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Remarks on Performance Management at the Professional Services Council Luncheon

As Delivered by Deputy Secretary of Defense William J. Lynn, III, Crystal City Hilton, Arlington, VA, Tuesday, March 30, 2010

Thanks very much, Stan. Pleasure to be with you again. 

I understand Ash Carter was here a couple weeks ago. He's really a tremendous addition to the Department's leadership. I'm glad he shared with you what we're doing on acquisition reform. He also told me he answered all the hard questions. So that's going to make the Q&A part a little easier.

I want to thank Stan for the invitation to speak. The PSC is one of the Department's most important partners. I certainly hope we can continue to work together. I know we're not always going to agree, but even when we don't agree, it's important to keep the lines of communication open. 

Our dialogue helps improve our workforce, both our private sector contracting workforce as well as our government sector. So I really hope you will continue to work with us to get the right solutions.

 As you know, the Department confronts some real challenges. We're engaged in two conflicts. We face a strategic environment in which the nature of war is changing. And we face significant fiscal challenges.

In his State of the Union address, President Obama announced a spending freeze in all the domestic agencies. But at the same time, the President made a strategic choice to continue funding real budget growth in the national security agencies. At a time when we're fighting two wars and facing new threats across the globe, the President believes that the budget increases that he proposes are needed to protect our national security. But even with those budget increases, even as we maintain real growth in the budget, many of the costs embedded in the budget are growing faster than inflation -- indeed, faster than the budget itself. Health-care, wages and benefits, and the costs of some of our most advanced weapons systems are likely to grow faster than the overall budget.

That presents a dilemma. Either the Department as a whole can become more efficient or we'll be forced to reduce programs and thereby reduce capabilities. 

Given this fiscal dilemma, our challenge as managers is to seek efficiency where we can while still meeting our mission goals. So we're looking to make a series of lasting reforms that will yield cost-savings, while at the same time, maintain performance year after year. 

One of the greatest potential ways we can make efficiency gains is through improving our business backbone, the set of administrative and IT systems that handle the Department's operations. This is a key part of our reform agenda. Our business backbone helps support almost every activity in the Department, from contingency contracting in Afghanistan to providing health care to our troops and their families here at home. 

Making our business backbone more efficient can directly benefit both the warfighter with better performance and the taxpayer with lower costs. But actually achieving these greater levels of efficiencies is extremely difficult.

The Department's size and complexity poses the biggest challenge. By almost any measure, we are one of the largest enterprises in the world. We have a budget larger than most sovereign countries. Our workforce is more than 3 million people, spread across thousands of facilities. We operate one of the nation's largest health-care systems, one of the nation's largest education systems. And we even have our own canal system.

The sheer scale of our operations makes driving change a daunting challenge. The nature of our mission is also an impediment to achieving pure efficiency in the Department. We exist to deter aggression and where that fails to fight and win the nation's wars. So an overriding imperative on mission effectiveness acts as a conservative influence on business efficiency. Transformation, even if it yields tremendous benefits over the long-term, may entail risks that are unacceptable in the short-term.

Operational lapses in our world are life and death matters. We, therefore, seek out more robustness and more redundancy than might be justified by a pure business analysis.

Finally, the Department is also highly regulated, both by law and policy. Regulation is necessary to ensure consistency across the force. It's needed to ensure taxpayer dollars are spent wisely and efficiently. But regulation has a downside. It limits the scope and the pace of change. As a result of regulatory and legal considerations, we are often limited in our management ability and what kinds of efficiencies we might be able to achieve.

But despite these constraints, we're able to achieve business efficiencies through three means, three primary avenues -- a strong emphasis on training; properly structuring the workforce; and a top-down focus on management oversight.

The first and most decentralized way we achieve large-scale efficiencies is to train our workforce in performance management. Lean Six Sigma is one of the tools the Department uses to achieve efficiencies among and between its processes.

Now this method has limits and works best when outcomes can be measured quantitatively. But within those limits, all three military departments and the Office of the Secretary of Defense have embraced Lean Six Sigma as a frontline approach to performance management.

Within DOD, we set and achieved the goal of training 5 percent of the workforce to the green belt level and 1 percent of the workforce to the black belt level of Six Sigma. We now have 26,000 Six Sigma practitioners in the Department. More of our workforce is learning to think of performance in terms of systematic process improvements and the applications of metrics to measure and achieve those performance goals.

Recent personnel who were trained in the Six Sigma method made major performance enhancements in our submarine maintenance and repair operations. The submarine maintenance and repair facility at Pearl Harbor was incurring significant overtime that resulted in costs that exceeded their payroll plan. We deployed a process management team that systematically mapped the facility's processes to identify where improvements might occur.

