Defense Business Transformation: Achieving Success Requires a
Chief Management Officer to Provide Focus and Sustained
Leadership (05-SEP-07, GAO-07-1072).
In 2005, GAO added the Department of Defense's (DOD) approach to
business transformation to its high-risk list because (1) DOD's
improvement efforts were fragmented, (2) DOD lacked an integrated
and enterprisewide business transformation plan, and (3) DOD had
not designated a senior official at the right level with the
right authority to be responsible for overall business
transformation efforts. This report assesses (1) the progress DOD
has made in setting up a management framework for overall
business transformation efforts and (2) the challenges DOD faces
in maintaining and ensuring the success of those efforts. GAO
conducted this work under the Comptroller General's authority to
conduct evaluations under his own initiative. In conducting its
work, GAO compared DOD's actions to key practices of successful
transformations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-1072
ACCNO: A75649
TITLE: Defense Business Transformation: Achieving Success
Requires a Chief Management Officer to Provide Focus and
Sustained Leadership
DATE: 09/05/2007
SUBJECT: Defense operations
Federal agency reorganization
Government job appointments
Legislation
Management reengineering
Strategic planning
Systems management
Systems conversions
Federal agency leadership
Business transformation
Business planning
GAO High Risk Series
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GAO-07-1072
* [1]Results in Brief
* [2]Background
* [3]DOD Has Made Progress in Establishing a Management Framework
* [4]Two Critical Challenges Affect DOD's Success in Maintaining
* [5]DOD Has Not Developed a Comprehensive, Integrated, and Enter
* [6]DOD Has Not Established a Full-time Leadership Position at t
* [7]Conclusions
* [8]Recommendations for Executive Action
* [9]Matter for Congressional Consideration
* [10]Agency Comments and Our Evaluation
* [11]GAO Contact
* [12]Acknowledgments
* [13]GAO's Mission
* [14]Obtaining Copies of GAO Reports and Testimony
* [15]Order by Mail or Phone
* [16]To Report Fraud, Waste, and Abuse in Federal Programs
* [17]Congressional Relations
* [18]Public Affairs
Report to Congressional Committees
United States Government Accountability Office
GAO
September 2007
DEFENSE BUSINESS TRANSFORMATION
Achieving Success Requires a Chief Management Officer to Provide Focus and
Sustained Leadership
GAO-07-1072
Contents
Letter 1
Results in Brief 3
Background 6
DOD Has Made Progress in Establishing a Management Framework upon Which to
Develop Overall Business Transformation, but the Framework Focuses on
Business Systems Modernization 8
Two Critical Challenges Affect DOD's Success in Maintaining and Furthering
Its Progress in Overall Business Transformation 13
Conclusions 18
Recommendations for Executive Action 19
Matter for Congressional Consideration 19
Agency Comments and Our Evaluation 19
Appendix I Scope and Methodology 27
Appendix II Comments from the Department of Defense 29
Appendix III GAO Contact and Staff Acknowledgments 34
Related GAO Products 35
Table
Table 1: Years When Specific DOD Areas on GAO's 2007 High-Risk List Were
First Designated as High Risk 7
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separately.
United States Government Accountability Office
Washington, DC 20548
September 5, 2007
Congressional Committees
The Department of Defense (DOD) spends billions of dollars to maintain key
business operations intended to support the warfighter, including systems
and processes related to the management of contracts, finances, the supply
chain, support infrastructure, and weapons systems acquisition. However,
we have reported for years that weaknesses in these business operations
result in billions of dollars being wasted, reduced efficiencies,
ineffective performance, inadequate accountability, and lack of
transparency.^1 Currently, DOD bears responsibility, in whole or in part,
for 15 of the federal government's 27 programs or activities that we have
identified as being at high risk of waste, fraud, abuse, and
mismanagement. Specifically, in 2005, we identified DOD's approach to
overall business transformation as a high-risk area because (1) DOD's
improvement efforts and control over resources are fragmented, (2) DOD
lacks an integrated and enterprisewide business transformation plan, and
(3) DOD has not designated a senior official at the right level with the
right authority to be responsible and accountable for business
transformation. Accordingly, DOD's business area weaknesses result in
inadequate accountability to Congress and the American people, wasting
billions of dollars each year at a time when DOD is competing for
resources in an increasingly fiscally constrained environment. Our nation
is not only threatened by external security threats but also from within
by growing fiscal imbalances primarily due to our aging population and
rising health care costs. As a result, it is important that DOD get the
most from every dollar it invests.
^1See for example, GAO, High-Risk Series: An Update, [19]GAO-07-310
(Washington, D.C.: January 2007); Defense Business Transformation: A
Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are
Needed to Assure Success, [20]GAO-07-229T (Washington, D.C.: Nov. 16,
2006); Department of Defense: Sustained Leadership Is Critical to
Effective Financial and Business Management Transformation,
[21]GAO-06-1006T (Washington, D.C.: Aug. 3, 2006); DOD's High-Risk Areas:
Successful Business Transformation Requires Sound Strategic Planning and
Sustained Leadership, [22]GAO-05-520T (Washington, D.C.: Apr. 13, 2005);
and DOD Financial Management: Integrated Approach, Accountability,
Transparency, and Incentives Are Keys to Effective Reform, [23]GAO-02-497T
(Washington, D.C.: Mar. 6, 2002).
We have long advocated the need for a chief management officer (CMO) at
DOD with significant authority and experience and a term of office that
would focus the necessary attention on enterprisewide business
transformation and sustain progress across administrations. Within DOD,
business transformation is broad, encompassing people, planning,
management, structures, technology, and processes in several key business
areas. Our previous work has shown that two key practices--a
comprehensive, integrated, and enterprisewide plan and focused and
sustained leadership--are at the center of successful organizational
transformation.^2 These practices can serve as a basis for federal
agencies such as DOD, which seek to transform their cultures and business
operations, to become more results-oriented, customer-focused, and
collaborative in nature. The Deputy Secretary of Defense establishes the
overall strategic direction and priorities for business transformation,
according to a DOD directive. Recent initiatives started under the Deputy
Secretary's leadership hold potential to improve DOD's business
operations; however, concerns remain about DOD's ability to sustain and
ensure the success of overall business transformation efforts and related
management reform initiatives across administrations in the absence of a
CMO who is focused full time and over the long term on defense business
transformation efforts.
The Fiscal Year 2006 National Defense Authorization Act directed DOD to
commission one or two studies on the feasibility and advisability of
establishing a Deputy Secretary of Defense for Management to serve as a
CMO at DOD, and required the results of each study to be reported to
Congress.^3 The studies were to examine the effects of establishing a CMO,
the appropriate relationship between the CMO and other defense officials,
and the appropriate term of service. The Institute for Defense Analyses
and the Defense Business Board conducted CMO studies at the behest of DOD
and concluded that a CMO in some form was needed at the department to
focus on integration and enterprisewide business transformation. In a May
11, 2007, letter to Congress, however, DOD recommended that the Deputy
Secretary of Defense serve as the CMO for the department and further
stated that DOD would formalize the Deputy Secretary's CMO role and
transformation duties in a DOD directive. As of July 2007, both the House
and Senate Armed Services Committees had introduced legislation that would
require DOD to provide increased leadership and direction over its
business transformation efforts. While each committee has taken a
different approach, both committees agree that the status quo at DOD is
unacceptable.
^2See for example, [24]GAO-07-310 , [25]GAO-07-229T , [26]GAO-06-1006T ,
and [27]GAO-05-520T .
^3National Defense Authorization Act for Fiscal Year 2006, Pub. L. No.
109-163, S 907 (2006).
We performed this review under the authority of the Comptroller General to
conduct evaluations on his own initiative to contribute to the ongoing
discussion on the need for overall business transformation and a CMO at
DOD. Specifically, our two objectives were to assess (1) the progress DOD
has made in establishing a management framework for overall business
transformation and (2) the challenges DOD faces in maintaining and
ensuring the success of those efforts.
