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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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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(350902)

[64]www.gao.gov/cgi-bin/getrpt?GAO-07-1072 .

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact Sharon Pickup at (202) 512-9619 or
[email protected].

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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