisenhower, the management chain-of-command in DOD still requires
significant improvements, since the tooth is getting smaller while the
tail is getting larger and more expensive.
I know this Committee is willing to take up such a daunting
challenge. This is the Committee that passed the sweeping changes that
created the national security establishment after World War II, that
addressed its problems in 1956, that shifted the military from the
draft to the All-Volunteer Force in 1973 and then saved the AVF when it
needed reforms in the late 1970s, that passed Goldwater-Nichols and
Special Operations legislation, and continues to tackle the problems
with the acquisition process. We know from history that large
institutions like DOD cannot make significant organizational and
process reforms from within. This Committee has an enviable history in
solving major defense problems. The SASC will need to be the battering
ram of reform once more.
You do have a real advantage because the leaders in the Department
today are willing to change. In Secretary of Defense Ash Carter, you
have what I call a ``bureaucracy buster.'' He is committed to genuine
reform, evident from his groundbreaking push for the Force of the
Future to his unrelenting drive to bring innovation into the Department
and implement Better Buying Power. I know he shares the concerns about
significantly improving the management of the Department. While many in
the Pentagon below his level may resist any change, this Committee has
key allies working with the Secretary, including Deputy Secretary Bob
Work and Deputy Chief Management Officer Peter Levine.
revisiting goldwater nichols
Thirty years ago many of us on the major defense committees were
working hard on what became the Goldwater-Nichols Act. The act focused
primarily on the operational chain of command and basically had the
objective of improving defense processes in nine areas:
1. Strengthen civilian authority
2. Improve military advice to civilian authorities
3. Place clear responsibility on combatant commanders
4. Ensure commensurate authority for the combatant commanders
5. Enhance the effectiveness of military operations
6. Improve joint officer management
7. Increase attention to strategy and contingency planning
8. Provide for more efficient use of resources
9. Improve DOD management
As my friend and former colleague Jim Locher testified last week,
the attention of the committees back then focused on the first six
items, and accordingly spent considerably less time and effort on the
last three. I believe most of us share the view expressed by Jim that
the first six elements have resulted in significant improvements, while
the last three have changed little, if at all. It is in these remaining
areas that I believe we must concentrate future efforts. If there is to
be something called Goldwater-Nichols II, it needs to seriously address
those areas that were never sufficiently addressed in Goldwater-Nichols
I. I will also have some recommendations for needed changes in some of
the first six. After thirty years, they should be revisited in light of
today's threats and the fact that GNA has improved joint-ness, making
some of its provisions no longer necessary.
congressional reform is necessary
Any Pentagon reforms will be insufficient without serious reforms
in the Congress as well. The Pentagon and Congress are drowning in
budget detail and duplicative processes and procedures. Congress should
consider re-establishing the Joint Committee on the Organization of the
Congress, which has produced major recommendations three previous
times. The last time was in 1993 when it was chaired by Congressman Lee
Hamilton and Senator David Boren with ranking members Senator Pete
Dominici and Congressman Dave Dreyer. Congress should move to a two-
year budget: the first year Congress would make decisions on the
request and the second year would be reserved for extensive
Congressional oversight and fact-of-life changes. We did this in the
early 1990s with the defense authorization bill. Congress should
consider reducing the three processes, budget, authorization, and
appropriations, into two by combining the authorization and
appropriations committees. Congress should authorize and appropriate in
the same bill. The chairs and rankings of the new combined
authorization and appropriation committee could constitute the budget
committees and set the overall framework for the revenues, spending,
and whether we are in surplus or deficit, including estimates on long-
term entitlement spending. If collapsing the committees is not
possible, then stricter procedures should be adopted to preclude
unauthorized appropriations in both defense and domestic accounts. And
Congress needs to complete its work on time. Consideration should be
given to move the fiscal year start to the calendar year start on
January 1, but the budget for the next fiscal year would still be
submitted on February 1. The joint committee should have a presumption
of reducing the size of Congress' staffs and support agencies as well.
In a world where events move in nanoseconds, DOD needs significantly
more flexibility from Congress in how it spends it money to adjust to
changing circumstances. To credibly reform the Pentagon, Congress needs
to reform itself as well.
white house and omb reform is also necessary
Pentagon and Congressional reforms must also be coupled with
reforms in the White House. It must reduce the proliferation of
executive offices and staffs, and establish controls on a National
Security Council that is widely known to have trouble distinguishing
between its ``coordination'' role and the ``operational'' functions of
the line cabinet officers. We need to return the NSC to the Andrew
Goodpaster and Brent Scowcroft model, both in approach and size. And
the Office of Management and Budget needs to spend much more time on
government-wide management and much less time on budget micro-
management, which is more prevalent for the domestic agencies than DOD.
close the strategic disconnect
I want to compliment this Committee for the leadership role it
played in delivering the budget compromise recently enacted by Congress
and signed by the President. It sets national security spending near
the levels that both the Administration and the budget and defense
committees indicated. The increased resources flowing to defense will
have a near-term, positive impact on readiness, modernization, and
quality of life. I hope that this will be a precursor to wider actions
that set aside artificial spending caps and will end the threat of
sequestration, an approach to budget control that has few merits and
even fewer advocates. Nonetheless, sequester remains the law for Fiscal
Year 2018 and beyond, but it should be given a quiet burial.
The idea behind the Budget Control Act of 2011 was to get control
of the deficit through a broad approach. Even former Chairman of the
Joint Chiefs of Staff Admiral Mike Mullen called the nation's long-term
deficits our number one national security threat. In the BCA, capping
discretionary spending was the first step. The joint committee was
supposed to come up with revenue increases and entitlement reductions
to reduce the deficit as well, but it was not successful.
When a new Administration and Congress are sworn in 2017, they
should immediately work on the grand compromise that addresses all
elements of spending, revenues, and entitlements.
We need to ensure that DOD resources are sufficient and stable to
deal with the current chaotic strategic environment. The past drawdowns
of our fighting forces and defense resources, most recently after
Vietnam, after the Cold War, and adjustments tied to the drawdowns in
Iraq and Afghanistan have been driven by a perceived improvement in the
strategic environment.
The resources we devote to national security must be driven by the
challenges the nation faces and those challenges are increasing: the
growing chaos in the Middle East; the rise of religious extremism and
non-state actors; an irredentist, aggressive, and in the words of some,
``reckless'' Russia; an emboldened China, a state that is quickly
expanding both its conventional and unconventional military
capabilities and flexing its muscles in often novel ways; and the
continued provocation of an unpredictable and persistently
irresponsible regime in North Korea.
Yet, in the face of all these immediate challenges, under the BCA
and the sequestration regime, we are reducing our war fighting forces.
As you have suggested yourself, Mr. Chairman, it may be no coincidence
that we are seeing increased global challenges as we reduce our
capabilities and lower our regional profiles. Such a reaction by such a
diverse set of international players may not be proven, but neither can
it be dismissed.
defining the problem
Senator Russell Long had a saying: ``You should not solve a problem
for people before they know they have one.'' The major problem in
defense today is the internal composition of the defense budget--how
the internal PAC-Man of growing costs in personnel, acquisition and
overhead are gobbling up our war fighting forces. As the chart below
shows in a telling way, even as we have continued to spend more on
defense--matching historically high levels--each dollar supports a
significantly smaller active duty military end strength. The $600
billion we spent on defense in 1953--a draft era force--supported 3.5
million troops. In the All-Volunteer Force era--at the peak of the
Reagan buildup, $600 billion supported 2.2 million active troops.
Today, $600 billion supports 1.2 million--the same amount of money for
one million less active forces.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Chairman, the chart you included in your kick-off to these
hearings demonstrated that the rising all-in costs of personnel over
the last thirty years have gone up 270 percent. In just the last ten
years, they have risen almost 100 percent for a slightly smaller force.
The Military Compensation and Retirement Modernization Commission,
in its oft-overlooked interim report on what programs actually cost,
included a chart that showed that the total cost for pay, benefits,
health care, retirement, was over $400 billion a year and that there is
a $1 trillion unfunded liability over the next ten years in the
military retirement fund that is not in any budget. The commission
challenged the notion put forth by some that military compensation
represents 30 percent of the budget, and is therefore not a concern.
The commission said:
The fact that military compensation costs consistently
represents roughly one-third of the DOD budget does not provide
evidence of fiscal sustainability. The commission considers the
growth rate in Gross Domestic Product (GDP) to be the maximum
rate at which compensation funding, holding force size
constant, can grow while representing the same share of
national income.
When they looked at this comparison from 1998 to 2014, growth in
military pay, quality of life, retired pay, VA and DOD health care far
exceeded both the GDP and the Employment Cost Index. This is why the
immediate three former Secretaries of Defense--Gates, Panetta, and
Hagel--have said publicly that this cost growth is unsustainable.
Secretary Carter has expressed similar concerns.
The main objective of the Defense Department, and its management
processes, is to produce as much combat capability and power as
possible with the resources available. Unfortunately, we spend too much
time focusing on how much we spend, rather than on how well that money
is spent and what the results are. In short, as an old phrase described
it best: we need ``more bang for the buck''--the nation needs,
especially in the current strategic and fiscal environment, more
``trigger-pullers'' in operational units and fewer ``paper-pushers'' in
back-office management. I believe we all share that aspiration, but the
trends are not moving us in that direction as seen in the chart below:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In constant dollars, we are spending more today than we spent at
the peak of the Reagan buildup--up by 30 percent, but the war fighting
forces are 40 to 50 percent smaller. We see this trend for three major
reasons: 1) the all-in costs for the all-volunteer force and its
support structure, as well as the costs of the retired force; 2) the
$400 billion we spend annually on goods and services, supplies, and
equipment where the outcome can best be described as ``spend more, take
longer and get less''; and, 3) DOD's massive overhead and
infrastructure, with defense-wide spending going from 5 percent of the
budget to 20 percent of the budget and the combined OSD, JCS, Defense
Agencies, combatant commands, and other HQ with over 250,000 people
costing $120 billion a year. We are not getting the defense capability
we should for the dollars we spend and, if uncorrected, we will not
have the military we need in the years ahead.
Recent Army plans, for example, indicate the Army will reduce its
number of active duty soldiers between 2010 and 2017 by 20 percent
(567,000 to 450,000), and it will reduce its active brigade combat
teams by 33 percent (45 to 30). In other words, the number of combat
brigades is being reduced proportionately more than the reduction in
the number of soldiers would suggest--meaning trigger-pullers are
leaving and paper pushers are staying. There are examples like this
throughout all the services.
This one data point is merely suggestive of a broader issue: the
enduring size of the defense infrastructure that has so far been
resistant to reductions. Efforts to tame the tooth-to-tail ratio have
never resulted in the outcomes we had envisioned, and over the years
the ratio has, if anything, grown worse.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
That raises a major issue. Overall, when it comes to defense
infrastructure, we simply don't know how big it actually is. Likewise,
we don't know what it actually costs. In some areas we have the data,
but disagree over the definitions; in other areas we agree on
definitions, but don't have the data. Getting to the bottom of this
problem merits intense study and close attention. We must better
understand why it appears we can't afford Army brigade combat teams,
Air Force Tactical Fighter Squadrons, and Navy Battle Force ships, but
we have larger management staffs within the Pentagon than ever before.
Let me elaborate briefly using only one example, though there are
many to choose from. When Congress passed the National Security
Reorganization Act of 1947, it created the structure that basically
exists today. Among the organizational structures created was the Joint
Staff, and legislation capped the staff at 100 officers. The 1949
Amendment, which created the office of the Chairman of the Joint Chiefs
of Staff, more than doubled the Joint Staff manpower to 210. The
Department of Defense Reorganization Act of 1958 doubled the Joint
Staff again to 400. So what do we have in joint staff numbers today?
As the chart below shows, the Joint Staff today, including the
separately reported Office of the Chairman, numbers nearly 4,000--
military, civilians, and contractors. Since 1958 the size of the Joint
Staff has increased by a factor of 10. When Secretary Gates
disestablished the Joint Forces Command in 2010, the military assigned
there--over 2,000--were reassigned to the Joint Staff. This is one of
the reasons there is no accurate headcount: when one agency goes down,
another one is created to absorb the shock.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
When we look at the staffing of the combatant commands, the total
number of those assigned to Joint billets is over 40,000--yet another
increase by a factor of 10. The combatant commands have expanded from
lean, war fighting headquarters to sprawling mini-Pentagons with
thousands of staff members. They no longer fight wars themselves, but
must create new joint task forces to accomplish that mission. The
regional combatant commanders have evolved into political-military
ambassadors who focus heavily on peacetime engagement. Given the
inability of other parts of our government to fulfill their proper
role, this is a very important mission. Yet Goldwater-Nichols
specifically resisted the notion of adding requirements to the
combatant commanders, such as budgeting and acquisition, so they would
not lose focus on their primary duty--war fighting. The proper role and
size of the combatant commanders, their service component commanders,
and the standing ad-hoc joint task forces should be the subject of your
careful review
defense agencies are big business
The defense agencies have also grown in number, scope, and costs.
They are not just defense agencies; these are very large business
enterprises.
If one looks at the staffing of the various defense agencies that
have been established over time, the trend is similar. Today the
various defense headquarters and agencies have a headcount of over
400,000 active duty military, defense civilians, and contractors. To
put this in perspective, the manpower of these activities is well over
double the active duty size of the United States Marine Corps, and,
should current Army plans continue, is approaching the size of the
active duty Army.
Many people will incorrectly guess that the largest government
contractor is Lockheed or Boeing or one of the other large primes. It
is, in fact, one of DOD's own agencies: the Defense Logistics Agency.
DLA does over $44 billion a year of business with DOD compared to
Lockheed's $28 billion. In the top ten largest businesses, five are the
department's own agencies, not including several of the intelligence
community agencies. Most of the defense agencies would rate in the
Fortune 250 and several are in the Fortune 50. Yet they are not managed
as businesses--even though one is, in fact, a grocery business. Another
is a worldwide communications provider and another is one of the
world's largest and most expensive health care providers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
* Contractor data is prime contracts with DOD from federal contract
database.