To assess the progress DOD has made in its business transformation
efforts, we reviewed and analyzed relevant documents and plans,
interviewed key DOD senior leaders and defense experts, and reviewed
current literature about the department's business transformation efforts.
These included DOD's 2006 Quadrennial Defense Review, updates to DOD's
enterprise transition plan, DOD's annual reports on business
transformation to Congress, and meeting minutes and briefing documents
from various DOD boards and committees. To assess the challenges DOD faces
in maintaining and building upon this progress, we reviewed documentation
and interviewed DOD officials involved in DOD's business transformation
efforts. We also compared DOD progress against key practices we have found
to be at the center of successful organizational mergers and
transformations.^4 See appendix I of this report for a more detailed
discussion of our scope and methodology. We conducted our work from
September 2006 through July 2007 in accordance with generally accepted
government auditing standards.
Results in Brief
Although DOD has made progress toward establishing a management framework
upon which to develop overall business transformation, the framework
currently focuses on business systems modernization and does not fully
address broader business transformation efforts. As part of its progress,
the department has established new entities and developed various tools
and plans for these entities to use in managing its business systems
modernization efforts. For example, DOD established the Defense Business
Systems Management Committee to review and approve the defense business
enterprise architecture--a transformation blueprint--and the obligation of
funds for defense systems modernization. Further, DOD established the
Business Transformation Agency to support the committee by, for example,
coordinating and leading business transformation across the department.
Despite these steps, DOD has not clearly defined or institutionalized
interrelationships, roles and responsibilities, or accountability for
establishing a management framework for overall business transformation.
For example, differences of opinion within DOD exist regarding which of
the various senior leadership committees within the department will
function as the primary body responsible for overall business
transformation. Until DOD's business transformation management framework
is institutionalized and encompasses broad responsibilities for all
aspects of business transformation, it will be challenging for DOD to
integrate related initiatives into a sustainable, enterprisewide approach
and to successfully resolve weaknesses in business operations that we have
shown are at high risk of waste, fraud, and abuse.
^4GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers
and Organizational Transformations, [28]GAO-03-669 (Washington, D.C.: July
2, 2003).
DOD must overcome two critical challenges if it is to maintain and build
upon the progress it has made toward achieving overall business
transformation. First, DOD does not have a comprehensive, integrated, and
departmentwide plan or set of linked plans supported by a planning process
that sets a strategic direction for overall business transformation. This
plan or set of plans should cover all key business functions and contain
results-oriented goals, measures, and expectations that link
organizational, unit, and individual performance goals, and also clearly
link to DOD's overall investment plans. Second, DOD lacks a full-time
leadership position at the right level dedicated solely to the planning,
integration, and execution of business transformation efforts. Without
this dedicated leadership, DOD's progress on business transformation is at
risk of not being able to sustain and ensure the success of overall
business transformation efforts across administrations. A broad-based
consensus exists among GAO and others, including the Institute for Defense
Analyses and the Defense Business Board, that the status quo is
unacceptable and that DOD needs a CMO to provide leadership over business
transformation efforts, although there are different views concerning the
characteristics of a CMO, such as whether the position should be codified
in statute, established as a separate position from the Deputy Secretary
of Defense, designated as Executive Level II or Level III, subject to a
term appointment, or supported by a deputy CMO. In a May 2007 letter to
Congress, however, DOD outlined its position that the Deputy Secretary of
Defense be designated as the CMO and plans to formalize this in a DOD
directive. The department's letter also stated that codifying the CMO
duties would restrict the flexibility of future Presidents and Secretaries
of Defense to build an integrated management team. Although the Deputy
Secretary may be at the right level with appropriate authority to
transform business operations, the demands placed on this position make it
difficult for the Deputy to focus solely on business transformation--and
the position does not have the necessary term in office to sustain
progress across administrations.
We recommend that DOD institutionalize in directives the roles,
responsibilities, and relationships among various business-related
entities and committees and expand its management framework to capture
overall business transformation efforts, rather than just business
systems. In official comments on a draft of this report, DOD agreed with
this recommendation and stated that the department is a strong advocate
for institutionalizing in directives the functions, responsibilities,
authorities, and relationships of its principal officials and the
management processes they oversee. We also recommend that DOD develop a
comprehensive, strategic planning process for business transformation that
results in a comprehensive, integrated, and enterprisewide plan or set of
plans. DOD partially concurred with this recommendation, stating that the
department has already begun to expand the scope of the enterprise
transition plan to become a more robust enterprisewide planning document
and to evolve this plan into the centerpiece strategic document for
transformation.
DOD did not agree with the matter for congressional consideration
regarding the creation of a separate CMO position at DOD, stating that the
Deputy Secretary of Defense is to be designated as the CMO, and that an
internal directive is being revised to that effect. Among other things,
DOD stated that the Deputy Secretary has sufficient officials available to
help manage the department and the authority necessary to refine DOD's
management structure to continue business management reform and integrate
transformation activities. Further, DOD stated that establishing an
additional official at the under secretary level to lead business
transformation would generate dysfunctional competition among the five
other Under Secretaries by creating confusion and redundancy in their
roles and responsibilities. We recognize that the Deputy Secretary has
officials and institutional structures available to support the
transformation process; however, transformation cannot be achieved through
a committee approach. Ultimately, a person at the right level, with the
right type of experience, in a full-time position with a term appointment,
and with the proper amount of responsibility, authority, and
accountability, is needed to lead the effort. Further, contrary to DOD's
view, we believe the establishment of a separate CMO position would bring
leadership, accountability, focus and direction to the department's
efforts rather than creating competition and causing confusion. The CMO
would not assume the responsibilities of the Under Secretaries of Defense
or any other officials. Rather, the CMO would be responsible and
accountable for planning, integrating, and executing the department's
overall business transformation effort, and would be able to give
full-time attention to business transformation. We believe DOD's position
essentially represents the status quo and will, in fact, not adequately
address the long-standing management weaknesses in DOD's business
operations. In the interest of the department and American taxpayers, DOD
needs a CMO to help transform its key business operations and avoid
billions of dollars in waste each year. We, therefore, continue to believe
that Congress should consider enacting legislation to establish a CMO to
provide full-time focus and sustained leadership attention to DOD's
business transformation efforts, and have retained the matter in our
report. DOD's comments and our evaluation are discussed in detail in a
later section of this report, and the department's comments are reprinted
in appendix II.
Background
DOD is perhaps the largest and most complex organization in the world and
spends billions of dollars each year to maintain key business operations
intended to support the warfighter, including systems and processes
related to the management of contracts, finances, the supply chain,
support infrastructure, and weapons systems acquisition. We have reported
for years that inefficiencies in these business operations result in
reduced efficiencies, ineffective performance, inadequate accountability,
and lack of transparency. Despite various reform initiatives, DOD
continues to face weaknesses in business operations that not only
adversely affect the reliability of reported financial data, but also the
economy, efficiency, and effectiveness of DOD's operations.
To address long-standing management problems, we began our "high-risk"
program in 1990 to identify and help resolve serious weaknesses in areas
that involve substantial resources and provide critical services to the
public. Historically, high-risk areas have been designated because of
traditional vulnerabilities related to their greater susceptibility to
fraud, waste, abuse, and mismanagement. As our high-risk program has
evolved, we have increasingly used the high-risk designation to draw
attention to areas associated with broad-based transformation needed to
achieve greater economy, efficiency, effectiveness, accountability, and
sustainability of selected key government programs and operations. For
example, we first added DOD's overall approach to business transformation
to our high-risk list in 2005 because DOD had not taken the necessary
steps to achieve and sustain business reform on a broad, strategic,
departmentwide, and integrated basis. Furthermore, DOD continues to
dominate the high-risk list. Specifically, DOD currently bears
responsibility, in whole or in part, for 15 of our 27 high-risk areas. Of
the 15 high-risk areas, the 8 DOD-specific high-risk areas cut across all
of DOD's major business areas. Table 1 lists the 8 DOD-specific high-risk
areas. Also, as shown in table 1, many of these management challenges have
been on the high-risk list for a decade or more. In addition, DOD shares
responsibility for 7 governmentwide high-risk areas.^5 Collectively, these
high-risk areas relate to most of DOD's major business operations that
directly support the warfighter, including how servicemembers get paid,
the benefits provided to their families, and the availability and
condition of the equipment they use both on and off the battlefield.
