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Release No: 537-98
October 16, 1998

Remarks Prepared for DeliverybySecretary of Defense William S. CohenFortune 500 Forum Dinner Keynote AddressPittsburgh, PennsylvaniaOctober 16, 1998

Thank you, Warner [Blow, CEO of Sterling Commerce], for your very generous words. Thank you all for being here tonight.

As American business and the American military move about the world, we are relearning the old wisdom that "business follows the flag." Our efforts to build security and your efforts to build prosperity have become increasingly synergistic -- to the benefit of millions around the globe. When our diplomats and military forces combine to help create stability and security in a nation or region, that same stability and security attracts investment. That investment, in turn, generates prosperity. And that prosperity strengthens democracy -- which creates even more stability and security. In short, peace brings prosperity which re-enforces peace. It is what I like to call a virtuous circle of security and prosperity.

But despite this long-term growth of peace and prosperity, significant areas of the world remain unstable and dangerous -- places were American values and American interests are not secure. Where once the long shadow of a Soviet nuclear threat determined our defense strategy, we now face dangers that are harder to define and just as hard to defend against. Regional aggression, ethnic conflict, terrorism, the specter of chemical and biological weapons, and missile-capable states are not theoretical concepts we can afford to ignore. So to protect American lives and interests in this complex new world, we have developed a strategy that is summed up in three words: "shape, respond, prepare."

First, we must remain engaged around the globe to shape world affairs. Our wisest and most cost-effective actions are those that create an environment which encourages peace and discourages instability and violence. By remaining forward deployed in Asia and Europe, for example, we influence events, rather than being forced to react to the flair up of regional rivalries

  • or the actions of freelance opportunists. Our engagement demonstrates that we are a reliable and
  • strong ally -- that we can be counted upon in times of crisis. Our military and diplomatic activity shapes world opinion, influences the calculations of friend and foe alike, and telegraphs our resolve to oppose any challenge to American national interests around the world.

Second, we must be fully prepared to respond to crises as necessary: Whether it is evacuating Americans from the Congo; enforcing a peace agreement in Bosnia; striking back against terrorist bases in the mountains of Afghanistan; or being ready to fight a major conflict in Iraq or North Korea.

At the same time, we must also prepare ourselves for the threats of tomorrow -- the third element of our strategy. We must invest in the next generation of weapons, technology, and personnel if we are to maintain our ability to shape and respond to world events in the 21st Century.

Consider a recent example: Technology that was developed over two decades ago answered the cowardly merchants of terror who murdered those at our embassies in Africa. Our investment many years ago gave us the tools we needed today to respond decisively.

But to insure that we have the weapons to protect us two decades hence, we must invest today, and the plain fact is that the defense budget has been cut by 40% since 1985 -- and our procurement budget has been cut by nearly 70%. While we have worked with Congress during the final days of this session to add some additional funding for defense, the thirteen years of decline in defense spending has diminished our ability to invest in the future.

When I was a Senator, DoD officials would testify, "We must reverse the decline in procurement, and next year we will -- but this year we had to cut procurement again to pay for readiness." Then the following year they would say the same thing, and again the next year. When I became Secretary, I promised the Congress and the troops that I would reverse this 13 year trend and in my first budget we increased procurement by over 15%. But I am not a magician any more than my predecessors -- and I face increased requirements for today's readiness even as I try to invest in the future.

So how do we come up with the money to protect American interests in the 21st Century? I think the following scenario will sound quite familiar to some of you: You are a big, successful enterprise with market dominance. In fact, you used to have one fierce rival -- think Coke vs. Pepsi or McDonalds vs. Burger King -- but your competitor went into Chapter 11 a couple of years ago...bloated management, unresponsive to customers, unable to let go of old-style thinking.

So now you are the only big player. And your shareholders begin to ask, "Why are you still spending so much on R&D?" "Why don't you just stretch-out and patch-up -- extend the life of your equipment instead of making costly capital investments?" So you do as they say and as a result, maintenance costs increase, systems age, and capabilities slip.

  • At the same time, you begin to notice that there are lots of little competitors out there who are starting to eat into your market share in a dangerous way. They cannot beat you head-
  • on, but they are using unconventional methods and becoming more than just a nuisance. Now, you know that your real advantage lies in superior quality and technology and it is imperative that you stay ahead. That means you need to boost investment in R&D and new product development. But with revenues remaining flat, a CEO has little option but to:

Downsize excess workforce. Cut unneeded infrastructure. Cut headquarters bureaucracy, adopt the best business practices in the industry, go paperless wherever possible, and shed non-core business functions that someone else can do more cheaply for you. And that, simply put, is what we are doing in the Defense Department today.

Mark Twain once said, "Nothing so needs reforming as other people's habits." At the Pentagon we are turning that around and reforming our own habits -- through a long-term effort called the Defense Reform Initiative, or DRI. Now, that may have a familiar refrain. How many times have you heard that the Pentagon is going to reform itself and curb its wasteful ways? Why, then, should you take us seriously this time? There is one very good reason: We have no choice. We need the money. And there is nothing like needing the money to focus the mind and inspire innovation. For, as humorist Henry Wheeler Shaw once said, a lack of funds is the "step-mother of genius."

Our needs are clear and so is the course we have to follow. We are: Cutting staff, cutting buildings, cutting functions, cutting paperwork...and adopting the best business practices we learned from you in the private sector.

  • First, staff: The oversight management structure in the Pentagon used to be 3,000 people.
  • Last November, we decided to cut it by a thousand. 750 are already gone. Each of the Military Services and supporting agencies are cutting their headquarters staff also, at least ten percent apiece -- with most going beyond that.