The number one reason these defense agencies should be managed more
as a business is that their total expenditures are in excess of 20
percent of the entire defense budget. Worse yet, for the most part,
they are supervised by OSD civilian political appointees whose day-to-
day jobs do not provide them with ample time for management and
leadership. These entities lack strong, disciplined business
leadership, performance management systems and several perform
functions that are non-core to the essential missions of the
Department.
where is private waldo: active military in commercial activities
We also need to focus on DOD's most important employees: its active
duty military personnel. They are the most expensive personnel, whether
from a recruiting, training, and retaining standpoint or from a life-
cycle standpoint. Our military should be at the pointed end of the
spear as much as possible--they are the only ones who can perform that
role. And yet, we continually hear about the strains on the force, not
having sufficient dwell time, and needing to cross level personnel to
make up units.
Of those 1.3 million serving on active duty, some 220,000 are
currently stationed overseas or forward deployed in the Middle East or
Afghanistan. So what are the other one million doing? Where is Private
Waldo? Some are just back from deployments; some are getting ready to
deploy. But the 2014 Department of Defense's Federal Activities
Inventory Reform (FAIR) Act Inventory report reviewing the number of
active duty military serving in commercial activities showed over
330,000 active duty military personnel--our most expensive personnel
asset by far--in jobs that could be done by civil servants or
contractors. There are several hundred unique descriptions for
commercial activity positions in the FAIR Inventory reports. Some
examples include budget support, commissary operations, ambulatory care
services, contract administration and operations finance and accounting
services, and stateside supply services. We should not have our most
capable and expensive military in the rear with the gear instead of at
the tip of the spear.
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This is another area the Congress and the Department must correct.
Here, we are using the most expensive personnel to perform activities
that could otherwise be performed by less expensive personnel or not
done at all. Furthermore, freeing-up the uniformed personnel makes them
more available for the inherently governmental and military activities.
The charts below show the number of military personnel in each
component serving in commercial activity positions. By conservative
estimates, if by removing even 10 percent of the 330,563 active duty
from this category, the Department could free up $5.3 billion for
combat purposes. This estimate is based on the programming figure for
active personnel. If you use the fully-burdened annual costs, you would
save over $10 billion. DOD works hard to improve in this area, but
unfortunately there are more active military working in commercial
activities in this most recent report than the previous one.
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dod overhead
Let me draw particular attention to the more than 5,000 people
employed in the Office of the Secretary of Defense, as seen in the
chart below. We would all agree that serving as the Secretary of
Defense in the current world is a most difficult and demanding
undertaking, but we must ask ourselves if he truly needs a staff of
over 5,000 people. In the early 1960s, when DOD had 2.8 million active
duty personnel and 1.6 million reservists, there was one Deputy, no
Unders, and only three Assistant Secretaries. Today, with about half as
many total military personnel, there is still one Deputy, but five
Unders, and seventeen Assistants with a proliferation of Deputy Unders,
Deputy Assistants, Principal Deputies, and so on. And GAO says they do
not have confidence in the size of OSD as carried on DOD's books. There
are some estimates that it could be as high as 8,000. For example, the
chart below differentiates between OSD, OIG, PFPA, and WHS--all which
could arguably be defined as part of OSD. Altogether, this would put
the count over 10,000.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In his 1984 autobiography, Lee Iacocca, the legendary CEO of
Chrysler Corporation, who successfully turned that company around from
the brink of extinction in the late 1970s, noted that he had a very
small headquarters staff at Chrysler--much smaller than he had as a
senior executive at Ford. But Iacocca argued that with a smaller staff,
the headquarters was forced to focus on the big issues, did not have
time to micro-manage, and could not present him with a decision to be
made with any greater than 80 percent certainty. Iacocca felt that it
was his job to provide, with his experience and intuition, the
remaining 20 percent. At Ford, he stated that senior management used
its much larger staff to provide 95 percent certainty. Iacocca argued
that achieving such certainty was made by sacrificing speed and
increasing the cost of overhead, and with a company that was initially
in serious financial distress, he could not afford the cost burden of
additional overhead.
That experience is worth some serious consideration. One could
strongly argue that the current management structure in the Pentagon is
too large, too complex, too layered, and heavily invested in overseeing
processes that are, in general, too slow. In terms of just the number
of personnel in OSD, the Joint Staff, the Combatant Commands and the
Defense Agencies there are nearly a quarter million--240,000 people--
and this does not include the very large contractor counts. The costs
for these people are $113 billion. These organizations have shown
consistent growth from 2000. Secretary Gates, in his ``overhead
reduction'' efforts, subsequently supported by Secretary Panetta,
identified these areas for reductions. However, the ratio of the
overhead accounts to the combat side of the military is still adverse.
The tooth-to-tail ratio--which was poor when both Secretaries began
pushing to improve this area--has unfortunately gotten worse.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
We have also known for years that the military structure of DOD
institutionalizes layers of management. When you have so many senior
personnel, more layers follow. For example, when you have the top
person in a layer, the ``head dawg,'' that person will have a ``deputy
dawg'' and the ``deputy dawg'' will have a ``deputy, deputy dawg'' and
so on. DOD needs to cut out some of these management layers--by some
accounts, there are 28 layers from the action-officer in the military
department to the Secretary of Defense. This drives huge staffs and
support personnel which continue to increase.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
dod logistics
Another area ripe for review is the overall activity in logistics.
DOD operates one of the largest logistics enterprises in the world: its
annual cost is over $170 billion, including supply, maintenance and
transportation. DOD has over 100,000 suppliers, $96 billion in
inventory, and is supported by 18 maintenance depots, 25 distribution
depots, and over 49,000 customer sites. Our logistics enterprise does
provide a real war fighting advantage, a fact that must be kept in
mind. Despite much effort to bring DOD's logistics enterprise up to the
level of today's world-class business practices, it has a long way to
go. I am currently chairing a task force of the Defense Business Board
reviewing this area to make recommendations to the Secretary of Defense
in early 2016.
real property maintenance
DOD also maintains one of the largest property books in the world--
with over 562,000 facilities, on more than 4,800 sites, in all 50
states, 7 U.S. territories, and 40 foreign countries. The annual cost
to operate and maintain these facilities is estimated at over $30
billion a year, but GAO has stated that here, as well there, is
significant room for improvement. DOD is currently conducting surveys
to establish how much real estate is needed and how much is excess.
bringing world class business practices to the department of defense
It is often pointed out when one suggests that DOD needs to
significantly improve its management chain of command that DOD is not a
business--this is correct. But there are world-class business practices
that are definitely applicable to government, as outlined in the chart
below:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
This chart lists certain world-class business practices that are
applicable to DOD, how OSD stacks up against those practices and how
they could be applied to OSD. This list is very consistent with
multiple studies that have been done in this area over the decades.
Several of the points above I have touched on earlier in my testimony,
such as the need to focus on core functions, reduce layers, tightly
control overhead personnel, and use performance goals to incentivize
change, are underscored here.
essential first steps
So what should be done? We must first take three preliminary steps
to address this problem of large, and seemingly growing, defense
infrastructure and overhead before any further actions can be taken.
Step 1: You must establish a definitional agreement on what defense
infrastructure actually is. Many will argue that some of those problem
areas mentioned previously are actually tooth, not tail. Others, like
Business Executives for National Security, will argue the overhead is
much larger than DOD admits. We need consensus on what is counted as
infrastructure and overhead. Having addressed the definitional
challenge, we then need to determine where this infrastructure and
overhead resides. In other words, where do the people work? And it
needs to include active military, defense civilians, guard and reserve,
defense contractors, and FFRDC personnel.
A particular challenge to this exists in determining total
contractor personnel in overhead and infrastructure. Currently, there
is not a data source that fully and accurately captures the exact
numbers of contractors or where they work. While some data exist,
contractors are typically paid from O&M accounts. Therefore, their
exact numbers are not as easily derived as are military personnel--with
their own appropriations, and civilian FTEs--who are paid through the
Defense Finance and Accounting System.
Step 2: After determining who and what comprises infrastructure and
overhead, and determining with much higher confidence where they work,
we then need to know what they cost. Not just their salary, but the
fully-burdened and life-cycle costs of active military, government
civilians, guard and reserve, contractor personnel, and FFRDC personnel
supporting these activities.
It is imperative that we reach an agreement on what constitutes the
fully-burdened and life-cycle costs of the All-Volunteer Force, taking
into account all cost elements, including education, health care, and
future retirement costs. Of equal significance is that the defense
retiree population is growing and is now at 2.4 million people. They
are living longer, and their health care costs are growing, and under
the current system their retirement income is inflation indexed. This
means that it will be difficult to afford the force of tomorrow as we
continue to pay large amounts for the force of yesterday. DOD does not
know and does not track the fully-burdened and life-cycle costs of
active military personnel, defense civilians, guard and reserve
personnel, defense contractors, and FFRDCs. Some say because it is too
difficult--it is difficult--but some suspect that DOD does not want do
the calculations to reveal the actual costs because of the sticker
shock.
The Reserve Forces Policy Board did a year-long study as a FACA
body, deliberating in open sessions, coordinating in the Department and
with outside experts like GAO and CBO and made a lengthy report to the
Secretary of Defense with six major recommendations. The following two
charts outline what the RFPB found:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Step 3: Once we have agreed upon definitions, determined work
locations, and calculated fully-burdened costs, we need to determine
the right size for the various activities. This is difficult, and we
might not get it right the first time, but it is not enough to just
study the issue. With headquarters size, we need to make the same tough
decision about how much is enough just like with force structure.
Certainly we should all agree that we cannot allow the status quo to
continue. There are too many people--active duty, defense civilians,
guard and reserve, FFRDCs and contractors--working in OSD, JCS, the
combatant commands, and the fourth estate.
concrete actions for the committee to consider
After taking the steps above to establish definitions, identify
infrastructure, and agree upon metrics, costs, and size, several
additional steps should follow:
1. Establish a firm baseline of headquarters organizations and
activities including OSD, JCS, Combatant Commands, defense agencies and
field activities, service headquarters, and commands including layers
of management and measure reductions through annual reporting of all
categories of personnel, end strength, and average strength. The FY15
Defense Manpower Requirements Report (DMRR) provides a breakout of
personnel strength. It could provide a starting point for validation of
the baseline. The FY15 estimates could be used as a ceiling for Fiscal
Year 2016 and beyond, but at a more detailed level. The key is to
establish a firm baseline and not allow DOD to constantly change it.
This baseline needs to be the ``allin'' count which does not exist
today.
2. Require DOD to report in the annual Defense Manpower
Requirement Report all categories of personnel in the overhead and
infrastructure functions following the agreements reached on
definitions, size, and cost.
3. Require DOD to report in the annual Defense Manpower
Requirements Report the fully-burdened and life-cycle costs of all
categories of these personnel in the functions in step 2 above.
4. Legislate end-strengths for military, civilians, and
contractors to be assigned to, and employed by, the various overhead
and infrastructure functions, once these headcounts and costs are
firmly established. This is, of course, never a popular undertaking and
one that DOD will resist. It should be done after careful consideration
of the potential impacts on outputs required elsewhere, but it is an
effective way to get numbers down and force the exploration of
efficiencies. In budgeting, we have found that caps force hard
discussions about tradeoffs--if decision makers want more money to go
to one area they must make cuts to others. This discussion about
priorities needs to happen with overhead personnel as well. Once
Congress has determined there is sufficient discipline in this area,
any caps could be eliminated.
5. Reduce management layers in all HQ and overhead functions;
reduce the number of Undersecretaries, Principal Deputies, Deputy
Assistants, Deputy Unders, and other layers, while improving the
supervisor to led ratios. Eliminate the new Undersecretary of
Management and Information and the two Deputy Undersecretaries before
they go into effect in January 2017. In their place, create one
Assistant Secretary for Command, Control, Communication, Computers and
Cyber. In a pilot program, take several of the defense agencies and
replace active duty military leaders with proven civilian private
sector leaders with contract performance goals and incentives.
6. Review the Goldwater-Nichols legislation in the context that
the joint approach is now accepted and our most senior military leaders
no longer need all the strictures of the legislation. I also recommend
the terms of the Chairman and Vice Chairman be converted to one four-
year term (vice two two-year terms) to ensure their independence and
ability to always offer their professional military judgments. I would
stagger the terms so they do not turn over at the same time and that
will require either an extension or a short-tour for one at some point.
As part of the additional flexibilities and non-traditional career
options that are reported to be part of the Force of the Future
initiative, apply more flexibility to joint duty management and joint
education by removing some of the highly restrictive gates.
7. Approve another round of BRAC using an improved process. As
difficult as this is, and as unpopular, DOD needs to get rid of its
excess facilities. Despite earlier BRAC rounds, DOD believes the excess
to be in the range of 20 percent. Carrying those unneeded facilities
costs billions of dollars every year.
8. Reauthorize and revise the A-76 process. Congress should lift
the moratorium on A-76 Public-Private Competitions. But even before the
moratorium, we had many governmental commercial operations and depots
that were protected by the A-76 process. In brief, contractors bidding
for work had to report and account for the fully-burdened costs of
their work force, but in general the government did not--giving it an
advantage in such competitions. At the very least, if the moratorium is
lifted, the playing field for such competitions needs to be leveled. As
an inherently OMB function, over the years they have written rules and
regulations that decidedly favor the government. Therefore, fewer and
fewer A-76 studies were done and potential contractors did not want to
waste money and time bidding on something where the ``fix was in.''
Congress did not want to take any chances on outsourcing, so the ban
went into effect.
9. Eliminate duplications. There are numerous places in the
Pentagon where we have significant duplications of effort. An obvious
place is in the overlaps that exist between OSD and the Joint Staff.
For example, there is overlap between OSD Policy and J-5 on the Joint
Staff, as well as other areas including J-1, J-6, and J-8. In addition,
there is the common view that the formal requirements process takes too
long. Accordingly, eliminating the JROC should be considered as it adds
a significant burden to the process and produces little of value with
its highly bureaucratized and complex JCIDS process. All the personnel
and paper work and bureaucracy associated with these activities should
be deleted. Creating the JROC was an aspiration of the Goldwater-
Nichols Act, but in my view it would be one of those areas where, as
John Hamre mentioned, we just did not quite get it right despite
serious efforts by recent Vice-Chairmen to improve it.