Table 1: Years When Specific DOD Areas on GAO's 2007 High-Risk List Were
First Designated as High Risk
Area Year designated as high risk
DOD approach to business transformation 2005
DOD personnel security clearance program 2005
DOD support infrastructure management 1997
DOD business systems modernization 1995
DOD financial management 1995
DOD contract management 1992
DOD supply chain management 1990
DOD weapons systems acquisition 1990
Source: GAO.
Congress passed legislation that codified many of our prior
recommendations related to DOD business systems modernization; this
includes the establishment of various bodies and plans. Also as required
by Congress, DOD commissioned studies examining the feasibility and
advisability of establishing a CMO to oversee the department's business
transformation process. As part of this effort, the Defense Business
Board, an advisory panel, examined various options and, in May 2006,
endorsed the CMO concept. In December 2006, the Institute for Defense
Analyses also endorsed the need for a CMO position at DOD. In May 2007,
DOD submitted a letter to Congress outlining its position regarding a CMO
at DOD, stating that the Deputy Secretary of Defense should assume the CMO
responsibilities.
^5The seven governmentwide high-risk areas that DOD shares responsibility
for are (1) strategic human capital management, (2) managing federal real
property, (3) protecting the federal government's information systems and
the nation's critical infrastructures, (4) ensuring the effective
protection of technologies critical to U.S. national security interests,
(5) management of interagency contracting, (6) establishing appropriate
and effective information-sharing mechanisms to improve homeland security,
and (7) modernizing federal disability programs.
DOD Has Made Progress in Establishing a Management Framework upon Which to
Develop Overall Business Transformation, but the Framework Focuses on Business
Systems Modernization
Although DOD has made progress in establishing a management framework upon
which to develop overall business transformation efforts, this framework
currently focuses on business systems modernization rather than broader
business transformation efforts. Congress included provisions in the
National Defense Authorization Acts for Fiscal Years 2005 and 2006^6 to
assist DOD in addressing financial management and business systems
modernization challenges--two of our high-risk areas--and DOD's leadership
has taken steps to comply with these provisions. For example, to improve
financial management, DOD issued the initial Financial Improvement and
Audit Readiness Plan in December 2005, which was last updated in June
2007, to guide financial improvement and financial audit efforts within
the department. Also, to address its business systems modernization
challenges, DOD has established the following:
o Defense Business Systems Management Committee: The Ronald W.
Reagan National Defense Authorization Act for Fiscal Year 2005
required DOD to set up a committee to review and approve major
updates of the defense business enterprise architecture--or
transformation blueprint--and the obligation of funds for defense
systems modernization. Prior to the enactment of this legislation,
we reported that DOD had not established a governance structure
and the process controls needed to ensure ownership and
accountability of business systems investments.^7 Subsequently,
Congress directed DOD to establish the Defense Business Systems
Management Committee to oversee DOD business transformation. In
February 2005, the Deputy Secretary of Defense chartered the
Defense Business Systems Management Committee, which consists of
senior defense military and civilian leaders. The Deputy Secretary
of Defense serves as the chair of this committee and the Under
Secretary of Defense for Acquisition, Technology, and Logistics
serves as the vice chair of the committee. The committee is
intended to establish strategic direction and plans for DOD's
business mission, oversee implementation of systemic performance
in DOD's business operations, approve business transformation
plans and initiatives, ensure that funds are obligated for defense
business systems modernization in accordance with the law, and
recommend policies and procedures to the Secretary of Defense that
enable efficient business operations throughout DOD.
^6Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S 332 (2004) (codified in part at 10 U.S.C. SS
186 and 2222), and National Defense Authorization Act for Fiscal Year
2006, Pub. L. No. 109-163, S 376 (2006).
^7GAO, DOD Business Systems Modernization: Improvements to Enterprise
Architecture Development and Implementation Efforts Needed, [50]GAO-03-458
(Washington, D.C.: Feb. 28, 2003).
o Investment review boards: The Ronald W. Reagan National Defense
Authorization Act also required DOD to set up investment review
boards to evaluate systems' consistency with the business
enterprise architecture and to provide oversight of the investment
review process for business systems. Prior to the establishment of
investment review boards, we had reported that billions of dollars
were being spent on business systems investments with little
oversight.^8 DOD established the investment review boards in 2005
to serve as the oversight and investment decision-making bodies
for business system investments in their respective areas of
responsibility. These boards assess modernization investments over
$1 million and determine how the investments will improve
processes and
support the warfighter.
o Business Transformation Agency: DOD established the Business
Transformation Agency in October 2005 with the intent for it to
support the Defense Business Systems Management Committee and
coordinate business transformation by ensuring adoption of
DOD-wide information and process standards as defined in the
business enterprise architecture. The Business Transformation
Agency reports to the Under Secretary of Defense for Acquisition,
Technology, and Logistics in his capacity as the vice chair of the
Defense Business Systems Management Committee. The Business
Transformation Agency's charter includes responsibilities such as
identifying urgent warfighter needs that can be addressed by
business solutions, articulating the strategic vision for business
transformation, exercising executive oversight for DOD-wide
programs, and implementing plans and tools needed to achieve DOD
business transformation.
^8 [51]GAO-03-458 .
In addition, the department has developed various tools and plans
to enable these entities to manage its business systems
modernization efforts. The tools and plans the Defense Business
Systems Management Committee approves, the Business Transformation
Agency implements, and the investment review boards use to assess
compliance include the following:
o Business enterprise architecture: DOD's business enterprise
architecture is a tool or a blueprint to guide and constrain
investments in DOD organizations and systems as they relate to
business operations. The business enterprise architecture provides
the thin layer of corporate policies, capabilities, standards, and
rules and focuses on providing tangible outcomes for a limited set
of enterprise-level (DOD-wide) priorities, and the components are
responsible under the department's tiered accountability approach
for defining their respective component-level architectures that
are aligned with the corporate business enterprise architecture.
According to DOD, subsequent releases of the business enterprise
architecture will continue to reflect this federated approach and
will define enforceable interfaces to ensure interoperability and
information flow to support decision making at the appropriate
levels.
o Enterprise transition plan: DOD guidance states that the
enterprise transition plan is intended to lay out a road map for
achieving DOD's business transformation by implementing changes to
technology, processes, and governance consistent with DOD's
business enterprise architecture. According to DOD, the enterprise
transition plan is intended to summarize all levels of transition
planning information (milestones, metrics, resource needs, and
system migrations) as an integrated product for communicating and
monitoring progress--resulting in a consistent framework for
setting priorities and evaluating plans, programs, and
investments. The enterprise transition plan contains time-phased
milestones, performance metrics, and a statement of resource needs
for new and existing systems that are part of the business
enterprise architecture. Business Transformation Agency officials
said that they see the enterprise transition plan as the highest
level plan for DOD business transformation. DOD released its first
enterprise transition plan in September 2005. DOD updates the
enterprise transition plan twice a year, once in March as part of
DOD's annual report to Congress and once in September.