Next, buildings and bases: Our force is one-third smaller than it was in the eighties, but we have cut only 21% of our infrastructure. We asked Congress for two more rounds of base closures. I know that is a hard thing to ask Congress to do -- I've been there -- but it is absolutely necessary and I will continue to make that case to them. No company could long afford the drag of underused facilities. In the meantime, we're moving ahead in areas that are in our control. For instance, we're going to save money by knocking down unused buildings -- 8,000 of them that we are required to heat and maintain so long as they stand.

Third, functions: We're shedding non-core functions by competing more jobs with the private sector. Our goal is to put up 237,000 jobs over the next four years and see who can do them best and cheapest. Our experience tells us that in many cases the private sector can perform those functions more efficiently -- and even when the government wins the competition, the process makes our organizations work better and cheaper.

In San Diego, a private firm won the job of operating Navy family service centers by doing it for 35% less than when the Navy operated them. When the communications

  • maintenance workers at Patrick Air Force Base heard their jobs were being put up for
  • competition, they sensed they had been handed their pink slips. But after their initial shock, they regrouped, and developed a dramatic and creative plan to cut their own workforce by 40% -- mainly by cross-training workers to perform several different functions -- and they beat the outside contractors. The result, in each case, was millions in savings.

The fourth element of our plan is a dramatic cut in costly paperwork. We are moving to paperless contracting and technical design. Samuel Goldwyn's secretary once asked him if she could throw out all the files that were over ten years old. Goldwyn said, "Sure , but keep copies." We are changing that attitude. We are putting our contracting on the Web. Business at our new on-line purchasing catalogue -- the "E-Mall" -- has already hit 2.8 million dollars a month. And rather than printing a large production run of the DRI report itself, we posted it on the Web. It's been down-loaded more than 99,000 times.

We're also empowering our people to make minor purchases -- anything under twenty-five hundred dollars-- using a special credit card rather than wasting time and money writing a contract. That makes it easier for our employees to quickly get what they need to do their jobs -- and we save the 90 to 330 dollars it costs to write and process a contract. With the combination of that credit card and the E-Mall, any corporal who knows how to use a laptop and a Visa can get what he needs -- no paperwork, no middleman, no time wasted, and no loss of accountability.

Yesterday in my office at the Pentagon, I was "trained" to use the E-Mall -- although it doesn't really require training. If you know how to buy from the LL Bean web site with a MasterCard, you can take a trip to and through the E-Mall. With a few clicks of a mouse, our employees can purchase anything from dehydrated green peppers to antibiotics to combat boots -- over two and half million different items.

Finally, we are adopting "best business" practices in everything we do. For instance, our system for re-imbursing our employees for business travel used to be a bewildering labyrinth of process and paperwork. The employee would have to keep detailed records, fill out forms making seven copies, and travel from office to office -- a journey seemingly as long as the business trip itself -- and then sit for weeks, at best, before being reimbursed.

We have now entirely re-engineered the process. We cut 220 pages of regulations down to just 17. We give our traveling employees a credit card for most expenses, they fill out a one page form when they return, and the money is wired directly to their bank account -- sometimes the same day.

In our effort to improve military housing, we've learned from the best practices of the real estate industry -- in fact, we have partnered with them. At our Naval Air Station in Corpus Christi Texas, for example, we joined with a developer to produce 404 units of first class family housing. The Navy only put up one-third of the money, with the developer paying the rest. If we had done it the traditional government way, the money we spent would have bought us only about 100 units. So we've quadrupled our return by leveraging the funds.

  • We're borrowing the best private sector ideas and products in our acquisition process as
  • well. We are switching to less expensive, more flexible commercial technology wherever
  • possible. For instance, the laser diode technology now in our Kiowa Warrior helicopter is specially built to military specifications, and is one of the Kiowa's leading causes of downtime and maintenance costs. So we're going to buy an off-the-shelf laser light source that is used in commercial printing and medical devices -- and put it in the Kiowa's range finder. That will save us up to one hundred million dollars over ten years. In addition, the commercially available laser is twenty times more reliable and improves the pilots' target designation by thirty percent -- meaning they will see their targets one-third better.

We're also planning to put a Power PC computer chip -- the same kind you would find in a Macintosh home computer -- in the circuitry in the F-15 fighter jet. The result: more flexibility and cheaper maintenance.

In addition to producing money for investment, our reform effort is also premised on the need to become a more flexible organization. In an uncertain, dynamic and dangerous world, it is essential that we run a modern, agile operation that is constantly preparing to meet the next threat, whatever it may be. Our adversaries -- smaller, hidden, ruthless, and with a dangerous new array of weapons -- will certainly try to adapt in order to evade our defenses. We must be just as adaptable.

Our military personnel have made great strides since the early 1980's in becoming flexible and efficient warfighters. And the business operations of the Department must become equally flexible and efficient if they are going to support the warfighters effectively.

We recognize that real reform is not easy. Old practices are deeply ingrained. But we will continue to achieve results by hard work and methodical persistence.

Last month was the 90th anniversary of the original incorporation of General Motors, another large organization that is seeking to reform itself to be a more efficient competitor for the century to come. GM's legendary president and chairman, Alfred Sloan, once said that his formula for success was "realizing the necessity of doing a better job everyday." That, in essence, is the spirit driving our Defense Reform Initiative. We are improving ourselves everyday. We are adapting the best practices of America's revolutionized private sector. We will continue the hard, slow work of reform for as long as it takes -- accepting the set-backs that come with bold experimentation -- and pursuing our goal tirelessly. The future security of our nation depends upon it.

And as we go about the work of improving ourselves, I ask for your ideas, your energy, and your support. Together we can insure America's future. Together we can propel that virtuous circle of security and prosperity. Thank you for giving me this opportunity to share my thoughts with you this evening. I look forward to hearing your questions and continuing our discussion at the roundtable tomorrow morning.

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