10. Reduce management layers. Between OSD, the Joint Staff,
Service Secretariats, Military staffs, the Combatant Commanders and
their staffs, and the various standing groups and committees, such as
the JROC and the Command Action Groups, there are far too many
management layers populated by well-meaning officials and officers who
feel they have a major role in any issue--large or small. In general,
with such rich staffing there is a natural tendency towards micro-
management where macro-management is required. As stated earlier, the
trend in the private sector, and one quite visible in the major players
in the defense industry, is towards small corporate staffs that provide
the oversight and guidance that can only come from the top, but a
transfer of basic management authority to line units. On the
battlefield the services have learned that modern conflict requires
that authority, and responsibility, be pushed down to lower levels.
They call it ``powering down.'' It needs to be practiced more widely in
the Pentagon. At a minimum, we ought to put a statutory limit on the
number of Deputy, Under, and Assistant Secretaries in OSD and in the
services, and collapsing the service staff would remove some
duplication. Any increases must be offset by decreases.
11. Carefully examine business best practices. In so many ways,
the Department of Defense is a unique organization. It is, by far, the
largest department of government. Defense infrastructure costs are
essentially larger than the GDP of all but forty countries. But, there
are private firms that also have large scale operations, such as Wal-
Mart, diverse international operations, such as Exxon, and extensive
supply chains supporting highly distributed product lines, such as
Trader Joe's. The DOD needs to learn from these organizations, which
have to compete in the global economy, keep costs low, and deliver
products ``on time and on cost.'' Several years ago a senior Army
general asked his head logistician what was the order-to-ship time for
a repair part. The logistics officer proudly announced it had been
reduced to 15 days, to which his superior replied, ``General Motors'
time is 15 hours. So why can't we do that?'' Although the incentive
structures between the public and private sectors are much different,
performance objectives in similar functions should produce positive
results.
12. Revise the executive branch and Senate processes for
recruiting, confirming, and appointing personnel for key management
positions. One of the major tenets of the Packard Commission, in
addition to streamlining the decision processes, reducing layers, and
eliminating paperwork and regulations, was recruiting and confirming
personnel who had extensive experience running large, complex
organizations and technical programs for the key management positions
in the Department. We need to remove all the disincentives for
personnel with those qualifications to serve.
conclusion
I want to close by reiterating that none of my comments are meant
as criticism of the dedicated, patriotic people who come to work every
day across the Department of Defense with the intention of doing their
part to keep the country safe. One senior officer recounted that on
September 12, 2001, hundreds of military and civilian employees
reported to work at the Pentagon even though the building was still on
fire. They went to their offices to salvage what they could, gather up
classified materials that had been scattered about by the explosion,
and essentially, as we say in the military: ``Charlie Mike--Continue
Mission.'' We are all proud that such people serve the nation. And this
dedication is mirrored in the Congressional staffs as well.
I applaud the Committee for taking a hard look at this problem. As
I mentioned, the growth in defense infrastructure has been quite
similar and continuous through both Republican and Democratic
administrations. The tendency has always been to add rather than
subtract. And as we have added more staff, more layers, and more
infrastructure, we have slowed the decision-making process, expanded
the number of players, and made the overall system more risk-averse at
a time where we need to allow the assumption of more risk. We need to
reverse the process. The test for making infrastructure reductions
should not be ``beyond a reasonable doubt'' as it is today, but a
``preponderance of the evidence.'' We need to take some risks to make
reductions, recognizing that some may not stand the test of time. But
if we wait for certainty, we will have waited too long and imperiled
our war fighting forces as they continue to decrease.
We must distinguish between working hard and working well. And with
the fiscal pressures we face, with the strategic challenges erupting
all around us, with the operational demands accumulating on the force,
we can no longer afford the luxury of a growing imbalance between what
we must field operationally and what we field managerially. We need to
generate more units--more combat power--from our military end-strength
and the fiscal resources associated with it, not less. And today we are
fielding less.
Thank you very much for offering me the opportunity to share my
views with you.
Chairman McCain. Thank you.
Mr. Spencer.
STATEMENT OF RICHARD V. SPENCER, FORMER MEMBER OF THE DEFENSE
BUSINESS BOARD
Mr. Spencer. Chairman McCain, Ranking Member Reed,
distinguished members of the committee, I'm really invigorated
to be here to testify before the Senate Armed Service Committee
addressing the topic of managing the DOD.
My testimony today is based on my time in the private
service--sector, but, more recently, 6 years on the Defense
Business Board [DBB], most recently as vice chairman.
You have asked what primary attributes make an outstanding
organization sustainable. In a recent task completed by the DBB
2 years ago, we interviewed about 24 Fortune 250 CEOs who had
led critical turnarounds for their respective companies. In the
clear supermajority of cases, they stated that their success
was based upon laser-like focus on the mission of the
organization.
When it comes to the subject of enhancing the operation of
the Department of Defense, my point of view is concentrated on
one thing: the mission. The mission of the Department of
Defense is to provide the military forces needed to defer a war
and to protect the security of our country. The Department is
charged to protect the citizens of the United States of
America. The Department is not an entity to support full
employment nor a petri dish for managerial or social
experimentation. And today it certainly cannot afford to be all
things to all people as it strives to support its missions.
When corrective or construction actions are applied within
the Department, we must keep the mission clearly in focus.
Recent studies have shown there are numerous operational areas
within the DOD where equal, if not better, external solutions
can be provided more effectively and more efficiently, but they
will involve heavy lifting and, in many cases, unsavory
political decisions. From my point of view, fortitude and
leadership are the two most important ingredients needed to
enhance the operation of the DOD.
As an early outsider attempting to understand the building
and its attendant issues of an ecosystem so immense in size,
diversity, and span, it was akin to drinking from a fire
hydrant. One walked away with an appreciation for the
organization's communications systems, neurosystems, digestive
and equally important immune systems. What impressed me the
most, both historically and in the present, is the core
competency of the Department's ability to solve problems
associated with its mission. Since inception, the Department
has been tasked with the excruciating and amazing goals--
daunting goals. In the early years, they were trailblazers,
providing unique successful solutions for their organization
that was similar to none. But, therein lies the rub today.
Progress in the private sector has increased at a logarithmic
rate. The solutions that were applied inside the building, in
many cases, were immortalized, with no call for current
benchmarking or impact assessment. And, as the private sector
became equally as good, if not better, industry-specific
problem-solvers, there was little ability in the building, nor
cultural inquisitiveness, to compare core competencies.
Cases in point. The commissary system was a solution to
provide basic consumables to bases and posts that were off the
beaten path. DOD [Department of Defense] education was a
solution for dependent education during the days of
segregation. DLA [Defense Logistics Agency] was borne from a
diverse cabal of buyers and distributors of resources.
Maintenance depots, created to repair unique systems. Research
labs, personnel management, the cases are numerous. That was
then. This is now.
Rather than attempt to boil the ocean, let's look at a few
example of actions that can be taken internally and externally:
You heard, earlier this month, that one should not expect
candlestick-makers to develop electricity. In many cases,
external forces are needed to motivate or--for organizations to
change. There are few example of groups that have voluntarily
downsized themself or self-selected to cease doing business.
This committee and the Congress have the ability to provide
some elegantly clean solution to certain issues at hand while
freeing resources to be used more--on more meaningful
initiatives within the DOD.
Here are some topics to consider:
Depot maintenance. The uniqueness of depot-maintained
equipment has devolved to the sum of the standardized systems:
the engine in a tank, the transmission in a tug. Let those
organizations having expertise in the systems provide the
needed maintenance. The mission of the DOD is security, not
repair.
Commissaries. The attachment that was circulated to you all
in the Washington Post had a response from one retailer who was
asked if they could provide a sustainable solution for the
commissary networks in CONUS [Contiguous United States]. Here
is an example of an organization with a well-developed core
competency being able to offer an equal, if not better, service
more efficiently than the existing system. The mission of the
DOD is defense, not retailing.
Defense Logistics Agency. Arguably one of the better- run
organizations in the DOD, but there's room for improvement. The
DBB group addressing DOD logistics interviewed a multitude of
organizations that were highly dependent upon their supply
chain: retailers, manufacturers, assemblers. And their
responses were constant. Supply-chain management is a critical
contributor to the value of the enterprise. As an example, upon
restructuring their supply chain and instituting strategic
sourcing, IBM believes their logistical efficiency adds $16
billion in the value to the--of their enterprise while
providing a competitive advantage over others in their
industry. In every case, we saw there was one person ultimately
responsible for the organization's logistics. The DOD should
strive for the same efficiencies and have a chief logistic
officer combining both the acquisition and distribution
resources under one command. The mission of the DOD is to deter
war, not to maintain the status quo.
DOD Education Activity [DODEA] in CONUS. It can be said
that DODEA CONUS is the largest school district in the country.
It has served its purpose well. But, is it needed now? The
argument has been put forward that there would be mutual
benefit from having military families integrated with their
civilian counterparts in communities. The mission of the DOD is
security, not education.
BRAC. Anytime the DOD needs to dispose of assets, it should
be considered and acted on appropriately. It is the right thing
to do. The DOD mission is to protect citizens of the United
States, not provide local employment.
Let me quickly address what I believe is one of the largest
internal issues within the Department. Successful organizations
state that the quality of their employees is the driver for
their performance. Human capital is a critical component of
success. The DOD, still using the 1950 departmental title of
``Personnel,'' needs to address this issue in earnest. I don't
want to steal any thunder from my colleague from CVS, who is an
expert in the area, but we do owe it to the Department to put a
light on the topic.
On the civilian side, we need to adopt meaningful
management performance measurement tools and educate managers
on how to use those tools in order to craft a high- performance
government service and senior executive service cadre. To quote
a hard-charging GS-14 we interviewed, How can the building
compete for the best and brightest when the strategy for long-
term success and promotion is, ``Just don't die"?
On the uniformed side, P&R [Personnel and Readiness] needs
to provide the tools and technologies, such as performance-
based benefits optimization, to the services so they have the
ability to understand and react to the needs of the
servicemember on a realtime basis, just as it's done in the
private sector today.
These topics are simply the tip of the iceberg. We must
move the conversation to action in order for the Department to
effectively and efficiently support their mission.
I stand by to assist in any way.
[The prepared statement of Mr. Spencer follows:]
Prepared Statement by Richard Spencer
Chairman McCain, Ranking Member Reed, distinguished members of this
committee, I am invigorated to testify before the Senate Armed Services
Committee addressing the topic ``Managing the DOD''.
Upon graduating from a liberal arts college with a degree in
economics in 1976 I entered the Marine Corps and spent six and a half
years on active duty. I then transitioned out and entered the private
sector building a career that was focused on .finance and operations.
In February of 2008, after regular prodding from fellow Marine and
friend Sen. Jim Webb, I found myself in the SecDef's Conference room as
a member of the Defense Business Board. The following six years proved
to be one of the most exciting and educational experiences to which I
have been exposed. I was involved with task group assignments ranging
from logistics to technology to personnel. I was ``lucky'' enough to
chair reviews of the uniformed members benefits and retirement systems.
The outcomes range the full gambit from success to silence, but in
every case the conversation was started, and as this committee hearing
proves, the conversation continues.
You have asked what primary attribute makes outstanding
organizations sustainable. In a recent task completed by the DBB two
years ago we interviewed about 20 Fortune 250 CEO's who had lead
critical turn arounds for their respective companies. In the clear
super majority of cases they stated that their success was based upon a
laser like focus on the mission of the organization. When it comes to
the subject of enhancing the operation of the Department of Defense my
point of view is concentrated on one thing: the mission. The mission of
the Department of Defense is to provide the military forces needed to
deter war and to protect the security of our country. The Department is
charged to protect the citizens of the United State of America. The
Department is not an entity to support full employment, nor is it a
petrie dish for managerial or social experiments, and today it
certainly cannot afford to be all things to all people as it strives to
support its mission. When corrective or constructive actions are
applied within the Department we must keep the mission clearly in
focus. Recent studies have show that there are numerous operational
areas within the DOD where equal if not better external solutions can
be provided more effectively and more efficiently, but they will
involve heavy lifting and in many cases unsavory political decisions.
From my point of view fortitude and leadership are the two most
important ingredients needed to enhance the operation of the DOD.
As an early outsider, attempting to understand ``The Building'' and
the attendant issues of an ecosystem so immense in size, diversity and
span was akin to drinking from a .re hydrant. One walked away with an
appreciation for the organization's communication, neuro, digestive and
equally important immune systems. What impressed me the most, both
historically and presently, is the core competency of the Department's
ability to solve problems associated with it's mission. Since inception
the Department has been tasked with the execution and support of
daunting goals. In the early years they were trail blazers, providing
unique, successful solutions for their organization that was similar to
none. But therein lies the rub today. Progress in the private sector
increased at a logarithmic rate. The solutions, in many cases, were
immortalized with no call for current benchmarking or impact
assessment, and as the private sector became equally as good if not
better industry specific problem solvers there was little ability in
the Building nor cultural inquisitiveness to compare core competencies.
Cases in point: the Commissary system was a solution to provide basic
consumables to bases and posts that were off the beaten path, DOD
Education was a solution for dependent education during the days of
segregation, DLA was born from a diverse cabal of buyers and
distributors of resources, maintenance depots created to repair unique
systems, research labs, personnel management the cases are numerous.
That was then, this is now.
Rather than attempt to boil the ocean lets look at a few examples
of actions that can be taken internally and externally. You heard
earlier this month that one should not expect candlestick makers to
develop electricity. In many cases external forces are needed to
motivate organizations to change. There are few examples of group's
that have voluntarily downsized themselves or self selected to cease
doing business. This committee and the Congress have the ability to
provide some elegantly clean solutions to certain issues at hand while
freeing resources to be used in more meaningful initiatives within the
DOD. Here are some topics to consider:
Depot Maintenance--The uniqueness of depot maintained equipment has
been devolved to the sum of the standardized systems (the engine in a
tank, the transmission in a tug). Let those organizations having
expertise in the systems provide the needed maintenance. The mission of
the DOD is security not repair.
Commissaries--The attachment is a response from one retailer who
was asked if they could provide a sustainable solution for the
Commissary network in CONUS. Here is an example of an organization with
a well developed core competency being able to offer an equal if not
better service more efficiently than the existing system. The mission
of the DOD is defense not retailing.
Defense Logistics Agency--Arguably one of the better run
organization in the DOD community, but there is room for improvement.