While our prior work has acknowledged this progress, we also have
reported on limitations. For example, while the latest version of
the business enterprise architecture focuses on DOD-wide corporate
policies, capabilities, rules, and standards, which are essential
elements to meeting legislative requirements, this version has yet
to be augmented by the DOD component organizations' subsidiary
architectures that are also essential to meeting these
requirements and the department's goal of having a federated
family of architectures. While the latest version of the
enterprise transition plan provides performance measures for the
enterprise and component programs, including key milestones (such
as initial operating capability), it does not include other
important information needed to understand the sequencing of these
business investments and does not address DOD's complete portfolio
of business system investments. While the department has
established and begun implementing the investment review
structures and processes that are consistent with legislation, it
has yet to fully define the related portfolio-based information
technology investment management practices.^9
Furthermore, DOD's efforts have been mainly focused on business
systems modernization. During our review, we examined key
documents, such as DOD's enterprise transition plan, business
transformation guidance, and minutes from the meetings of the
Defense Business Systems Management Committee, and our analysis
found that DOD has not yet expanded the focus beyond business
systems. In addition, DOD officials stated that the Defense
Business Systems Management Committee has mainly focused on
providing oversight for business systems investments, rather than
overall business transformation efforts, because this is what
legislation has required it to do. Similarly, DOD officials stated
that the enterprise transition plan also is focused on business
systems and does not provide enough detail about overall business
transformation. DOD officials added that the Business
Transformation Agency is also limited to focusing mainly on
business systems because its role is to support the Defense
Business Systems Management Committee, which primarily provides
oversight for business systems initiatives as specified in the
Ronald W. Reagan National Defense Authorization Act.
Additionally, DOD has not clearly defined or institutionalized
interrelationships, roles and responsibilities, or accountability
for establishing a management framework for overall business
transformation. For example, the Deputy Secretary of Defense
chairs an advisory board called the Deputy's Advisory Working
Group, which DOD officials have stated has a role in overall
business transformation. The Deputy's Advisory Working Group
started in 2006 as an ad hoc committee, co-chaired by the Deputy
Secretary of Defense and Vice Chairman of the Joint Staff, to
manage the planning process for DOD's strategic plan, the
Quadrennial Defense Review.^10 According to DOD officials, this
working group is to provide departmentwide strategic direction on
various issues that it chooses. Many of the same individuals who
sit on the Defense Business Systems Management Committee also
serve on the Deputy's Advisory Working Group. However, opinions
differ within DOD as to whether the committee or the working group
will function as the primary body responsible for overall business
transformation, and the relationship between these two entities
has not been formalized. In addition, opinions differ between the
two entities regarding the definition of DOD's key business areas,
with the Defense Business Systems Management Committee and the
Business Transformation Agency using a broader definition of
business processes than the Deputy's Advisory Working Group and
its supporting organizations. These differences hinder DOD's
ability to leverage the business systems modernization management
framework to fully address broader business transformation
efforts. Until the department institutionalizes a management
framework that encompasses all aspects of business transformation,
including establishing overall responsibility for and defining
what is included in business transformation, DOD will be unable to
integrate related initiatives into a sustainable, enterprisewide
approach and to resolve weaknesses in business operations that we
have shown are at high risk of waste, fraud, and abuse.
^9See for example, GAO, DOD Business Transformation: Lack of an Integrated
Strategy Puts the Army's Asset Visibility System Investments at Risk,
[52]GAO-07-860 (Washington, D.C.: July 27, 2007); DOD Business Systems
Modernization: Progress Continues to Be Made in Establishing Corporate
Management Controls, but Further Steps Are Needed, [53]GAO-07-733
(Washington, D.C.: May 14, 2007); Business Systems Modernization: Strategy
for Evolving DOD's Business Enterprise Architecture Offers a Conceptual
Approach, but Execution Details Are Needed, [54]GAO-07-451 (Washington,
D.C.: Apr. 16, 2007); and [55]GAO-07-310 .
^10Congress mandated that DOD conduct a review every 4 years to examine
the national defense strategy, force structure, force modernization,
infrastructure, budget plan, and other elements of the defense program and
policies of the United States with a view toward determining and
expressing the defense strategy of the United States.
Two Critical Challenges Affect DOD's Success in Maintaining and
Furthering Its Progress in Overall Business Transformation
DOD faces two critical challenges to achieving successful business
transformation. First, DOD does not have a comprehensive,
integrated, and enterprisewide plan or set of linked plans
supported by a planning process that sets a strategic direction
for overall business transformation efforts and monitors progress.
Second, DOD lacks a full-time leadership position dedicated solely
to the planning, integration, and execution of business
transformation efforts. Until the department establishes a
comprehensive, integrated planning process and establishes
full-time sustained leadership, DOD will be challenged to
integrate related initiatives into a sustainable, enterprisewide
approach and to resolve weaknesses in business operations that we
have shown are at high risk of waste, fraud, and abuse.
DOD Has Not Developed a Comprehensive, Integrated, and Enterprisewide
Plan or Set of Plans Supported by a Planning Process for Business
Transformation Efforts
DOD continues to be challenged in its business transformation
efforts because it has not developed a comprehensive, integrated,
and enterprisewide action plan or set of linked plans for business
transformation that is supported by a comprehensive planning
process. Such a plan or set of plans would help set strategic
direction for overall business transformation efforts, prioritize
initiatives and resources, and monitor progress through the
establishment of performance goals, objectives, and rewards. Our
prior work has shown that this type of plan should cover all of
DOD's key business functions; contain results-oriented goals,
measures, and expectations that link institutional, unit, and
individual performance goals and expectations to promote
accountability; and establish an effective process and related
tools for implementation and oversight.^11 Furthermore, such an
integrated business transformation plan would be instrumental in
establishing investment priorities and guiding the department's
key resource decisions.
Our analysis shows that DOD does not have an integrated plan in
place and has not fully developed a comprehensive planning
process. For example, we analyzed the enterprise transition plan
and determined that the goals and objectives in the enterprise
transition plan were not clearly linked to the goals and
objectives in the Quadrennial Defense Review, DOD's highest level
strategic plan. In addition, the enterprise transition plan is not
based on a strategic planning process. For example, it does not
provide a complete assessment of DOD's progress in overall
business transformation efforts aside from business systems
modernization. Furthermore, while the enterprise transition plan
contains goals and milestones related to business systems, the
plan does not contain results-oriented goals and measures that
assess overall business transformation. Finally, we determined
that DOD's business transformation efforts are currently guided by
multiple plans that are developed and maintained by various
offices within DOD.
^11See for example, [56]GAO-07-310 , [57]GAO-07-229T , [58]GAO-06-1006T ,
[59]GAO-05-520T , and [60]GAO-02-497T .
DOD officials acknowledged our analysis that DOD does not have an
integrated plan in place. Business Transformation Agency officials
see the enterprise transition plan as the highest level plan for
business transformation but acknowledge that it does not currently
provide an assessment of the department's overall approach to
business transformation. Business Transformation Agency officials
also acknowledged that they are challenged to work across various
offices to develop an integrated planning process and
results-oriented measures to assess overall business
transformation. These officials added that DOD is starting to
develop a family of linked plans to guide and monitor business
transformation. Specifically, DOD's March 2007 update to the
enterprise transition plan includes an approach that is intended
to align other business plans with the enterprise transition
plan,^12 establish working relationships among plan owners across
DOD's major business areas, and identify interdependencies among
their products. However, according to Business Transformation
Agency officials and others within DOD, the alignment currently
involves only ensuring data consistency across DOD's major
business plans and does not yet encompass the full integration
they envision. In addition, it is not clear from discussions with
these officials which committee or office within DOD will be
responsible for developing a family of linked plans and a
supporting comprehensive planning process.