The result was an improvement in terms of job completion from 94 percent to 98 percent, while at the same point in time decreasing costs by 33 percent and overtime by 49 percent. It's this kind of performance improvement that we need to catalyze throughout the workforce.

Ensuring our workforce is composed of the right set of skills and is the right size for the task is the second way we can achieve efficiencies. As you are well aware, we are currently evaluating the appropriate balance of civil servants and private contractors in our workforce. The trend towards contract support over the past two decades has yielded many important gains. But we believe we've over-steered in several areas.

In the past few years, the private contractor workforce has surged to about 39 percent of our overall workforce. Over the next five years, our goal is to reduce it back to the steady state level before 2001 of about 26 percent.

Now, several factors drive us in this direction. Cost-effectiveness is one of the most important, but other criteria matter as well, including the extent to which contracting introduces operational risk or contributes to the de-skilling of the federal workforce. Some types of activities are best performed by employees with direct responsibility for the public interest. 

The Department is in the process of establishing 33,000 positions in various DOD components. We are making progress towards securing the authorization and funding for these positions and we are on track to actually fill them on the timeline we laid out.

Although we've established department-wide objectives, we recognize that many in-sourcing decisions are best made at the local level. It is also important that decisions be well reasoned and minimize disruption for all involved. 

Exercising oversight of DOD operations is perhaps the most direct way to improve efficiency. By management oversight I mean assessing the current performance of our operations, setting performance goals, and rigorously measuring results over time. 

The Department's broader business approach is articulated by the strategic management plan. The 2009 plan identifies five over-arching business priorities: support the all-volunteer force; support contingency business operations; reform the DOD acquisition process; enhance the civilian workforce; and strengthen DOD financial management. 

These goals together with those enumerated in the QDR are the blueprint that the Department will use to manage its operations. The resulting priorities are intended to engage all levels of the organization from the executives who define strategy to process and functional owners who translate strategy into policy and to the line managers responsible for operational execution.

The Department tracks our highest priority performance targets through the Defense Business Systems Management Committee, the DBSMC. As the Department's Chief Management Officer, I chair that committee. It brings together the Department's top managers, the Undersecretaries of all the military departments, Ash Carter, AT&L, Cliff Stanley from personnel, the Comptroller, the Director of CAPE, with the new position of the Deputy Chief Management Officer acting as the executive secretary.

By reviewing individual and aggregated performance measures quarterly, it ensures our top managers keep a close eye on operational metrics. To help carry forward a Department-wide performance agenda, each of the Undersecretaries of the military departments serve as their respective organization's chief management officers.

Working together, these management officers report performance data up from their components to the business committee, as well as to help implement top-down management reforms. Linking these CMOs to the business committee is meant to move the Department's focus from improving business operations within organizations to improving them across organizations. IT, acquisition, and management of human resources are increasingly part of a larger interoperable systems that have an enterprise-level focus. 

Meeting core department goals often means making these systems work in concert. Monitoring their performance falls to the Chief Management Officer and the DBSMC. 

If I could, let me illustrate how this management system works by picking three examples from our strategic management plan. The three I want to focus on are support of contingency operations, acquisition reform, and enhancing the civilian workforce. 

With troops deployed in two theaters, supporting contingency operations is perhaps our most urgent strategic management priority. The goal of supporting contingency operations is straightforward: getting the right equipment to the right place at the right time. But when people are deployed in hundreds of places, thousands of miles apart, spread across hundreds of forward operating bases in mountain valleys and in desert plains, the logistics quickly become complicated. And in Afghanistan, everything is logistics.

One of our major efforts is moving to Afghanistan materiel and supplies that are no longer needed in Iraq. As we wind down in Iraq, MRAPs are among the most important military items we ship from one area of operations to another. CENTCOM has set aggressive timelines for moving MRAPs from Iraq to Afghanistan. It's a command priority and it's a personnel priority of the Secretary.

So from Washington, a team of performance management experts helped achieve the required throughput of vehicles. Before being shipped from Iraq, MRAPs are retooled to support mission profiles for Afghanistan. The joint program office was initially unable to refurbish MRAPs fast enough. But by improving the requirements generation process, stabilizing the production capacity, and ensuring the facility is optimally resourced, our performance management experts helped meet mission needs. Better performance management made the difference. 