The DBB task group addressing DOD Logistics interviewed a multitude of
organizations that were highly dependent upon their supply chain
(retailers, manufacturers, assemblers) and their responses were
constant; supply chain management is a critical contributor to the
value of the enterprise. As example, upon restructuring their supply
chain and instituting strategic sourcing IBM believes their logistical
efficiency adds $16B in value to the enterprise while providing a
competitive advantage over others in their industry. In every case we
saw that there was one person ultimately responsible for the
organization's logistics. The DOD should strive for the same
efficiencies and have a Chief Logistics Officer combining both the
acquisition and distribution of resources under one command. The
mission of the DOD is to deter war not retain the status quo.
DOD Education Activity (CONUS)--It can be said that DUODENA (CONUS)
is the largest school district in the country. It has served its
purpose well, but is it needed now? The argument has been put forward
that there would be mutual benefit in the having military families
integrated with their civilian counterparts. The mission of the DOD is
security not education.
BRAC--Any time the DOD is need to dispose of assets it should be
considered and acted on appropriately. It is the right thing to do. The
DOD mission is protect the citizens of the United States not provide
local employment.
Let me quickly address, what I believe is, one of the largest
internal issue within the Department. Successful organizations state
that the quality of their employees is the driver for their
performance. Human capital is a critical component of success. DOD,
still using the 1950 departmental title of Personnel, needs to address
this issue in ernest. I do not want to steal any thunder from my
colleague from CVS who is an expert in this area, but we owe it to the
Department to put a light on topic. On the civilian side we need to
adopt meaningful management performance measurement tools, and
education managers on how to use the tool in order to craft a high
performance GS and SES cadre. To quote a hard charging GS-14 we
interviewed ``How can the Building compete for the best and brightest
if the strategy for long term success and promotion is ``Just Don't
Die''? On the uniformed side P&R needs to provide the tools and
technology, such as performance based benefits optimization, to the
services so they have ability to understand an react to the needs of
the service member on a real time basis just as the private sector does
today.
These topics are simply the tip of the iceberg. We must move the
conversations to action in order for the Department to efficiently and
effectively support their mission. I stand by to assist in any way
possible.
Chairman McCain. Thank you.
Ms. Bisaccia.
STATEMENT OF LISA G. BISACCIA, EXECUTIVE VICE PRESIDENT AND
CHIEF HUMAN RESOURCES OFFICER, CVS HEALTH CORPORATION
Ms. Bisaccia. Thank you. Chairman McCain, Ranking Member
Reed, and distinguished members of the committee, thank you for
the opportunity to testify today.
Chairman McCain. Would you correct my pronunciation,
please?
Ms. Bisaccia. ``Bizotchia.''
Chairman McCain. ``Bizotchia.'' Thank you very much.
Ms. Bisaccia. Thank you.
It's an honor to be able to speak to you about some of the
organizational and operational best practices at CVS Health,
and our hope is, it will may--it may provide some key learnings
as you consider reform of the Department of Defense.
As our company has grown from a regional drugstore to a
fully integrated national pharmacy healthcare provider, we've
learned valuable lessons about how to make a complex
organization nimble and effective.
To give you a glimpse into how our company developed into
the diverse enterprise that it is today, let's consider where
we began. In 1963, we started out selling name-brand health and
beauty merchandise at discount prices when brothers Sid and
Stanley Goldstein opened our first store in Lowell,
Massachusetts. In 1967, we began building trusted relationships
with patients when we opened our first CVS pharmacy in Rhode
Island, where we are still headquartered today.
In addition to our 7,900 retain drugstores, today CVS
Health brings together CVS/Caremark, our pharmacy benefit
management business; MinuteClinic, our 1,000 walk-in retail
clinics; Omnicare, our senior pharmacy care business; and our
expanding specialty pharmacy services. In all, we employ more
than 215,000 colleagues, with major hubs in Scottsdale,
Arizona; Irving, Texas; and Northbrook, Illinois; in addition
to our home in Rhode Island. We work in almost every State
represented here today.
It's worth noting that CVS Health is a proud employer of
veterans following their service, as well as those still
serving in the National Guard and Reserve. We recognize the
value of military service and know that our veterans' skills
and experience are unparalleled. And, as Senator Reed noted,
earlier this year we were honored to receive the Secretary of
Defense Employer Support Freedom Award, the highest honor the
Department gives to employers for outstanding support of
employees who are National Guard and Reserve members.
As we think about the drivers behind our success, we know
the quality of our workforce, including our colleagues who are
veterans, has been an important driver of that success. What
have been some of our other key lessons learned? First,
developing a culture around our company's purpose. Our
president and CEO, Larry Merlo, made this concept real for all
of our colleagues when he championed our purpose, which is
helping people on their path to better health. This simple
purpose, just eight words, has had the power to unite our
colleagues behind a common cause. Our purpose has permeated our
organization, improved colleague engagement, which, in turn,
improves all of our business outcomes. Embracing our purpose
from the top down has been an example of the type of leadership
we prioritize in career development for our colleagues, which
is another core principle for us.
Cultivating a pipeline of leaders who can inspire is woven
into our business processes. We hold our current leaders
responsible for coaching the next generation of talent. And
we've created programs to develop those leaders and keep them
engaged in their careers at CVS Health. With more than 50
development and training programs focused on career
advancement, we've made producing high-quality leaders a long-
term investment. We use coaching, mentoring, and classroom
programs to hone problem-solving, strategic thinking, and
leadership capabilities for the next generation of CVS Health
leaders.
As we've grown, a third fundamental lesson has been the
value of adopting an enterprisewide viewpoint. Seeing ourselves
as one pharmacy innovation company rather than as separate
businesses under one roof has helped us take advantage of the
synergies in our business, and has helped us to innovate. For
example, when two of our lines of business came together, it
gave us a different perspective on our plan members, and we
were able to deliver what they want: the choice of receiving
their maintenance medications by mail or picking them up at any
of our CVS pharmacy retail locations for the same price.
Although there were significant logistics to work out on the
back end, creating our maintenance choice program was the
successful result of an enterprise wide mindset that pioneered
a new way to serve our customers.
At CVS Health, we deeply value purpose, leadership, and
enterprise thinking. And I hope that there are ways that these
lessons can benefit this committee as you consider the best
ways to motivate, develop, and inspire the men and women who
serve our country at the Department of Defense.
Thank you, Mr. Chairman. And I'm happy to answer any
questions.
[The prepared statement of Ms. Bisaccia follows:]
Prepared Statement by Lisa Bisaccia
Chairman McCain, Ranking Member Reed, and distinguished Members of
the Committee, thank you for the opportunity to testify today.
It is an honor to be able to speak to you about some of our
organizational and operational best practices that may provide some key
learnings as you consider reform of the Department of Defense.
As our company has grown from a regional chain drug store to a
fully integrated national pharmacy health care provider, we've learned
valuable lessons about how to make a complex organization nimble and
effective. To give you a glimpse into how our company has developed
into the diverse enterprise it is today, consider where we began.
In 1963, we started out selling name-brand health and beauty
merchandise at discount prices, when brothers Sid and Stanley Goldstein
opened our first store in Lowell, Massachusetts.
In 1967, we began building trusted relationships with patients when
we opened our first CVS/pharmacy in Rhode Island, where we are still
headquartered today.
In addition to our 7,900 retail drugstores, today CVS Health brings
together: CVS/caremark, our pharmacy benefit management business;
MinuteClinic, our 1,000 walk-in retail clinics; Omnicare, our senior
pharmacy care business; and our expanding specialty pharmacy services.
In all, we employ more than 215,000 colleagues, with major hubs in
Scottsdale, Arizona; Irving, Texas and Northbrook, Illinois, in
addition to our home in Rhode Island. We work in almost every state
represented here today.
It is worth noting that CVS Health is a proud employer of veterans
following their service, as well as those still serving in the National
Guard and Reserve. We recognize the value of military service and know
that our veterans' skills and experience are unparalleled.
Earlier this year CVS Health was honored to receive the Secretary
of Defense Employer Support Freedom Award, the highest honor the
department gives to employers for outstanding support of employees who
are National Guard and Reserve members.
As we think about the drivers behind our success, we know the
quality of our workforce--including our colleagues who are veterans--
has been an important driver of success.
What have been some of our other key lessons-learned? First, is
developing a culture around our company's purpose.
Our President and CEO Larry Merlo made this concept real for all
our colleagues when he championed our purpose which is ``helping people
on their path to better health.''
This simple purpose--with just eight words--has had the power to
unite our colleagues behind a common cause. Our purpose has permeated
our organization and improved colleague engagement, which in turn
improves our business outcomes.
Embracing our purpose from the top down has been an example of the
type of leadership we prioritize in career development for our
colleagues, which is another core principle for us.
Cultivating a pipeline of leaders who can inspire is woven into our
business processes. We hold our current leaders responsible for
coaching the next generation of talent. And we've created programs to
develop those leaders and keep them engaged in their careers at CVS
Health.
With more than 50 development and training programs focused on
career advancement, we've made producing high-quality leaders a long-
term investment. We use coaching, mentoring and classroom programs to
hone problem solving, strategic thinking and leadership capabilities
for the next generation of CVS Health leaders.
As we've grown, a third fundamental lesson has been the value of
adopting an enterprise-wide viewpoint. Seeing ourselves as one pharmacy
innovation company, rather than as separate businesses under one roof,
has helped us take advantage of the synergies in our business model and
innovate.
For example, when our two lines of business came together, it gave
us a different perspective on our plan members and we were able to
deliver what they want: the choice of receiving their medications by
mail, or picking them up in any of our CVS/pharmacy locations for the
same price.
Although there were significant logistics to work out on the back
end, creating our Maintenance Choice program was the successful result
of an enterprise-wide mindset that pioneered a new way to serve our
customer.
At CVS Health, we deeply value purpose, leadership and enterprise
thinking, and I hope that there are ways these lessons can benefit this
Committee, as you consider the best ways to motivate, develop, and
inspire the men and women who serve our country at the Department of
Defense.
Thank you, Mr. Chairman. I'll be happy to answer any questions.
Chairman McCain. Thank you very much.
You know, one of the things that confounds some of my
constituents when I tell them is that we've never been able to
get an audit of the Department of Defense. I guess I have two
questions. One, isn't that a fundamental requirement if--for
reform? And how do we get it? Do we have to go to Silicon
Valley? And, second, which is connected to that, How do we
get--how do we motivate qualified people to leave very well-
paying, comfortable positions in private industry and come and
be part of the Department of Defense? Without them, I'm not
sure we can successfully implement many of the reforms that are
advocated here.
I guess we'd begin with you, David.
Mr. Walker. Thank you, Mr. Chairman.
Well, as Richard mentioned, I think the mission of the
Defense Department is to protect the national security
interests of the United States. And I think the people in the
Defense Department have been focused on that, first and
foremost. And, quite frankly, they haven't been focused as much
with regard to economy, efficiency, effectiveness, and
accountability, including with regard to financial management.
They've taken it more seriously within the last several years.
They've made more progress within the last several years than
they did, you know, for the decade prior to that. At the same
point in time----
Chairman McCain. I've only got 5 minutes, now, David.
Mr. Walker. Sure.
[Laughter.]
Mr. Walker. At the same point in time, they do not have--
they have thousands of nonintegrated legacy information systems
that do not communicate with each other, they do not have
adequate internal controls. And you touched on a very important
point. They don't have an adequate number of people within the
Department of Defense who have the requisite knowledge and
experience to know what needs to be done and to get it done. Do
you need contractor assistance? Absolutely. But, you need a
certain number of people within the Department who have the
relevant experience, who can manage it on a day-to-day basis.
One of the things I mentioned in my testimony is, the
Secretary has the authority to appoint people for term
appointments. And I think that, in the area of financial
management, as an example, information technology being
another, you should use that authority to try to take people
who have had successful business careers--for example, partners
in international accounting firms who may have auditing
experience and financial management experience, who have made
money, and who want to spend a period of time--let's say 3
years to 5 years--to serve their country. I think there are
supplies of people like that, that could be tapped to be
embedded within the Department of Labor--pardon me--Department
of Defense. And I think that that's something that needs to be
pursued much more aggressively than it has been in the past.
Chairman McCain. Thank you.
General?
General Punaro. Mr. Chairman, on the ``How do you get good
people in government in these top positions?"--I believe you
could recruit a Dave Packard or Norm Augustine if you told
them, ``We're going to bring you in, you're going to run this
$48 billion logistics enterprise called DLA''----
Chairman McCain. You know--go ahead, but--I think you could
get the head guy, but what about others that--you know, you
need more than----
General Punaro. Well, if you----
Chairman McCain. Go ahead.
General Punaro. Mr. Chairman, if you get the head guy, and
you give them--allow them to put a lot of their assets in a
true blind trust, which I believe you could do, have different
divestiture rules and things like that, a more speedy vetting
process in the executive branch, they would be able to bring in
other people below the levels to do the same kind of things.
But, the most important thing would be, they have to understand
they're going to be able to have a meaningful job and make
meaningful reforms. And I truly believe you would motivate
people like that to come in. There's too many disincentives
now.
Chairman McCain. What about the audit?
General Punaro. On the audit, I mean, you've got to the
audit expert right here. I know the Department is struggling
with that.
Chairman McCain. For 15 years.
General Punaro. Right. And they have not been even able to
get the Statement of Budgetary Resources audited. And when
Peter Levine testified before this committee, I think he gave
the honest answer that he was very skeptical that the
Department would be able to meet their internal deadlines. And
I think the Congress has just got to keep that unrelenting
pressure on them.
Chairman McCain. Doesn't that mean bringing in some outside
organization, like a good, crack outfit in Silicon Valley, to
try to tackle it themselves? I don't--obviously, internally, it
hasn't worked.
General Punaro. The external audit firms that audit the
for-profit companies have tremendous amount of expertise and
could be brought to bear to help the Department, in my
judgment.
Chairman McCain. Mr. Spencer.
Mr. Spencer. I would echo both David and Arnold's comments.
Having simply been exposed for my first time, coming on the
Defense Business Board, the disclosures and the--which, at the
Defense Business Board, aren't nearly a onerous, but, I mean,
we have to streamline the ability for private sector to come
into the system. They're out there. The people are out there.