^12The plans that DOD is looking to align with the enterprise transition
plan are the (1) Quadrennial Defense Review, DOD's strategic plan; (2)
Performance and Accountability Report that provides an overview of DOD's
financial condition and includes an assessment of annual program
performance; (3) Financial Improvement and Audit Readiness Plan that
addresses DOD's financial management high-risk area; (4) Defense
Acquisition Transformation Report to Congress that summarizes how
implementation plans are used to reform DOD's acquisition system; (5)
Supply Chain Management Improvement Plan that addresses DOD's supply chain
high-risk area; (6) Focused Logistics Joint Functional Concept and the
Focused Logistics Campaign Plan that address DOD's logistics strategy; (7)
Human Capital Strategy that addresses changes to DOD's personnel system;
and (8) Defense Installations Strategic Plan that addresses the evolution
of the strategic planning process for DOD real property and installations'
lifecycle assets.
The Defense Science Board,^13 the Defense Business Board,^14 and
the Institute for Defense Analyses^15 agree with our analysis.
These organizations have issued reports supporting DOD's need for
an integrated planning process for business transformation. In a
February 2006 report on military transformation,^16 the Defense
Science Board concluded that DOD needed, but did not have, a
multiyear business plan capable of relating resources to mission
purposes. In addition, the report said that confusion existed over
roles in identifying needs, proposing and choosing solutions,
executing programs, and overseeing performance. The Defense
Science Board concluded that an effective business plan would give
decision makers a clear understanding of the impact of resource
decisions. The Defense Business Board arrived at a similar
conclusion. In a May 2006 report on governance at DOD,^17 the
Defense Business Board reported that a challenge facing DOD's
business activities was the move from a hierarchical, functional
approach to an enterprisewide, cross-functional, horizontal
approach. The Defense Business Board recommended that DOD develop
a strategic plan that contains clear goals and supporting
objectives, including outcome-based metrics. In a December 2006
report about the need for a CMO at DOD,^18 the Institute for
Defense Analyses recommended that DOD adopt a planning structure
that would ensure that the strategic-level directions and
priorities drive day-to-day planning and execution. The Institute
for Defense Analyses said that the planning structure should
contain top-level goals, approaches, and resources and link these
goals to the required resources within the executing activities.
^13The Defense Science Board, composed of members designated from civilian
life by the Under Secretary of Defense for Acquisition, Technology, and
Logistics, advises the Secretary of Defense; the Deputy Secretary of
Defense; the Under Secretary of Defense for Acquisition, Technology, and
Logistics; and the Chairman of the Joint Chiefs of Staff on scientific,
technical, manufacturing, acquisition process, and other matters of
special interest to DOD.
^14The Defense Business Board provides the Secretary of Defense, through
the Deputy Secretary of Defense, independent advice and recommendations on
effective strategies for the implementation of best business practices of
interest to DOD.
^15The Institute for Defense Analyses is a nonprofit corporation that
administers three federally funded research and development centers to
provide objective analyses of national security issues, particularly those
requiring scientific and technical expertise, and conduct related research
on other national challenges.
^16Defense Science Board, Defense Science Board Summer Study On
Transformation: A Progress Assessment Volume I (Washington, D.C.: February
2006).
^17Defense Business Board, Governance-Alignment and Configuration of
Business Activities Task Group Report (Washington, D.C.: May 31, 2006).
^18Institute for Defense Analyses, Does DOD Need a Chief Management
Officer? (Alexandria, Va.: December 2006).
DOD Has Not Established a Full-time Leadership Position at the
Right Level Dedicated Solely to Business Transformation Efforts
DOD continues to lack sustained leadership focused solely on
business transformation. We have reported that as DOD and other
agencies embark on large-scale organizational change initiatives,
similar to defense business transformation, there is a compelling
need to, among other things, (1) elevate attention on management
issues and transformational change efforts, (2) integrate various
key management and transformation efforts into a coherent and
enterprisewide approach, and (3) institutionalize accountability
for addressing transformation needs and leading change. Without
such leadership, DOD is at risk of not being able to sustain and
ensure the success of its overall business transformation efforts,
and its progress is at risk of being another in a long line of
unsuccessful management reform initiatives.^19
The Deputy Secretary of Defense has elevated the attention paid to
business transformation efforts, and he and other senior leaders
have clearly shown a commitment to business transformation and to
addressing deficiencies in the department's business operations.
For example, the Deputy Secretary has been actively engaged in
monthly meetings of both the Defense Business Systems Management
Committee and the Deputy's Advisory Working Group, and directed
the creation of the Business Transformation Agency to support the
Defense Business Systems Management Committee. However, these
organizations do not provide the sustained leadership needed to
successfully achieve overall business transformation. The Defense
Business Systems Management Committee's representatives consist of
political appointees whose terms expire when administrations
change and the roles of the Deputy's Advisory Working Group have
not been institutionalized in DOD directives or charters. Without
this, the committee's very existence and role could change within
or between administrations.
A broad-based consensus exists among GAO and others that the
status quo is unacceptable and that DOD needs a CMO to provide
leadership over business transformation efforts, although there
are different views concerning the characteristics of a CMO, such
as whether the position should be codified in statute, established
as a separate position from the Deputy Secretary of Defense,
designated as Executive Level II or Level III, subject to a term
appointment, or supported by a deputy CMO. As required by
Congress, DOD commissioned studies of the feasibility and
advisability of establishing a deputy secretary of defense for
management to oversee the department's business transformation
process. As part of this effort, the Defense Business Board, an
advisory panel, examined various options and, in May 2006,
endorsed the CMO concept. Furthermore, in December 2006, the
Institute for Defense Analyses issued a study that reported on
various options for the creation of a CMO position and recommended
that a CMO is needed at DOD. In response to the Institute for
Defense Analyses report, DOD submitted a letter to Congress in May
2007 outlining the department's position on a CMO at DOD. However,
this position does not adequately address the key leadership
challenge that we discuss in this report--that is, the lack of a
senior leader, at the right level, with appropriate authority, to
focus full time on overall business transformation. In summary,
DOD is proposing to Congress that the role of a CMO be assigned to
the Deputy Secretary of Defense. While the Deputy Secretary may be
at the right level, with the appropriate authority and
responsibility to transform business operations, we have testified
that the demands placed on him and other senior leaders make it
difficult for them to maintain the oversight, focus, and momentum
needed to resolve business operational weaknesses, including the
high-risk areas. Finally, DOD does not agree with codifying the
CMO role in legislation, stating that doing so would restrict the
flexibility of future Presidents and Secretaries of Defense to
build an integrated management team. DOD would rather leave the
assignment of the CMO role to the discretion of the Secretary of
Defense, and DOD plans to formalize the Deputy Secretary's CMO and
business transformation duties in a DOD directive.
^19For a discussion of DOD's prior management initiatives, see GAO,
Defense Management: Additional Actions Needed to Enhance DOD's Risk-Based
Approach for Making Resource Decisions, [61]GAO-06-13 (Washington, D.C.:
Nov. 15, 2005), and Highlights of a GAO Roundtable: The Chief Operating
Officer Concept: A Potential Strategy to Address Federal Governance
Challenges, [62]GAO-03-192SP (Washington, D.C.: Oct. 4, 2002).
Because of the complexity and long-term nature of business
transformation, we have long advocated the establishment of a CMO
position at DOD with significant authority and experience and a
term that would provide sustained leadership and the time to
integrate the department's overall business transformation
efforts. Major transformation initiatives often take at least 5 to
7 years in large private and public sector organizations.
Codifying a separate, full-time CMO position in statute would
ensure continuity and help to create unambiguous expectations and
underscore congressional desire to follow a professional,
nonpartisan, sustainable, and institutional approach to this
position. Without formally designating responsibility and
accountability for results, reconciling competing priorities among
various organizations and prioritizing investments will be
difficult and could impede the department's progress in addressing
deficiencies in key business areas. A full-time and separate CMO
position could devote the necessary time and effort to further and
sustain DOD's progress and would be accountable for planning,
integrating, and executing the department's overall business
transformation efforts. Further, we believe that the CMO should be
at Executive Level II and report directly to the Secretary of
Defense so that the position has the stature needed to
successfully address integration challenges, address DOD's
high-risk areas with a strategic and systematic approach, and
prioritize investments across the department. By subsuming the CMO
duties within the Deputy Secretary of Defense position as DOD
advocates, the CMO would be at level II, but not subject to a term
or able to focus full-time attention on business transformation.