Taking cash off the battlefield is another way we're improving contingency operations and financial management. Over the past nine years, the Department has introduced billions of dollars of hard currency into Iraq and Afghanistan. The cash was used to pay for battlefield purchases, make amends for damaged private property, reward local assistance, or simply to act as the currency of choice at U.S. military bases. And cash at first helped achieve rapid effects. Over the long-term, however, a cash system heightens opportunities for fraud. It exposes soldiers to the risks associated with transporting large amounts of cash. And it increases the supply of hard currency flowing outside controls of the international banking system. Cash in short is too easy to steal and too hard to audit.

Multiple organizations throughout the Department are working to reduce their reliance on cash. We have expanded banking and electronic funds transfer capabilities within the theater. And on forward operating bases, we've introduced the Army's Eagle cash card which is essentially a debit card that soldiers use to purchase items at exchanges and concessionaires.

As a result, cash disbursements in theaters are now down by over 50 percent. These efforts have helped regularize war zone transactions, illustrating the strong relationship between business management and mission success. 

Finally, achieving acquisition reform is also a strategic management priority. And within acquisition reform, improving the development and fielding of IT systems is a major cross-cutting goal. IT systems are essential to most of our business operations. Improving their performance can yield efficiencies across the enterprise. 

The Department is making an annual investment of over $1 billion to modernize our major business IT systems. But the current approach for developing IT takes too long, costs too much, and doesn't deliver the performance improvements that we need. 

On average, it takes 81 months in the DOD from when an IT program is first funded to when it becomes operational. By comparison, the iPhone was developed in 24 months. That's less time than it would take DOD to budget for an IT program, not to build one. Just to prepare and defend and receive Congressional approval for our budget would take us about 24 months.

We need a different approach for the acquisition of IT. The nature and life cycle of IT platforms differs significantly from weapons systems. Moreover, IT is developed predominately in the commercial sector rather than in classified industry sectors. Instead of overseeing the entire development process, the Department designs systems architectures and tests vendor components. 

In view of these differences, we are working to develop an acquisition track specifically for IT. Consistent with industry standards, this track would recognize the preponderance of commercial technology, the need for a service-oriented architecture, and the importance of delivering capability incrementally, in manageable 12 to 24-month chunks. Also consistent with industry standards, we are more carefully evaluating the underlying business processes before designing an IT system around it. 

The use of IT should deliver value and demonstrate financial stewardship to the taxpayer. Unless the underlying business system is sound, we risk automating the status quo—and the status quo may itself be deeply flawed.

My final example of process reform is the strategic goal of enhancing the workforce. Security clearance reform is a key dimension of performance management. The Department needs a qualified, trusted workforce that it is able to reassign and clear based on mission needs. 

The Administration established an interagency team to modernize the security clearance process, and DOD is one of its most prominent members. Through a concerted effort that drew upon Lean Six Sigma methods, that team has transformed the clearance process from start to finish. The new clearance process in place today collects more robust data from the applicant earlier in the process, leverages that data through automated records checks, utilizes IT to replace antiquated paper-based functions, and employs a practice of continuous evaluation of cleared personnel.

We've added electronic adjudication for “clean” secret cases, which automatically grants clearances to those whose record checks do not reveal derogatory information. This allows human adjudicators to focus on cases that require the attention of trained experts. 

In addition to making process changes, the team also updated policy. The federal investigative standards it authored implement the most significant change to the U.S. personnel security system since the Cold War. Among other changes, the new standards focus the field investigations on only the most productive field leads while still granting investigators leeway to pursue issues as they arise.

The new system has accelerated the clearance process. The large backlog of security clearance cases which stood at 100,000 in 2006 has now been cleared. The average time for obtaining a security clearance across all of government has been reduced from 165 days to 57 days. This meets the goals that Congress established a couple of years ago. 

The reform in security clearances offers further evidence for how performance management is important to achieving greater efficiency and greater effectiveness in core business functions.

As you can see, we are hard at work reforming the business backbone of the Department. We've tried to be good stewards of taxpayer dollars while simultaneously providing unparalleled capability to the war fighter. In today's fiscal environment, it is even more important to achieve efficiencies in all of our enterprises. We either innovate our business systems now or down the line, increasing costs will force even tougher choices on how to spend scarce defense dollars. 

Let me also say that the level of improvement to which we aspire is not something the Department can achieve alone. Many of our partners, including you here at the PSC, take part in performance management efforts that I've discussed today. The results we seek will only come about by the focused effort of our entire workforce, both federal employee and private contractor. Those who take part in performance management assessments and those who carry out prescribed process improvements in their daily jobs are each part of the solution.

Thank you for your continued support of our efforts.

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