They want to help. We've been wandering around, looking for
candidates on the Board. They are there. When they look at what
is encumbering to enter the system, they shy away.
Chairman McCain. And the audit?
Mr. Spencer. The audit, we talked a little bit about this
earlier. I think a streamlined way is just to do the actual
consolidated audit. We're working on building up to the final
audit, which is the way it is done in the private sector. But,
I think, for the matter of expedience, what you really want as
a tool is the audit of the consolidated entity, and that's what
should be audited, without getting into too much technical
jargon in auditing. But, we're spending so much time and money
working our way up--you can do a buildup and then audit the
actual consolidated entity. And it is needed for control and
management.
Mr. Walker. Mr. Chairman, as a CPA [Certified Public
Accountant]----
Chairman McCain. I've got to----
Mr. Walker.--could I come back on that real quick?
Chairman McCain. I've got to go to Ms. Bisaccia, and then--
--
Mr. Walker. Sure.
Chairman McCain. We'll come back.
Mr. Walker. Yes, sir.
Chairman McCain. Thank you.
Ms. Bisaccia. So, what we have found at CVS Health,
although we are a private company that certainly has more
compensation levers to pull than the government might, we have
found that the motivators that really drive change in our
organization are not compensation, but, in fact, are much more
intrinsic: the desire for public--professional development, the
desire to be part of something bigger than yourself to align
with a purpose and make a difference and make an impact, the
desire to have full accountability for something and to own
something. So, what we encourage with our executives and with
our emerging leaders is to feel accountable for enterprise
results while delivering on your local portfolio. And we
stress, in fact, the need to align yourself with the company's
purpose and connect it to your work.
In terms of the audit, we are a metric-driven company. It
is not just financial, it's operational; it's people results,
as well. And our leaders are only successful if they own all
their metrics, if they know their numbers, if they're able to
speak to their whole portfolio of numbers, and, more
importantly, explain any variances and do something about them.
So, what that has required is a significant investment in
measurement tools, including outside support from big-four
accounting firms and other partners. But, the ownership is
internal.
Chairman McCain. Very quickly, David.
Mr. Walker. Thank you, Mr. Chairman.
As a CPA, I know a little bit about auditing. I believe
that one of the things that needs to be considered is to look
at auditing the consolidated financial statements of the DOD
rather than individual services and rather than the individual
fourth-estate entities. You have to have a comprehensive audit
plan that looks vertically at the organizations, horizontally
at the line items and the systems. But, if you approach it this
way, then, (a) you're going to eliminate a lot of
intragovernmental activities; secondly, you're not going to
have to define reporting entities; thirdly, the level of
materiality is going to be much higher with regard to the work
the auditors have to do. And I think that it would be easier to
accomplish, and we'd be able to free up resources for
performance management, cost accounting, internal controls, the
things that, quite frankly, are most important in order to
accomplish the objectives of the Department.
Chairman McCain. Senator Reed.
Senator Reed. Well, thank you very much.
It strikes me that the Department of Defense today is the--
an industrial model, and we're in a post-industrial age. And it
was quite effective in the '50s, you've pointed out. And so,
how do we sort of make that transition? The--my sense--and
again, the industrial model is hierarchical. And, guess what?
The military is hierarchical. It's a lot different.
So, starting with Ms. Bisaccia, you know, How do--you have,
I would assume, a much more sort of flat organization, the
ability to work around, versus the military. So, you might
comment, and then everyone else can comment, Is that one of the
big problems we're facing, even if we change some rules of this
hierarchy?
Ms. Bisaccia. At CVS Health, what we found is, we moved
from a pharmacy drugstore chain that had a very hierarchical
model, in terms of vice presidents, regional managers, district
managers--that, once we expanded our business commitment and
once we came more diverse, we needed to look horizontally as
well as vertically, and we needed to realize that the key to
success as an enterprise was collaboration and shared
resources, that we could no longer count on owning everything
we needed to get our particular portfolio done, that, in fact,
we needed to share resources across the enterprise and
frequently make difficult decisions about what to prioritize.
And, in fact, some businesses found that their needs had to be
subordinated to those initiatives which benefited the
enterprise. It's a difficult process. It goes beyond budget.
But, what we have focused on is what's best for the company as
a whole and then, as a leadership team, aligning behind that,
in terms of making the decisions to support those priorities.
Senator Reed. Mr. Spencer--I'll go right down the line--Mr.
Spencer, please. And----
Mr. Spencer. I think you----
Senator Reed.--I have one other question.
Mr. Spencer.--you hit the nail on the head, Senator. If you
were to just take a look at one probably big lever that you
could really change the organization over across the river,
performance metrics on the civilian side. The military has had
it for years. The fitness report system. Yes, it has some
flaws, but it works. Yes, there's a performance management
system on the civilian side, but I think there needs to be a
retool of that and an education of the managers on how to use
that. If you take the old adage of Jack Welch, every single
manager ought to have a list in his back--his or her back
pocket anytime, having the A, B, and C players, because, at any
one time, you want to challenge the A's, you want to nurture
the B's up to A's, and you probably want to get rid of the C's.
We have to start doing that actively in the organization. It's
going to cause, I think, more energy to be focused in the
appropriate places, and get the right people in there.
Senator Reed. Thank you.
General.
General Punaro. We're talking about DOD significantly
improving its management chain of command. And many times,
critics will say, ``Well, wait a minute. It's not a business.''
Correct. And every business--world-class business practice is
not applicable to government or DOD, but many are. And let me
list them. And I would say the staff could look at, ``Here are
the world-class business practices that are applicable. Assess
where DOD is today, and then say, What's the application?"
Focus on core functions. That is a world-class business
practice that ought to be put into DOD. Today, they have a
diffused work effort. If you did that, they would define and
focus on core functions, and you would divest other activities.
Flat, flexible structures. All--everything in business now
is flat. DOD is layered and rigid with their 28 layers. So, you
would delayer and consolidate. This is tough, because you're
going to get rid of a lot of principal deputies and deputy
deputies and deputies to the deputies.
In companies today, you have widely shared information and
knowledge, and they don't do that in the Department, so you
need a powerful CIO [Chief Information Officer]. I believe you
need to get rid of some of the unders and bring back the
Assistant Secretary for Command, Control, Communication,
Computers, and Cyber to have that kind of cross. And you need
performance goals. They don't have them.
And finally, every business has tight controls over
overhead personnel. And, as we've seen, DOD does not have that.
They can't even tell you with precision how many people they
have in overhead. So, you have to establish an effective
overhead control system.
Senator Reed. Mr. Walker, please.
Mr. Walker. There are way too many organizations. When I
was Comptroller General, I had the good fortune of being able
to participate in the Capstone program for flag officers. One
of the things I was shocked to find out, as an example, is, in
order to activate and deploy 25 members of the Guard and
Reserve, over 20 units within the Pentagon had to sign off on
that. So, way too many organizations, way too many layers. As
General Punaro said, there are 28 layers in the Defense
Department. We had eight at GAO [Government Accountability
Office]. And we have to have much more from the standpoint of
performance metrics, outcome-based performance metrics that we
are holding people accountable for. So, it's layers, players,
and hardened silos. That's what we have to do.
Senator Reed. Let me just quickly follow up, if the
Chairman will allow, for one question to you, Mr. Walker.
Sometimes I get the impression that, you know, we look across
to the river, and it's their problem, but many times it's our
problem. The way we do budgets, for example, it looks cheaper
to hire lots of contractors than to hire one civilian long-term
with pension benefits and other benefits. Would it be useful
for us to look the way we sort of do the budget or give them
credit, in terms of to incentivize them, to bring more full-
time government employees, rather than hiring contractors left
and right to do the problem? That's----
Mr. Walker. I do think that you have to look at how you
keep score. I do think that we have to have an understanding as
what is inherently governmental, what should be done by the
government, and what could be done by the private sector. I
agree with General Punaro that we ought to revitalize the A-76
process. I also agree that we need to look at fully absorbed
cost accounting. Okay? We have to have a level playing field.
What is it costing for an outside contractor? Frankly, what is
it costing for a government worker, including pensions----
Senator Reed. Right.
Mr. Walker.--retiree healthcare benefits----
Senator Reed. Right.
Mr. Walker.--and all these other things. So, how we keep
score matters, and the way we keep score now does not
facilitate sound decisionmaking, in my view.
Senator Reed. Thank you.
Thank you, Mr. Chairman.
Chairman McCain. Senator Lee.
Senator Lee. Thank you, Mr. Chairman.
Thanks, to all of you, for appearing today and offering
your helpful testimony. I want to thank the Chairman for
holding this hearing, which covers an important topic, one that
we need to address from time to time.
You know, there's no question that the Department of
Defense needs to be reformed so that we can prepare it to
address 21st century realities. And this includes a different
security situation that existed 30 years ago, certainly. It
also includes, you know, the need to address fiscal and
economic realities, realities that many experts today believe
present national security threats in and of themselves.
Mr. Walker, I'd like to speak--like to ask you some
questions first. You spoke, in 2008, about the striking
similarities between America's current circumstances and the
circumstances that led to the decline of the Roman Empire. Now,
it's a pretty big assertion. And you backed it up by analyzing
a number of factors that you think warrant the comparison. You
mentioned, I believe, that we're experiencing declining moral
values and political civility domestically, and an overextended
military in foreign lands, combined with fiscal
irresponsibility by the central government. And you identified
all of those as characteristics displayed by the late Roman
Empire, and characteristics that we can see within the United
States today.
Can you elaborate on what some of the precipitating factors
are, specifically with regards to having an overextended
military abroad that can lead to a country's decline? And tell
us a little bit about how the overextension of our military
might lead to some of the mismanagement problems that we're
experiencing today.
Mr. Walker. Senator, I think what I said was that we had a
decline in moral and ethnical values, we had fiscal
irresponsibility by the central government, we had an inability
to control our borders, and we had an overextended military
around the world. I think those factors are relevant, and I
think they're a reality.
Senator Lee. Have we solved all those problems since----
Mr. Walker. Well, first, I think we have to understand, in
order to stay strong militarily, in order to be the leading
nation around the world, you have to be strong economically.
And if you don't put your financial house in order, then all
those aspects--the military will suffer, our position in the
world will suffer, our economy and job opportunities will
suffer. So, we have to put our finances in order.
I think the issue is, we have assumed a disproportionate
responsibility for global security in the United States, in
part because somebody has to lead, and thank God it's the
United States; in part because others have not done their part
and others have cut back on their allocation to the military,
and they've been relying upon the United States to assume a
disproportionate share. And I think that's something that
obviously has to be looked at, because the type of security
challenges that we face today are diffused, they are global,
they do not respect geopolitical boundaries, and we need a
collective effort in order to be able to effectively solve it.
At the same point time, as the Chairman and others have said,
the United States must lead, because there's nobody else to
fulfill that role.
Senator Lee. Now, in 2008, you appeared in a documentary
called ``IOUSA.'' You talked about some of the threats we might
face, some of the crises we might face as our national debt
continues to rise. At the time, significantly, our national
debt was $8 trillion. It's funny how we can look back on that
now and say ``only $8 trillion,'' because, of course, that's a
staggering sum of money. But, since then, our debt has
significantly more than doubled. And so, other than facing
possible insolvency, sooner rather than later, what
consequences, specifically to our national security, do you
project from this trend if we stay on our current path?
Mr. Walker. Just to reiterate, if we don't put our finances
in order, then everything is going to suffer, including
national security. Let me give you something that I think most
people don't know. Discretionary spending, which includes
national defense, includes all of the express and enumerated
responsibilities envisioned by our Nation's founders for the
Federal Government. All of them. National security, homeland
security, foreign policy, et cetera. That's what's getting
squeezed. It's down to 32 percent of the budget. Thirty-two
percent of the budget. Sixty-eight percent is mandatory
spending. A hundred years ago, only 3 percent was mandatory
spending. So, you know, we--we've lost control of the budget.
We're spending more and more on consumption, more--less and
less on investment, more and more on non-constitutionally
specified responsibilities, less and less on the ones that are.
And that's not sustainable. It's absolutely not sustainable.
At the same point in time, as we've testified in this
hearing, there is a tremendous amount of waste with regard to
overhead and management practices within the Defense
Department. And so, we need to have an adequate allocation of
the budget to defense. At the same point in time, we need to
improve the economy, efficiency, and effectiveness of the
resources that are being allocated to the Defense Department at
the present point in time.
Senator Lee. That's a great point. I like your point about
the comparison with 100 years ago. And another thing that goes
along with that is, 100 years ago, we were spending only 2 or 3
percent of our Nation's GDP on the Federal Government. And so,
not only has the pie grown, it's grown----
Mr. Walker. Two percent. A hundred years ago, the U.S.
Government was 2 percent of GDP. Now we're--you know, now we're
about 21 percent of GDP, so it's 10 and a half times bigger. A
hundred years ago, we controlled 97 percent of spending,
Congress did, every year, now it's 38, going down. It's out of
control.
Senator Lee. Well said. I see my time is expired. Thank
you, Mr. Walker.
Thank you, Mr. Chairman.
Chairman McCain. We all yearn for those golden days of
yesteryear.
[Laughter.]
Mr. Walker. It's not too late, Senator.
Chairman McCain. Senator Manchin.
Senator Manchin. Thank you, Mr. Chairman.
Thank all of you for being here.
And I think you agree, the same as that--when I first came,
Admiral Mullens, we were asking--Joint of Chiefs of Staff are
sitting where you all--and we asked--the question was asked by
somebody on the panel, ``What's the greatest challenge the
United States faces, the greatest challenge we face around the
world?'' And, you know, we were waiting to hear some military,
terrorist attack, and on and on and on. And Admiral Mullen put
it quite clear and succinctly. He says, ``The defense of our
Nation is the greatest challenge we face.'' And I think you all
seem to agree to that, that we're in serious challenges here.
I'll ask a simple question, basically. Is there enough
money in the system? We put around $600 billion in defense. Is
there--is that enough money to defend this country, to keep our
people safe and defend the homeland? And what we seem to have a
inability to do is to legislate good management. I don't know
how you can do that. So, my point is this. If there's enough
money--and they don't think there is enough money, the way
they're managing now--will they change their management
practices, since we can't seem to do it through legislation? Do
you think it will change? Will it hit a crisis to where we're--
basically have to change? So, we can start, Mr. Walker, with
you, if you don't mind.