Finally, we advocate an extended term appointment for the CMO of
at least 5 to 7 years so that the position could span
administrations to sustain business transformation when key
personnel changes occur.
Conclusions
DOD's efforts at business transformation consist of various
entities whose interrelationships are not clearly articulated and
numerous plans that are not integrated across the department.
Currently, there is no single individual, office, or integrated
plan within DOD to provide a complete and focused assessment of
the department's business transformation efforts. DOD continues to
face formidable challenges, both externally with its ongoing
military operations and internally with the long-standing problems
of fraud, waste, and abuse. Pervasive, decades-old management
problems related to its business operations affect all of DOD's
major business areas. While DOD has taken positive steps to
address these problems, our previous work has shown a persistent
pattern of limited scope of focus and a lack of integrated
planning and sustained leadership. In this time of growing fiscal
constraints, every dollar that DOD can save through improved
economy and efficiency of its operations is important to the
well-being of our nation and the legitimate needs of the
warfighter. DOD can no longer afford to address business
transformation as it has in the past. Unless DOD elevates and
integrates its efforts, billions of dollars will continue to be
wasted every year. Furthermore, without strong and sustained
leadership, both within and across administrations, DOD will
likely continue to have difficulties in maintaining the oversight,
focus, and momentum needed to implement and sustain the needed
reforms to its business operations. In this regard, we continue to
believe that a CMO whose sole focus is to integrate and oversee
the overall transformation of the department's business operations
remains key to DOD's success.
Recommendations for Executive Action
To ensure successful and sustained business transformation at DOD,
we recommend that the Secretary of Defense take the following two
actions:
o Institutionalize in directives the roles, responsibilities, and
relationships among various business-related entities and
committees, such as the Defense Business Systems Management
Committee, investment review boards, the Business Transformation
Agency, and the Deputy's Advisory Working Group, and expand the
management framework to capture overall business transformation
efforts, rather than limit efforts to modernizing business
systems.
o Develop a comprehensive strategic planning process for business
transformation that results in a comprehensive, integrated, and
enterprisewide plan or set of interconnected functional plans that
covers all key business areas and provides a clear strategic
direction, prioritizes initiatives, and monitors progress across
the department.
Matter for Congressional Consideration
Given DOD's view that the Deputy Secretary of Defense should be
assigned CMO duties, Congress should consider enacting legislation
to establish a separate, full-time position at DOD with the
significant authority and experience and a sufficient term to
provide focused and sustained leadership and momentum over
business transformation efforts.
Agency Comments and Our Evaluation
In written comments on a draft of this report, DOD generally
concurred with our recommendations that the department
institutionalize a management framework and develop a
comprehensive strategic planning process for business
transformation, and disagreed with our matter for congressional
consideration that Congress enact legislation to establish a
separate, full-time CMO position. The department's comments are
reprinted in appendix II. In its overall comments, DOD expressed
concern about what it characterized as GAO's belief that the
department placed improper emphasis on business systems
modernization to the detriment of overall business transformation
efforts. In particular, DOD stated that business systems
modernization is a critical step in achieving overall business
transformation, and that lessons learned and governance structures
developed for modernizing business systems acquisition processes
are being evaluated for implementation beyond the business side.
It further stated that the Deputy's Advisory Working Group and the
Defense Business Systems Modernization Committee both focus more
broadly on defense business transformation. DOD also believed we
had overstated the nature of "broad-based consensus" between GAO,
the Institute for Defense Analyses, and the Defense Business Board
about the need for a CMO in DOD, noting that the Institute for
Defense Analyses had examined four alternate methods for
institutionalizing the roles of the CMO and ultimately supported
the department's position that those duties be vested in the
Deputy Secretary of Defense.
We disagree with DOD's characterization of our report with respect
to the emphasis of the department's efforts and the nature of the
broad-based consensus on the need for a CMO. The report
specifically gives DOD credit for progress to date on setting up
an overall framework for broader business transformation, and in
no way suggests that any specific steps taken regarding
modernizing business systems are detrimental to this progress.
Rather, we note that the framework, as currently structured and
implemented, focuses on business systems, is a foundation to build
upon, and needs to be expanded to more fully address broader
transformation issues. The report also recognizes the
establishment of the Deputy's Advisory Working Group and the
Defense Business Systems Modernization Committee. While DOD
suggests these two groups focus more broadly on business
transformation, our work shows that DOD has not clearly defined or
institutionalized interrelationships, roles and responsibilities,
or accountability for broader business transformation among these
entities. Also, differences of opinion exist within DOD about the
roles and scope of the various entities. Further, contrary to
DOD's view, we did not overstate the nature of the "broad-based
consensus" regarding the need for a CMO. In fact, the Defense
Business Board, Institute for Defense Analyses, and the department
are on record in their support for establishing a CMO at DOD.
Specifically, the board endorsed the CMO concept in a study
completed in May 2006, the Institute for Defense Analyses
identified the need for a CMO in its study completed in December
2006, and DOD, in a May 2007 letter, informed Congress of its view
that the Deputy Secretary of Defense should assume CMO
responsibilities. The Institute for Defense Analyses also
recommended that Congress establish a new deputy CMO position with
an Executive Level III term appointment of 7 years to provide
full-time support to the Deputy Secretary in connection with
business transformation issues. We believe these actions
demonstrate a broad-based consensus regarding the need for a CMO
and, therefore, that the status quo is unacceptable.
Notwithstanding these positions, we also recognize, as stated in
the report, that there are different views concerning the
characteristics of a CMO, such as whether the position should be
codified in statute, established as a separate position from the
Deputy Secretary, designated as Executive Level II or Level III,
or subject to a term appointment. As stated in this report and
numerous testimonies, we believe the CMO position should be
codified in statute as a separate and full-time position,
designated as Executive Level II, and subject to an extended term
appointment.
In addition to its overall comments, DOD provided detailed
comments on our two recommendations. Specifically, DOD concurred
with our first recommendation that the department institutionalize
in directives the roles, responsibilities, and relationships among
various business-related entities and committees and expand the
management framework beyond business systems modernization to
capture overall business transformation efforts. In fact, DOD
stated explicitly in its comments that the department is a strong
advocate for institutionalizing, in its DOD Directives System, the
functions, responsibilities, authorities, and relationships of its
principal officials and the management processes they oversee. DOD
added that the Deputy Secretary of Defense has issued a
directive-type memorandum on the management of the Deputy's
Advisory Working Group and that a draft DOD directive has been
prepared to define the functions of the Defense Business Systems
Management Committee and elaborate its relationships with the
Defense Business Transformation Agency and other key
business-related entities in the department. We recognize that
directives and memorandums, in some cases, do exist, and that DOD
plans to finalize additional directives, particularly for the
Defense Business Systems Management Committee. As noted in our
report, during the course of our review, we found that DOD has not
clearly defined or institutionalized interrelationships, roles and
responsibilities, or accountability for establishing a management
framework for overall business transformation, and that
differences of opinion exist within the department regarding which
of the various senior leadership committees will function as the
primary body responsible for overall business transformation.
Therefore, we encourage DOD to ensure that its efforts to
institutionalize its management framework for business
transformation in directives specifically address these matters,
and once directives are finalized, to take steps to clearly
communicate the framework and reinforce its implementation
throughout the department.
Further, DOD partially concurred with our second recommendation
that the Secretary of Defense develop a comprehensive strategic
planning process for business transformation that results in a
comprehensive, integrated, and enterprisewide plan or set of
plans. Specifically, DOD stated that it has already begun to
expand the scope of the enterprise transition plan to become a
more robust enterprisewide planning document and to evolve this
plan into the centerpiece strategic document for transformation.
DOD added that as the enterprise transition plan evolves, it will
continue to improve in aligning strategy with outcomes,
identifying business capability gaps, prioritizing future needs,
and developing metrics to measure achievement. DOD also stated
that it will continue to evolve its family of plans to address our
recommendation. While DOD's proposed actions to address both of
our recommendations appear to be positive steps, the key to their
success will be in the details of their implementation. Moreover,
we continue to believe that these efforts alone will not be
sufficient to bring about the desired transformation. More
specifically, efforts to institutionalize and broaden the scope of
a management framework and develop a comprehensive strategic
planning process for business transformation will not be
successful without a CMO to guide and sustain these efforts.
However, DOD disagreed with our matter for congressional
consideration that Congress consider enacting legislation to
establish a separate, full-time CMO position at DOD to provide
focused and sustained leadership and momentum over business
transformation efforts, stating that no official below the
Secretary of Defense, except the Deputy Secretary, has the rank
and perspective to provide the strategic leadership and
authoritative decision making necessary to ensure implementation
of departmentwide business activities. DOD stated that the Deputy
Secretary of Defense is to be designated as the CMO and that an
internal directive is being revised to that effect. DOD also
stated its belief that the continuity of business transformation
is best ensured by institutionalized processes and organizations,
the knowledge and perspective of DOD's career workforce, clear and
mutually agreed to economy and efficiency goals, and the due
diligence of future administrations and Members of Congress to
nominate and confirm highly qualified executives to serve at DOD.
Further, DOD stated that the establishment of an additional
official at the under secretary level to lead business
transformation would generate dysfunctional competition among the
five other Under Secretaries by creating confusion and redundancy
in their roles and responsibilities. DOD added that the Deputy
Secretary of Defense as the CMO has sufficient officials available
to assist in managing the department and the authority necessary
to refine the department's management structure to continue
business management reform and integrate business transformation
activities with the operational work of the department.
Because of the complexity and long-term nature of business
transformation, we have consistently reported and testified that
DOD needs a CMO with significant authority and experience, a term
that would provide sustained leadership, and the time to integrate
overall business transformation efforts. In our view, DOD's plan
to subsume the CMO duties within the Deputy Secretary of Defense
position and to establish this action by directive would place the
responsibilities at the appropriate level--Executive Level II--but
would result in a position not subject to a term or able to focus
full-time attention on business transformation. Transformation is
a long-term process, especially for large and complex
organizations such as DOD. Therefore, a term of at least 5 to 7
years is recommended to provide sustained leadership and
accountability. To ensure continuity, it should become a permanent
position, with the specific duties authorized in statute. As
stated in our report, we believe codifying a separate, full-time
CMO position in statute would also help to create unambiguous
expectations and underscore congressional desire to follow a
professional, nonpartisan, sustainable, and institutional approach
to this position.
We recognize that the Deputy Secretary of Defense has officials
and institutional structures available to support the
transformation process; however, transformation cannot be achieved
through a committee approach. Ultimately, a person at the right
level, with the right type of experience, in a full-time position
with a term appointment, and with the proper amount of
responsibility, authority, and accountability is needed to lead
the effort. Contrary to DOD's view, we believe the establishment
of a separate CMO position would bring leadership, accountability,
focus, and direction to the department's efforts rather than
creating dysfunctional competition and causing confusion. The CMO
would not assume the responsibilities of the Under Secretaries of
Defense or any other officials. Rather, the CMO would be
responsible and accountable for planning, integrating, and
executing the department's overall business transformation effort,
and would be able to give full-time attention to business
transformation. As such, the CMO would be a key ally to other
officials in the department in dealing with the business
transformation process. Without formally designating
responsibility and accountability for results, reconciling
competing priorities among various organizations and prioritizing
investments will be difficult and could impede progress in
addressing deficiencies in key business areas. We believe DOD's
position essentially represents the status quo, and that in the
interest of the department and American taxpayers, the department
needs a CMO to help transform its key business operations and
avoid billions of dollars in waste each year.
We are encouraged that this matter is now before Congress as it
prepares to deliberate on pending legislation that calls for
statutorily establishing a CMO for DOD. In particular, we believe
any resulting legislation should include some important
characteristics for the CMO position. Specifically, a CMO at DOD
should be codified in statute as a separate and full-time position
that is designated as an Executive Level II appointment and
reports directly to the Secretary of Defense so that the
individual in this position has the stature needed to successfully
address integration challenges, adjudicate disputes, and monitor
progress on overall business transformation across defense
organizations. In addition, the position should be subject to an
extended term appointment such that the CMO would span
administrations to sustain transformation efforts when key
personnel changes occur. Transformation is a long-term process,
especially for large and complex organizations such as DOD.
Therefore, a term of at least 5 to 7 years is recommended to
provide sustained leadership and accountability. In addition, we
would recommend a requirement for advance notification should the
Secretary decide to remove an individual from the CMO position.
We are sending copies of this report to interested congressional
committees and the Secretary of Defense. We will also make copies
available to others upon request. This report is also available at
no charge on GAO's Web site at http://www.gao.gov.
If you or your staff have any questions regarding this report,
please contact me at (202) 512-9619 or [29][email protected] .
Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report. Other
staff members who made key contributions to this report are listed
in appendix III.
Sharon L. Pickup
Director, Defense Capabilities and Management
List of Committees
The Honorable Daniel K. Inouye
Chairman
The Honorable Ted Stevens
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Carl Levin
Chairman
The Honorable John S. McCain
Ranking Member
Committee on Armed Services
United States Senate
The Honorable Joseph I. Lieberman
Chairman
The Honorable Susan M. Collins
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Daniel K. Akaka
Chairman
The Honorable George V. Voinovich
Ranking Member
Subcommittee on Government Management, the Federal Workforce,
and the District of Columbia
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable John P. Murtha
Chairma
The Honorable C.W. Bill Young
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives
The Honorable Ike Skelton
Chairman
The Honorable Duncan L. Hunter
Ranking Member
Committee on Armed Services
House of Representatives
Appendix I: Scope and Methodology
To assess the progress the Department of Defense (DOD) has made in
setting up a management framework for business transformation, we
reviewed and analyzed relevant documents and current literature
about the department's business transformation and interviewed key
DOD senior leaders and defense experts. Documents that we used for
our review included, but were not limited to, (1) GAO reports
related to DOD's high-risk areas, including business systems
modernization, development of the business enterprise
architecture, and organizational transformation; (2) DOD products,
including the 2006 Quadrennial Defense Review and updates to DOD's
enterprise transition plan; (3) DOD's annual reports on business
transformation to Congress (and biannual updates); (4) DOD
testimony to Congress on the status of business transformation;
and (5) meeting minutes and briefing documents, such as those from
the Defense Business Systems Management Committee, the Deputy's
Advisory Working Group, and the Defense Business Board, related to
DOD's business transformation, governance, and management reforms.
We obtained testimonial evidence from officials representing the
Business Transformation Agency, offices within the Office of the
Secretary of Defense (including the Program Analysis and
Evaluation Directorate; Office of the Director, Administration and
Management; and the Office of Business Transformation), the Joint
Staff, the military departments, and defense experts.