Mr. Walker. Thank you, Senator.
First, the government is a monopoly. It doesn't face
competition. And therefore, it doesn't have the same type of
competitive pressures that forces it to be economical,
efficient, effective, to innovate, to seek continuous
improvement. I do believe that, absent other contingent
operations, which we have some----
Senator Manchin. Sure.
Mr. Walker.--now, we may have others in the future, that
there are adequate resources. But, I do think you have to think
about the fact that the--that national security is fundamental,
that only the Federal Government can do that, and whether or
not, frankly, there ought to be some minimum allocation of a
percentage of GDP to defense.
Senator Manchin. Well, what we hear, if I don't--I'm sorry
to interrupt--what we hear is, basically, sequestering is
choked, and basically, everybody, Democrats and Republicans,
want to do away with sequestration. Now, I understand, because
we all want to keep the homeland safe. We'll do whatever we can
to defend this great country.
With that being said, is $600 billion enough? What is the
figure? Has anyone looked and seen what it would take, if it
was efficiently managed, to run this Department of Defense to
keep us safe? That's what we--I would hope that somebody at--
you all, at your stature, could be able to do that, or look and
see, and say, ``No, you're still 20 billion short,'' or, ``You
have more than enough money, if it was managed properly.''
General Punaro. Well, Senator, as the Chairman pointed out,
we are at historically high spending levels. We are in
constant--FY16 [fiscal year 2016] constant dollars, $100
billion--at $600 billion, $100 billion higher than the previous
lows. We're roughly spending at the same peak as the Reagan
buildup. And yet, we--our warfighting forces are 40-50 percent
smaller. And the problem is, there's so much of it chewed up in
overhead.
You've got three big problems in the Department of Defense
that's gobbling up our warfighting forces. You have, basically,
the unsustainable, long-term, fully burdened cost of personnel,
which includes the retired force, and we certainly don't want
to change anybody's benefits. Everybody would have to be
grandfathered. But, we all know, when Congress deals with the
grand compromise on entitlements, it's going to look forward,
it's going to take 20 to 30 to 40 years to fix it. The same
thing happens in defense. The acquisition system, we spend $400
billion a year on goods and services, supplies, and equipment,
and about the only polite thing you can say, ``We spend more,
we take longer, we get less.'' Now, the committee's made a lot
of reforms here.
And then you have the massive overhead, which we have to
get under control. If you look at the Army, for example--and
they're not making all the right decisions in the Department--
from 2010 to 2017, the Active end strength's going to go down
by 20 percent, from 567,000 to 450,000. Whether you agree with
that, or not, the problem is, they're going to reduce the
Active combat brigades by 30 percent. So, when they're reducing
the end strength of the Army, instead of taking it out of the
overhead, they're taking it out of the combat side. So, I
believe----
Senator Manchin. Who's making those decisions?
General Punaro. Well, the leadership in the Department of
Defense. It's not the Congress. And they come up with the
budget, and they are allocating--they are keeping too much in
the tail, and there's too little on the combat side.
And I believe--Albert Einstein had a quote, and I don't
know if I'm getting it just right. He said, ``You can't solve
problems with people who created them.'' This committee has a
history, going all the way back to the creation of the defense
establishment after World War II, the amendments in '56,
Goldwater-Nichols acquisition reform. It's going to have to
have to come from this committee. The Department cannot reform
itself internally. It is just too, too difficult for them. So,
the reform----
Senator Manchin. Do you believe there's enough money in the
system if we managed it properly?
General Punaro. At $600 billion, and in the FYDP [Future
Years Defense Program] that the administration requested over
the next 5 years, if they could get control of the overhead, if
they could get the reforms and the acquisition, if they could
start containing----
Senator Manchin. I mean--quickly, but, basically, you're
saying yes?
General Punaro. I'm saying yes.
Senator Manchin. How about you, Mr. Spencer, very quickly?
Mr. Spencer. I'd say yes, Senator. And in just sort of a
quick aside, if you take the study that we did on the Fortune
250 companies that faced massive turnarounds, looking into the
black hole, the first thing the management did when they came
in was cut 20 percent. And we kept going back and looking at
the records, and it was 20 percent across the board. We said,
``Why?'' They said it was a great place to start. And, at the
end of the day, it was probably too little. There has to be
some event or external efforts, as General Punaro said, to get
the organization going.
Senator Manchin. Ms. Bisaccia, yes or no, $600 billion?
Ms. Bisaccia. I'm not in a position to comment. I've----
Senator Manchin. Okay.
Ms. Bisaccia.--had no experience with Department of
Defense. However, I would say, if you believe that leadership
is the key element necessary to drive change, I can't think of
a better reservoir of leadership than our Armed Forces. So, it
seems to me that, given uniformity around the mission, our
leaders can lead through the necessary changes.
Senator Manchin. And very quickly, Mr. Walker.
Mr. Walker. Yes, with the requisite reforms. However, those
reforms will take time. I've publicly said it before, that I
believe that if the overhead was 25 percent lower in the
Pentagon, we'd be 50 percent more productive.
Senator Manchin. So, by lifting the budget caps and the
sequestering basically going away, that's not going to be the
answer to----
Mr. Walker. I think----
Senator Manchin.--better management.
Mr. Walker. I think you have to look at the top line, you
have to look at how you're allocating the money. And I come
back to something that General Punaro said. I do think you have
to end up forcing change with regard to overhead and the
administrative functions. I do think you need to figure out
what you have, you have to benchmark it, you have to put caps
on it, and you have to force people to drive that down. That's
what's not happening. It's got to be forced to be driven down.
Senator Manchin. Thank you. My time's up. I appreciate it.
Senator Reed [presiding]: On behalf of the Chairman, let me
recognize Senator Rounds.
Senator Rounds. Thank you, sir.
In doing just the review for this hearing today, the
Congressional Research Service provided us with a list of some
of the overall reforms that have been proposed in just the--
well, since 1983. It began with the Grace Commission, the 1985
defense organization, The Need for Change, the Packard
Commission in 1986, ending with the 2014 Quadrennial Report,
the QDR. There were 24 different organizational reform
proposals that have been made, ending, as General Punaro
pointed out, with a grand total of 28 layers of bureaucracy now
found within the Department.
My question for you is this. And I'll begin with Mr.
Spencer. You've suggested, specifically, areas that could be
looked at for efficiencies. Is it possible to take them,
department by department or location by location--depot
maintenance, commissaries, Defense Logistics Agency, DOD
Education Activity and so forth--is it possible to take one and
separate it out and actually reform it, proving that it is not
only doable, but it is desirable within the Department to
actually make change based upon the mission that that
particular part of the organization is responsible for?
Mr. Spencer. Senator, I'd say yes to your question, in one
area: Department of Defense education. Ironically, the largest
school district in North America is not hamstrung like any of
the school districts in public America. You could actually
probably put dollars saved from commissary realignment, depot
realignment, BRAC, whatever, and make it an institution that
was extraordinary for recruiting purposes, for retention
purposes. That would be one area where I'd say you could. The
others that are on my list, I would say that that does not fall
into the mission of the Department of Defense.
Senator Rounds. When you say it ``does not fall into the
mission of the Department of Defense,'' do you mean that they
are incapable of making the changes internally? Is that what
you're saying? Or are you saying that they should be separated
out?
Mr. Spencer. They should be separated out. It's not a core
function.
Senator Rounds. But, nonetheless, it is critical for the
operation of the entire--for the mission of defending the
country, correct?
Mr. Spencer. Certainly is, but there are more organizations
that can do it more effectively and more efficiently.
Senator Rounds. But, should there not be some sort of an
oversight or an area within the Pentagon responsible for seeing
that they get accomplished? As an example, depot maintenance,
the maintenance activities for there, isn't there some place
within the Pentagon that should have the organizational
responsibility to see that it gets done?
Mr. Spencer. Yes.
Senator Rounds. So----
Mr. Spencer. The actual tank getting fixed, yes.
Senator Rounds. So, if we take that as one area, which is
the mission, to get the tank fixed, can we separate out that
particular mission, the maintenance mission, pull it apart, and
say, ``Let's dissect this, let's fix it, let's put it back in
and prove that this particular operations within the Pentagon
could be made more efficient,'' and use that as a sample that
could be used in other areas, as well, similar to, as you've
suggested, with the educational aspects?
Mr. Spencer. I see where you're headed, Senator, but I come
back to private sector. If it is not in your core competency
wheelhouse and there are better providers out there that do it,
you access the most efficient path you can, because your
mission is not aligned with that. Yes, it's a subsupport of it,
but somebody else can do it better and more effectively. Why
waste resources on doing that, when you can apply it to your
direct mission?--would be my response.
Senator Rounds. When we look at making reforms, when--if
we've looked back at it and we've got 24 different reform
proposals that have occurred since 1983, have any of them
actually worked? Is there anything in them which has actually
worked? Can we list an example of where they've been
successful?
General Punaro. Well, I would say the Goldwater- Nichols
reforms, which tremendously changed the operational chain of
command in the military pioneered by this committee, worked. I
would say there's very little on the management side that you
could point to from all the various commissions. I do think
you've got a kernel of really great idea, in that you could
take two or three of these areas that you've talked about and
create a pilot program. For example, we have 18 maintenance
depots in the Department of Defense as part of their $170-
billion-a-year logistics enterprise. Why not take one of those
organic depots and run a pilot program where outside enterprise
could come in, keep it right where it is, and run it on the
base? Let's take a DOD-dependent school. There are a lot of
local school districts that could come in and run that school
system on the base and see if it could be run more efficiently
than the government is running it. With a commissary, for
example, you could take the Marine Corps commissary at Camp
Pendleton, as General Jim Jones was willing to do in 1998, when
he was the Commandant, and bring in a Walmart or a Costco and
let them run it, and see if it would be more efficient. And
then you could--and then you would have some data, and then you
could deal with some of the emotional arguments that you run
into when people say, ``Well, they can't do it.'' So, test it
out. So, as you look at these management reforms, which are
going to be very tough and very hard, do some pilot programs
and test out your proof of concept, and then decide if you want
to take it to a broader set. So--but, I do think, in all these
areas that are not core to the Department, these are the ripe
areas for these kind of pilot programs.
Senator Rounds. Thank you.
Thank you, Mr. Chairman.
Chairman McCain [presiding]: Could I just comment? We
kicked that idea around about the commissary, and I can tell
you, we have a PR [public relations] challenge. We--the
hornet's nest that we ignited. So, we'll have to go back. Maybe
pilot programs are the best way to address that issue. There
are, as I understand it, 15,000 employees, and----
General Punaro. Mr. Chairman, spot on. And I think the
messaging ought to be, ``We're not trying to get rid of the
benefit, we're not trying to get rid of the commissary in their
locations. We're trying to reduce the taxpayer subsidy.'' So,
give the troops and the families and the retirees the same
benefit they have today, but if you run it and manage it more
efficiently--you know, but the way the headlines come out, the
bumper sticker is; ``We're trying to close the commissary.''
So, you're right, we've got to change the packaging.
Mr. Walker. Mr. Chairman, I would respectfully suggest
you've touched on one of the important four-letter words in
politics, and that is ``jobs.'' And part of the question is;
Can this be done more economically, more efficiently, and more
effectively? And, if so, what does that mean with regard to the
number of employees you're going to have? And that's----
Chairman McCain. Right.
Mr. Walker.--you know, that's the elephant in the room. You
know, if you----
Chairman McCain. Well, it--it's more than that in this
issue.
Mr. Walker. Yes, sir.
Chairman McCain. It's the perception that we are taking
away from our--particularly our retirees, not to mention Active
Duty----
Mr. Spencer. Mr. Chairman, can I add something here,
though? Having chaired the--lucky enough to chair the DBB Task
Force on Modernization of the Military Retirement System.
Chairman McCain. You were lucky?
[Laughter.]
Mr. Spencer. Thank you, sir. One of the VSOs [Veterans
Service Organizations] was nice enough to publish my home phone
number, and I took 127 phone calls. I kept a log on this. And I
actually wanted to speak to the people. And once you got the
expletives out of the way and realized that I wasn't a
communist agent trying to defer any sort of benefit, you could
speak to----
Chairman McCain. That took a while.
Mr. Spencer. It took a while. It took a while. You could
speak to everybody. And if you started rationalizing and
saying, as an example, ``You have one dollar to spend on your
benefits. Your healthcare costs 50 cents, your retirement costs
33 cents, your commissary costs 26 cents, and you add it up and
you have $1.70 of expenses and a dollar to spend,'' there was a
great rational answer at the end of the day. There was an
understanding. I think that if, in fact, this committee and
Congress wants to sit and provide a preference-based selection
with the information available, you can scale this monster.
Chairman McCain. Well, I appreciate your confidence.
Senator King.
Senator King. Thank you.
Your discussion of the 28 layers and the Deputy Under
Secretary--40 years ago, I sat in one of these seats. I was a
staff member here in the Senate and was once called upon to set
up a hearing; called OMB, asked for a witness from the
administration. The fellow said, ``We will send you the Deputy
Under Secretary of Such-and-Such.'' My question was, ``Who is
this person? I don't know about the titles?'' The fellow gave
an answer, which, if I ever write a book about Washington, will
be the title. He said, ``He's at the highest level where they
still know anything.''
[Laughter.]
Senator King. Unfortunately, I'm keenly aware that I'm
above that level today.
[Laughter.]
Senator King. I think one thing we haven't talked about
today is the President. I don't mean this particular President,
I mean Presidents in general. One of the problems, it seems to
me, is that people that we elect President generally are
politicians, and politicians generally don't think much about
management. This has to start with the President, it seems to
me, a President who cares about the management issues.
One of Lincoln's greatest unappreciated qualities was as a
manager. When he was--when he became President, there were
16,000 members of the United States Army. By the end of the
Civil War, they had scaled up to over 2 million people that
fought on the Union side in the Civil War. Think of that as a
management challenge. But, it occurred because Lincoln cared
about it and put people in a position and required results, in
terms of everything from making buttons to bullets to railroad
ties.
So, I would like just a quick reflection, Mr. Walker, on
the role of the President in this process. I think we can lob
ideas here, but the person who's in charge at the other end of
Pennsylvania Avenue, it seems to me, has an enormous role to
play, if they choose to play it.
Mr. Walker. I agree, Senator. When you're hiring a
President, you're really looking for three things, in my view.
You're looking for the Chief Executive Officer [CEO] of the
largest, most complex, most important entity on the face of the
Earth, the U.S. Government, which has got a lot of challenges,
some of which we're talking today; secondly, the Commander in
Chief of the U.S. military; and thirdly, the leader of the free
world. But, I also think you have to understand that, in order
for them to discharge their CEO responsibilities, they've got
to have good people.
Senator King. Absolutely.
Mr. Walker. They've got good people with the right skills
in the right position for a requisite amount of time. And I
think, when you look at presidential appointments, Senate
confirmation, for example, there's three kinds of jobs. There
are policy jobs, there are operational jobs, and there are
oversight jobs. And you want different kinds of people in those
jobs. And I would respectfully suggest, as I did for the CMO
[Chief Management Officer] position and the sub-CMO positions,
that you need statutory qualification requirements, that we
need to be thinking about term appointments with performance
contracts for those jobs that are operational jobs. They are
not policy. They may be political appointees, but they are
operational jobs.
Senator King. But, I would suggest if the oversight from
the White House is more about policy and politics than it is
about running the enterprise--I mean, there's a reason it's
called ``the administration.'' But, in many cases--and again,
I'm not pointing the finger at the--this particular President,
but it's just not in our political culture to care too much
about how the structure at the Pentagon functions.
Let me move on for a minute. Data and metrics. The fact
that you were saying that there's an argument about how many
people work in the Secretary of Defense's office is
unbelievable--I mean, that we don't have--we can't possibly
make good decisions if we don't have data. Would you concur?
General Punaro. Absolutely, Senator. I go back to when I
was serving on the committee. We couldn't get the data. When
Secretary Cohen asked me to chair a task force in 1997, Doc
Cook, the legendary mayor of the Pentagon, ``Doc, how large is
OSD?'' ``Oh, Arnold, we've only got about 2,000 people.'' Well,
Jim Locher and Rhet Dawson and others were on that task force.
We went around and counted the names on the doors, we counted
the computers, we counted the badges. There was another 1,300
more than they admitted. And Secretary Gates, when he--in 2010,
when he tried to downsize, they couldn't get the accurate
baseline. If you look at the defense-wide headcounts that are
in the Defense Manpower Requirements Report, today the Office
of the Secretary of Defense, with military, civilian, and
contractors: 5,273. You could argue that the Office of the
Inspector General, which is 1,823, comes under OSD. You could
argue that the Pentagon Force Protection----
Senator King. Well----
General Punaro. So, the problem is, GAO has said they don't
have reliable data. Now, Peter Levine, the new DCMO [Deputy
Chief Management Officer], former staff director of this
committee, he's working this really, really hard right now. And
in all the years I've been looking at this and doing this, he's
the first senior Pentagon official that has admitted, ``You
know, Arnold, I'm not sure we have accurate data. I'm going to
try to get the accurate data.'' Before, they'd just stonewall
you. So, maybe there's going to be--but, the committee is going
to have to put pressure on it and mandate and get the
information.
Senator King. You just answered my last question, which
was, How is Peter doing? And isn't he in the position that you
were defining at the beginning? And it sounds like he's
manfully trying to get a handle on that.
General Punaro. He is, but that is a tough--that whole
management operation is really tough, because the old
Washington Headquarters Services, they have succeeded, you
know, for 50 years, in stonewalling a lot of information. And
so, he's having to dig it out with a pick and shovel.
Senator King. Thank you, Mr. Chairman.
Chairman McCain. Senator Ernst.
Senator Ernst. Thank you, Mr. Chair.
And thank you very much, to our witnesses, for being here
today.
Effective management of government programs is--especially
in the DOD, is something that I have taken great interest in
since I have come to the Senate. And I've found out that there
really are no government-wide standards, especially when it
comes to program management, whether it's in the DOD or some of
our other departments. And I do believe they need to be more in
tune with what is going on in the private sector. And there's a
study--it was done by Accenture, a group out there--that says
the U.S. Government could save as much as $995 billion by 2025
by increasing public-sector efficiency by just 1 percent. And
that, again, is across the government. And that includes
improving program management practices.
And so, this is a great topic for today. And I'm glad to
have the discussion on it. I would like some feedback from the
panel. Mr. Spencer, I'll start with you. But, it's my
understanding that the Federal Government spends around $530
billion in procurement. And when we talk about procurement, a
lot of that discussion is really focused on the $177 billion
that we spend on DOD weapon systems acquisition. And this type
of procurement for tangible goods--so, out of that $530
billion--for the tangible goods, only about 45 percent of that
is on items in the acquisition program. The other--another 45
percent is spent on service contracts and those types of
things, not actual goods that you receive. And then another 10
percent, or the remaining 10 percent, is spent on R&D [research
and development] for future acquisition programs. So, the
Defense Acquisition Workforce Improvement Act only applies to
those goods that are tangible in nature. And so, it leaves
those service contracts out.
So, with that said, what is your assessment of the
effectiveness of the Defense Acquisition Workforce Improvement
Act and it's providing a standardized program management
outcomes across all of DOD in the acquisition portfolio? Do you
think it's something that could be improved?
Mr. Spencer. Definitely. I think that it's a terrific step
forward. When one looks at how the government, let alone the
DOD, acquires, there are different pockets and different
channels for which things are acquired. We do need to set
standards. It sounds like a simple answer, but you have to take
it across the board. There--it has to be a unified leadership
demand that the standards are applied whether contracting
services, whether hard goods purchased, whatever the case may
be. It sounds very simple. It's--as I think I said in my
testimony earlier, there's heavy lifting that has to be done.
But, that would be one of the things to do, would be to force
the standards across all purchasing areas within the building,
at least.
Senator Ernst. Thank you.
Controller General Walker?
Mr. Walker. The scope should be expanded. There's a lot of
contracting that doesn't deal with goods. It also--it deals
with services. We have to understand what are our goals, what
are our objectives, what are our metrics, what are our
measurement systems. And that applies both to, you know,
defense weapons acquisitions, as well as a range of services.
Part of the problem in the weapons acquisition, in my
experience, has been--is that people have a dream about what
they would like. That dream keeps on changing, so the
requirements keep on changing. Every time the requirements
change, that means it takes longer, it costs more money. And
the other thing that we talked about earlier is personnel. We
have people that stay in positions for 2-year periods of time
automatically, rather than wait until a major milestone has
been achieved. That is tremendously costly with regard to money
as well as timing on these projects.
Senator Ernst. Yes, General.
General Punaro. I would step it back to broader issue that
Senator King brought up, which is management. The Office of
Management and Budget needs to emphasize more on the management
side and less on the budget micromanagement. But, the biggest
change we--that would affect what you're talking about--because
55 percent of DOD's spend now is on services--would be a reform
in the Congress in going to a 2-year budget. So, the first
year--because the Congress and the Pentagon are drowning in
budget details. Everything is just tied to these microbudget
details. Not as much oversight and management occurs, either in
the executive branch or in the Congress. So, the first year,
you would deal with the budget request; the second year, you
would do detail oversight on the management side. You'd have
much more time to basically bring in witnesses that could
basically have a back-and-forth. And so--and, in terms of the
broader management, the Eisenhower Cabinet--I mean, he
basically believed in true Cabinet line officers, as opposed to
the kind of micromanagement that we've seen White Houses do
today. So, the--so, you really aren't going to get to the
bottom line until you go to this broader construct.
Mr. Walker. May I jump in quickly?
Senator Ernst. Yes.
Mr. Walker. I strongly endorse the concept of a biennial
budget. I'm 64 years old. I know that may be hard to believe,
but I am.
[Laughter.]
Mr. Walker. And the fact of the matter is, Congress has
passed timely appropriations and budget bills four times in my
lifetime. We spend a tremendous amount of time--and most of the
States have gone to biennial budgeting. I think it's something
we need to consider, as well as the separation between the
capital budget and an operating budget, and to focus not on
deficits and debt, but debt as a percentage of the economy.
That's what matters.
Senator Ernst. All very good points.
Thank you, Mr. Chair.
Chairman McCain. We thought you were older.
Senator Hirono.
Senator Hirono. Thank you, Mr. Chairman.
Mr. Walker, you just mentioned today, just now, that we
should separate out the capital budget from the operating
budget. Can you talk a little bit more about what that would do
and what that would involve?
Mr. Walker. Whether you talk about critical infrastructure,
whether you talk about weapon systems acquisition, there's a
difference between trying to be able to acquire things that
have multigenerational benefit that end up--benefit society
broadly over an extended period of time. Most States have
capital budgets and operating budgets. Most corporations have
capital budgets and operating budgets. And that's why I'm
saying you have to be careful. Sometimes people want to play
games to say, ``Well, this is really a capital item, this is
really an investment, it's really not an expenditure, so I
should have more flexibility.'' That's why I'm saying one of
the things that you do is focus on debt-to-GDP [gross domestic
product]. When you do that, when you focus on debt-to-GDP,
which has gone from 31 percent in 1980 to--pardon me, 30--to 54
percent in 2000 to 103 percent today, when you count what we
owe Social Security and Medicare, we've got to get that down to
about 60 by '20 to 2035. Let's use best practices from the
private sector. Let's look to the States. And I think they
would tell you, you need separate budgets for that.
Senator Hirono. Yeah, I've often wondered why it is that we
don't separate out these budgets, because, in the States,
it's--the capital budgets are usually called the capital
improvements budget [plans], CIP. That's a totally different
way to look at long-term debt, et cetera. And so, why do you
think we have not adopted that at the Federal level?
Mr. Walker. Well, it's before----
Senator Hirono. With any----
Mr. Walker.--it's before my time, but, you know, our budget
process is--it's a cash-based--and it's focused on 1 year at a
time. And I think some people have been concerned that you
might lose control of spending if you have a separate, you
know, capital budget from an operating budget, ``Let's just put
it all together.'' But, again, that's what I'm saying.
Senator Hirono. Oh.
Mr. Walker. If we focus on debt-to-GDP, it's--have specific
targets, triggers, and enforcement mechanisms on debt-to-GDP,
that's the way to manage that problem. Private sector and
States separate it. States have 2-year budgets. We ought to
learn from the States.
Senator Hirono. Well, do the other panelists also agree
that we should separate out these two budgets?
General Punaro. I agree.
Senator Hirono. Mr. Punaro?
Mr. Spencer. Completely.
Ms. Bisaccia. Seems like good management to do so, yes.
Senator Hirono. We probably need to figure out how to get
there, because to make this kind of a--what I would consider a
really reasonable, fundamental change in how government
operates and how we make decisions around here would be very
challenging, but one that I particularly would be interested
in.
Going to a larger question, what do you think are the most
important areas for the committee to begin with as we consider
reforming the defense organization? For example, would you
recommend--and any of the panelists can respond--first,
addressing the culture and leadership issues, or would you look
at organization and processes first?
General Punaro. I'll----
Senator Hirono. Mr. Punaro.
General Punaro.--start. The----
Senator Hirono. General.
General Punaro.--culture is too hard. You can't start
there, because you don't--we don't know what we have. I think
you--you know, the basic--we have to, basically, get the basic
information. How big is the DOD infrastructure? How much does
it cost? What is the size that you want it to have? How are you
going to get the really good top managers to come in that can
drive cultural change? And, once you get on top of that, then I
think you could focus on organization and culture. But, until
we, basically, know what we have and what we're spending, you
can't deal with any of those other--they are--those are the
most important issues: leadership and cultural change. But,
until you get the fundamentals, you can't really deal with the
other.
Mr. Spencer. I think that--in my testimony, I talked about
internal and external forces at work. You all hold the external
acts. There are things that you can do. Totally am sympathetic
and understand that some of them are going to be, as I said,
politically unsavory. But, you have the ability to force the
issue. You also have internal activities that can happen, such
as providing performance metrics for management. So, I think
you can do them, actually, simultaneously.
Chairman McCain. Senator Sullivan.
Senator Sullivan. Thank you, Mr. Chair.
Appreciate panelists on a very important topic.
I want to drill down a little bit more on the tooth-to-tail
ratio issue and just get a sense--you know, General Punaro, you
talked a lot about it in your testimony, what the Army's trying
to do, in terms of their reduction of its Active Duty Force,
which, as you mentioned in your testimony, seems to be taking a
very significant hit on the trigger-pullers versus the tail
part of the Army. But--and then, if you look at charts
internationally, where we stand as a military compared to other
militaries in the world, we have a very large tail, relative to
the tooth element, relative to other countries, almost every
other country in the world.
You hear some people, though, argue that the reason our
military is so effective is because we're so good a logistics,
and we're so good at other aspects of, kind of, the tail
component of the military. How can--can you help us kind of
tackle that issue? Our--is our military so effective because we
have such a large tail? Or should we be looking historically,
say, World War II, where I think the ratio was a lot less than
it is today? And we obviously had a pretty darn effective
military back then. How do you suggest we think about this?
Because I think it's a critically important issue, and your
testimony really drills down on it.
General Punaro. I mean, I think you have to look at what
makes our military the finest military in the world. It's
really three things. And it is high quality people, it is
constant and realistic training, and it is giving the troops
the cutting-edge technology so they're never in a fair fight.
Logistics is important. It's a discriminator that we have, vis-
a-vis other countries. And a lot of logistics is not tail.
There's a lot of combat logistics that I would put on the
forces side. So, when I talk about the 40 percent of the
Department that's infrastructure, a lot of the logistics is
combat logistics.
So, the problem is--you know, I have a cartoon that I drew
up years ago called, ``Where is Private Waldo?'' So, today you
have 1.2 to 1.3 million Active Duty personnel, roughly 220,000
forward deployed, including troops in the Middle East and in
Afghanistan. So, you have to ask yourself the question, What is
the other 1 million doing? And 330,000, and particularly a
sizable number in the Army, are working in inherently
commercial activities: laundry, retail, clerks, finance. These
are jobs--and these are our most expensive personnel, the
Active Duty military--that either a defense civilian or a
contractor could do. And so, the problem in the Department,
when you're talking about tooth-to-tail, is, we have too--we
have so many people, defense civilians, in military that's in--
part of the tail that really is not fundamental to warfighting.