To assess the challenges DOD faces in maintaining and ensuring
success in its overall business transformation efforts, we
compared DOD's efforts to key practices we found to be
consistently at the center of successful organizational mergers
and transformations, specifically, establishing a coherent mission
and integrated strategic goals to guide the transformation and
ensuring that top leadership drives the transformation.^1 We also
reviewed relevant plans and related documents to assess
integration among DOD's various business-related plans. These
plans included DOD's Quadrennial Defense Review, Performance and
Accountability Report, Financial Improvement and Audit Readiness
Plan, Defense Acquisition Transformation Report to Congress,
Supply Chain Management Improvement Plan, Focused Logistics Joint
Functional Concept and the Focused Logistics Campaign Plan, Human
Capital Strategy, and the Defense Installations Strategic Plan. In
addition, we reviewed proposals for a chief management officer
(CMO) at the department and obtained testimonial evidence from key
DOD officials and defense experts. As part of this effort, we
considered comments raised by several public and private sector
officials during a forum sponsored by the Comptroller General in
April 2007. The purpose of this forum was to discuss the merits of
a CMO or chief operating officer concept. We also analyzed
congressionally mandated CMO reports prepared by the Defense
Business Board and the Institute for Defense Analyses and reviewed
DOD's response to the study prepared by the Institute for Defense
Analyses.
^1GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers
and Organizational Transformations, [63]GAO-03-669 (Washington, D.C.: July
2, 2003).
We conducted our work from September 2006 through July 2007 in
accordance with generally accepted government auditing standards.
Appendix II: Comments from the Department of Defense
Appendix III: GAO Contact and Staff Acknowledgments
GAO Contact
Sharon Pickup, (202) 512-9619 or [30][email protected]
Acknowledgments
In addition to the contact named above, David Moser, Assistant
Director; Thomas Beall; Renee Brown; Donna Byers; Grace Coleman;
Gina Flacco; Barbara Lancaster; Julia Matta; and Suzanne Perkins
made key contributions to this report.
Related GAO Products
DOD Business Systems Modernization: Progress Continues to Be Made
in Establishing Corporate Management Controls, but Further Steps
Are Needed. [31]GAO-07-733 . Washington, D.C.: May 14, 2007.
Business Systems Modernization: DOD Needs to Fully Define Policies
and Procedures for Institutionally Managing Investments.
[32]GAO-07-538 . Washington, D.C.: May 11, 2007.
DOD Transformation Challenges and Opportunities. [33]GAO-07-500CG
. Washington, D.C.: February 12, 2007.
Business Systems Modernization: Strategy for Evolving DOD's
Business Enterprise Architecture Offers a Conceptual Approach, but
Execution Details Are Needed. [34]GAO-07-451 . Washington, D.C.:
April 16, 2007.
High-Risk Series: An Update. [35]GAO-07-310 . Washington, D.C.:
January 2007.
Defense Business Transformation: A Comprehensive Plan, Integrated
Efforts, and Sustained Leadership Are Needed to Assure Success.
[36]GAO-07-229T . Washington, D.C.: November 16, 2006.
Department of Defense: Sustained Leadership Is Critical to
Effective Financial and Business Management Transformation.
[37]GAO-06-1006T . Washington, D.C.: August 3, 2006.
Business Systems Modernization: DOD Continues to Improve
Institutional Approach, but Further Steps Needed. [38]GAO-06-658 .
Washington, D.C.: May 15, 2006.
GAO'S High-Risk Program. [39]GAO-06-497T . Washington, D.C.: March
15, 2006.
Defense Management: Additional Actions Needed to Enhance DOD's
Risk-Based Approach for Making Resource Decisions. [40]GAO-06-13 .
Washington, D.C.: November 15, 2005.
Defense Management: Foundational Steps Being Taken to Manage DOD
Business Systems Modernization, but Much Remains to be
Accomplished to Effect True Business Transformation.
[41]GAO-06-234T . Washington, D.C.: November 9, 2005.
21^st Century Challenges: Transforming Government to Meet Current
and Emerging Challenges. [42]GAO-05-830T . Washington, D.C.: July
13, 2005.
DOD Business Transformation: Sustained Leadership Needed to
Address Long-standing Financial and Business Management Problems.
[43]GAO-05-723T . Washington, D.C.: June 8, 2005.
Defense Management: Key Elements Needed to Successfully Transform
DOD Business Operations. [44]GAO-05-629T . Washington, D.C.: April
28, 2005.
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[64]www.gao.gov/cgi-bin/getrpt?GAO-07-1072 .
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Highlights of [65]GAO-07-1072 , a report to congressional committees
September 2007
DEFENSE BUSINESS TRANSFORMATION
Achieving Success Requires a Chief Management Officer to Provide Focus and
Sustained Leadership
[66]transparent illustrator graphic
In 2005, GAO added the Department of Defense's (DOD) approach to business
transformation to its high-risk list because (1) DOD's improvement efforts
were fragmented, (2) DOD lacked an integrated and enterprisewide business
transformation plan, and (3) DOD had not designated a senior official at
the right level with the right authority to be responsible for overall
business transformation efforts. This report assesses (1) the progress DOD
has made in setting up a management framework for overall business
transformation efforts and (2) the challenges DOD faces in maintaining and
ensuring the success of those efforts. GAO conducted this work under the
Comptroller General's authority to conduct evaluations under his own
initiative. In conducting its work, GAO compared DOD's actions to key
practices of successful transformations.
[67]What GAO Recommends
GAO recommends that DOD (1) institutionalize an expanded management
framework and (2) develop a planning process that results in an integrated
and enterprisewide plan or set of plans. Congress should consider enacting
legislation to establish a chief management officer (CMO) at DOD. DOD
generally agreed with GAO's recommendations, but did not agree with the
matter for Congress. GAO continues to believe that DOD needs a CMO,
established in statute, to provide focus and sustained leadership.
Although DOD has made progress toward establishing a management framework
for overall business transformation, the framework currently focuses on
business systems modernization and does not fully address broader business
transformation efforts. In 2005, DOD set up the Defense Business Systems
Management Committee to review and approve the business enterprise
architecture--a transformation blueprint--and new business systems
modernization investments. It also established the Business Transformation
Agency, which currently reports to the Vice Chair of the Defense Business
Systems Management Committee, to coordinate and lead business
transformation across the department. Despite these steps, DOD has not
clearly defined or institutionalized interrelationships, roles and
responsibilities, or accountability for establishing a management
framework for overall business transformation. For example, differences of
opinion exist within DOD about the roles of various senior leadership
committees. Until DOD's business transformation management framework is
institutionalized and encompasses broad responsibilities for all aspects
of business transformation, it will be challenging for DOD to integrate
related initiatives into a sustainable, enterprisewide approach to
successfully resolve weaknesses in business operations that GAO has shown
are at high risk of waste, fraud, and abuse.
DOD also must overcome two critical challenges, among several others, if
it is to maintain and ensure success. Specifically, DOD does not have (1)
a comprehensive, integrated, and enterprisewide plan or set of linked
plans, supported by a planning process that sets a strategic direction for
overall business transformation efforts, prioritizes initiatives and
resources, and monitors progress, and (2) a full-time leadership position
at the right level dedicated solely to the planning, integration, and
execution of overall business transformation efforts. A broad-based
consensus exists among GAO and others, including the Institute for Defense
Analyses and the Defense Business Board, that the status quo is
unacceptable and that DOD needs a CMO to provide leadership over business
transformation efforts. In a May 2007 letter to Congress, however, DOD
stated its view that a separate position is not needed as the Deputy
Secretary of Defense can fulfill the CMO role. Although the Deputy
Secretary may be at the right level with appropriate authority to
transform business operations, the demands placed on this position make it
difficult for the Deputy Secretary to focus solely on business
transformation--nor does the position have the necessary term of
appointment to sustain progress across administrations. Further, DOD plans
to leave the assignment of the CMO role to the discretion of the Secretary
of Defense. In GAO's view, codifying the CMO position in statute as a
separate, full-time position at the right level with an extended term is
necessary to provide sustained leadership, further DOD's progress, and
address challenges the department continues to face in its business
transformation efforts.
References
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