Senator Sullivan. So, how would----
General Punaro. Part--yeah.
Senator Sullivan. So, General Milley has talked about
trying to--as the Army is looking to draw down--to kind of make
sure that the warfighters are the last elements of the
reduction that the Army is undertaking. However, as your
testimony points out, that's certainly not the case, that's not
what they're doing.
General Punaro. That's right.
Senator Sullivan. How can this committee help the service
chiefs and others focus in a way that does maintain the
trigger-pullers and warfighters as the last troops that need to
be cut, versus the guys who are doing laundry and other things,
as you mentioned?
General Punaro. I think you're going to have to do
authorized end strengths in the overhead area, just like you do
for Active personnel in Guard and Reserve. For example, the
committee authorizes, let's say, 450,000 Active Duty Army. That
means, on September 30th of each year, the Army's authorized
end strength has to be within one-half of 1 percent above or
below that authorized number.
Senator Sullivan. And should that look at not only----
General Punaro. And so----
Senator Sullivan.--authorized numbers, but the number of
BCTs [brigade combat teams], to make sure there's a heavy tooth
element?
General Punaro. Well, what I would do--the way I would do
is, I'd come at it the other way. I would say that the Army can
only have so many people in the institutional Army. You would
legislate end strengths for overhead, headcounts, things of
that nature, in layers, and then, when they see they can't have
as many--they--when they see they can't have a battalion of
soldiers guarding prisoners at Fort Leavenworth, they're going
to then put those soldiers back into the combat side. So, the
way you control it is by controlling the overhead and not
letting them have the tail grow at the expense of the forces,
and they--and then they're going to say, ``Okay, holy smokes,
we've got 50,000 soldiers that we can't put in the
institutional Army. Let's create, you know, 5 more combat
brigades.'' I think that's the way to do it.
You're never going to--you're never going to get there by
encouraging them. Warren Rudman, when he was here in the
Senate, from New Hampshire, on the Appropriations Committee,
working with the Armed Services Committee, was a fanatic about
tooth-to-tail and going after it and just encouraging the
Department to do a better job of putting more in combat and
less in tail--has not proven to be a successful model.
Senator Sullivan. Mr. Walker?
Mr. Walker. The Defense Department really has a subset of
the same problem the Federal Government has with regard to the
budget. You've got out-of-control overhead cost. That's what's
eating things alive. That's why your end strength is going
down. Your overhead's out of control. Just like if--the Federal
Government, as a whole, our mandatory spending costs are
cutting into discretionary spending, which you are all the
express enumerated responsibility. So, you have to have limits.
You have to have limits. You also have to have the right people
in the right job for the requisite period of time who are
responsible for driving this change. We don't have that now.
And that's what I tried to focus on with regard to my
testimony.
Senator Sullivan. Thank you.
Thank you, Mr. Chairman.
Chairman McCain. Senator McCaskill.
Senator McCaskill. You know, I--one of the things I find
ironic about this hearing is that one of my pet peeves at all
of these hearings--and it's particularly true with the
subcommittee hearings--is, usually the first two rows behind
the witnesses are all people from the Pentagon. In one hearing
of a subcommittee, I said--I asked the audience how many of
them worked at the Pentagon, and almost every seat in the
hearing room, hands went up. I said, ``You know you can get
this on TV.'' And it's a symptom of a Deputy Deputy Deputy Dog,
General, that--I mean, when you have a three-star come to the
Hart Building, it takes four SUVs to bring one three-star.
There is this culture that you're not really important unless
you've got a really big posse at the Pentagon. And I don't know
how to get at that.
I was really interested, General, in your recommendation
that we statutorily limit the number of Deputy Deputy Deputy
Dogs that are going to be in the Office of the SECDEF
[Secretary of Defense], of the Secretary of Defense. And have
you actually put a pen to paper as to what that should be? How
would we specifically limit that? Because I believe that that
might be one of the most important things we could do to
strengthen our military.
General Punaro. Well, there's--I agree with you, and I
agree the entourage syndrome is alive and well in Washington.
And it's a leadership issue. And I think Joe Dunford is going
to be talking to a lot of these senior generals about perks and
things of that nature.
But, there's two ways to get at the problem you said. One
would be working with the Department of Defense. I believe
Secretary Carter is very reform-minded. He is on acquisition,
on the Force of the Future. And I know he would like to get
control of these management headquarters and get agreement on
what--how big is the Office of the Secretary of Defense? How--
you know, and what size should it be? Then you could put the
mandatory caps in.
Another way of doing it--and I would say this has been my
experience when I served on the committee, because it was
always hard to find somebody that was willing to do something
like that in a cooperative way--I believe Ash Carter is
different, so I would try that first--is, let's say we believe
OSD should be 3,000, and let's say they say it's 5,000, but we
don't really know. So, put the cap at 3,000. They'll scream and
holler and say, ``Holy smokes, that's too small.'' You'll then
get the right number. But, you're going to have to legislate
caps for OSD, the Joint Staff, the combatant commanders, and
the management headquarters to be able to get control of the
overhead.
Senator McCaskill. As we cut the money under the budget
constraints, none of those have gone away, right?
General Punaro. The----
Senator McCaskill. We've reduced end strength, but not the
Deputy Deputy Deputy Dogs.
General Punaro. There's too many ways--the money is too
fungible. Cutting money doesn't do--will not cut the headcount.
I mean, when Secretary Gates eliminated the Joint Forces
Command, people believed that we eliminated the Joint Forces
Command in July of 2010. The 2,000 military serving in the
Joint Forces Command were added to the roster of the Joint
Staff.
Senator McCaskill. Right.
General Punaro. All the defense civilians were just put in
other locations. The only thing we got rid of were the
contractors. Now, we don't have that headquarters, so there's--
the shell game--the Chairman--I saw something dealing with the
Air Force, where they were taking credit. Now, I didn't look
into the details on this, so--but, whatever it is, the problem
is, the Defense Department, over the years, not unique to any
one administration, they are the duty experts at, ``Hey, we
just cut this defense agency,'' and then you look over here,
and, ``Oh, my God, they just created a brand-new field activity
that doesn't count against that total.''
Senator McCaskill. Right.
General Punaro. That's why I'm for these firm end caps. The
Department won't like this. Maybe members of the committee
won't like this. We don't like to try to have to micromanage in
this area. But, to get control of it, I think----
Senator McCaskill. It may be----
General Punaro.--you're going to have to do it.
Senator McCaskill.--necessary, yeah.
I'm not going to have time to get to all the contractor
stuff, but obviously this is something I'm spending a great of
time on, and I worry a little bit--I know my dad peeled
potatoes in World War II, and I know we shouldn't have anybody,
an expensive warfighter, peeling potatoes, but we know that
LOGCAP [U.S. Army's Logistics Civil Augmentation Program], at
least the first two or three versions, were a disaster, in
terms of costs, in terms of handling costs. And so, I don't
want us to lose sight of the fact that, while we move these
functions to a civilian force, a contractor force, that we lose
sight of the fact of the kind of money we've wasted on bad
contracting practices. I just want to get that on the record,
because we've spent an awful lot of time trying to dig deep on
that issue.
General Punaro. You have to have--that's why David Walker
and all of us here believe you've got to bring in these world-
class business managers and manage these contracts. You all
created the Wartime Contracting Commission. They made a lot of
good recommendations. But, again, you've got to bring--these
are businesses. LOGCAP----
Senator McCaskill. Right.
General Punaro.--is a business enterprise. You need people
that know how to run business. There are very, very few people
in government that know how to manage a business.
Senator McCaskill. Finally, just briefly--and if you want
to answer this for the record, because I know I'm almost out of
time, but----
Chairman McCain. No, please go ahead.
Senator McCaskill. I want to talk about the audit. David,
should we--it's almost like the systemwide audit is the bright,
shiny object. And the amount of resources and time we're trying
to get--this systemwide financial audit, I might add--we are
not, probably, putting the time into performance-based audits.
And as a fellow auditor, both of us understand that the real
gold is in performance audits, in terms of figuring out how
much wasted payroll there is at the Pentagon. Are we getting
distracted by the effort to synchronize systems across various
branches for the financial audit? And should we, in fact,
refocus on how many performance audits are actually going on at
DOD, and how much are we consuming them and using the
information in them?
Mr. Walker. As you know--you having been the State auditor
for Missouri, myself having been Comptroller General--the fact
is, internal controls are the most important thing. In
addition, having effective cost accounting systems with full
cost accounting is important. In addition, understanding what
you have, where it is, what condition it's in, and then
performance metrics, those are the most important things.
Peter Levine--I've spent some time with Peter recently--
Peter recognizes that he needs to spend more time on controls,
on cost accounting, and on performance management. I agree with
that. I think we have to reassess where they are with regard to
the financial statement audit. As I mentioned before, my
personal view is, you need a plan, a matrix plan that talks
about organizations and line items, focused on getting an
opinion on the consolidated DOD financial statements, rather
than the sub-entities.
I would also respectfully suggest that, once we have clean
opinions on all major U.S. departments and agencies, then I
think we have to think about whether or not we need to have
opinions on the financial statements of individual departments
and agencies, and we focus on the consolidated, which GAO
[Government Accountability Office] would lead, and they would
end up working with the inspector generals and contract out
with private sector, independent public accountants, as
appropriate, so we could discharge our responsibility to the
taxpayers with regard to what's happening with their resources,
but we can spend a lot more time and money on exactly what
you're talking about.
Senator McCaskill. Right.
Mr. Walker. Let's talk about performance audits--what's
working, what's not working--so we can focus economy,
efficiency, effectiveness, and continuous improvement.
Senator McCaskill. Thank you.
Thank you, Mr. Chairman.
Chairman McCain. I thank the witnesses. And the----
Senator King. Mr. Chairman? Mr. Chairman?
Chairman McCain. Senator King.
Senator King. Very quickly, I just wanted to mention that
Senator Enzi and a number of us have a bill on biennial
budgeting. And, in fact, we had a hearing at the Budget
Committee, just last week. So, that's under very active
consideration. And on the performance audit question, my
favorite way to approach that is, ask two question: Does it
work, and how do you know? And that's something that we don't
do frequently enough.
Thank you, Mr. Chairman.
Chairman McCain. General Punaro mentioned the Air Force
exchange I had with the Secretary of the Air Force, who
volunteered, twice, that they had reduced the size of the
headquarters by 10 percent, I believe it was, ahead of the
years they were supposed to. And finally, I asked her, ``Well,
how many jobs were eliminated?'' Zero. So----
And again, I still, frankly, am challenged by this
requirement to get particularly Silicon Valley as well as other
wise people into the Department of Defense. And I agree with
you, there's a certain number out there that were--are just
patriotic Americans. But, that's in spite of the system that
they would be joining, not because of. And so, I'm hoping we
can work out some better way of incentivizing people of the
kind of talents we need in this Information Age, and the cyber
challenge that we're facing to serve the government.
So, I thank you for this very important hearing.
General Punaro?
General Punaro. Mr. Chairman, I wanted to add one thing. In
one of my other recommendations for reform in the Congress is
to collapse the authorizing and appropriation committee and
have the Senate Armed Services Committee authorize and
appropriate in the same bill. That's a serious recommendation.
It goes with biennial budgeting.
And, number two, on the Goldwater-Nichols, I think we need
to go back to giving the Chairman and the Vice Chairman a 4-
year tour instead of two 2-years, like we set it up. I'm very
worried--and I've studied this and looked at it over time. I've
talked to Senator Nunn, Senator Warner, Jim Locher, and others.
I worry that the Chairman--I'm not pointing fingers at any one
particular one--we're losing--they're losing their
independence. And it--fundamental to this committee has always
been that, when a military person is asked their professional
views, independent of the administration in power, they give
them. But, because we set it up so they have to be reconfirmed,
I really worry about that. And I hope you will take a serious
look at that.
Chairman McCain. I think that's an excellent point. We
recently had the Secretary of Defense come before this
committee and refuse to confirm something that had--an event,
of going inside the 12-mile limit, which was widely reported--
television, radio, and print media--refusing to confirm that.
Later, in the New York Times, it said that they didn't want him
to confirm it because it would irritate the Chinese over
climate change. We have come a long, long way since my earliest
days here on this committee. As much as I admire the Secretary,
I find that kind of thing absolutely unacceptable.
I thank you witnesses today. I thank you for being here.
And this, again, contributes enormously to what we will really
make a serious effort, hopefully, and I believe optimistically,
that we will be working with the Secretary and others as we try
to implement these reforms. But, we will implement these
reforms, with or without the Secretary of Defense.
This hearing is adjourned.
[Whereupon, at 11:27 a.m., the hearing was adjourned.]
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator Joni Ernst
lack of occupational series for program management
1. Senator Ernst. What role does the lack of a core occupational
series for program management and a lack of a holistic program
management framework rooted in industry standards and practices play in
all acquisition outcomes?
According to the Defense Acquisition Workforce Human Capital
Initiative PowerPoint on Program Management from March 31, 2015--only a
quarter of Program Managers are identified with OPM's 0340 job series.
Moreover, the job description for the 0340 job series states, ``There
are no individual occupational requirements for this series.''
Similarly the same presentation shows that there are engineers, IT,
contracting professionals and others all fulfilling the role of Program
Manager. How you are certain these individuals have the necessary
credential to successful manage an acquisition program from start to
finish?
Major General Punaro did not respond in time for printing. When
received, answer will be retained in committee files.
Mr. Spencer did not respond in time for printing. When received,
answer will be retained in committee files.
Mr. Walker did not respond in time for printing. When received,
answer will be retained in committee files.
retention and growth of program managers:
2. Senator Ernst. Information from the Defense Acquisition
Workforce Human Capital Initiative PowerPoint on Program Management
from March 31, 2015, also shows that of the ``experienced'' PM's . . .
45 percent are eligible for retirement within 10 years and 17 percent
are already eligible for retirement. What is DoD doing to ensure there
is an experienced workforce and talent pipeline that is ready to keep
up with the growing complexity and demand of defense acquisition and
where is that talent pool going to come from?
Major General Punaro did not respond in time for printing. When
received, answer will be retained in committee files.
Mr. Spencer did not respond in time for printing. When received,
answer will be retained in committee files.
Mr. Walker did not respond in time for printing. When received,
answer will be retained in committee files.
[all]