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Statement on OSD Reforms

As Delivered by Secretary of Defense Chuck Hagel, Pentagon Press Briefing Room, Wednesday, December 04, 2013

Good afternoon. First, let me acknowledge an announcement I made yesterday regarding Christine Fox, who is going to be our new acting Deputy Secretary of Defense.

I recommended Christine to President Obama because I felt we needed the continuity to continue with some of the most defining challenges that we had been facing and will continue to face in this department over a number of years, and you know what those are. It's budget sequestration, we're finishing up QDR Review, and how all that impacts strategic interests and focus and where we go from here.

She brings the continuity. She brings the expertise, the leadership. She has relationships. She's highly respected in the Congress, in the White House, and certainly around here. So I want to acknowledge her coming over to give us some of her time.

She thought a few months ago she was going to escape; she did for a while. So she will be an important part of how we go forward here for the next few months. And I have great confidence in her and look forward to working with her again. I just spent some time with her this morning as we laid out kind of the next steps here for the next few weeks.

I also want to take an opportunity to thank Ash Carter. We had a going away ceremony on Monday, which some of you attended or saw. He will be greatly missed here. I will miss him personally. He has been a tremendous part of this institution for certainly the last five years, and even before that. So I want to publicly acknowledge his service and sacrifices and what he's meant to all of us, and we'll miss him.

Now, this afternoon, General Dempsey and I want to talk about some things that we are doing and decisions we've made to go forward in the area of consolidation and realignment and efforts to streamline our headquarters operations, and particularly Office of the Secretary of Defense operations. And General Dempsey will offer some comments on what he's doing with the Joint Chiefs.

I think you all know that institutional reform has been an important part of what we have been trying to accomplish this year. It is not just a matter of being forced into that because of sequestration and budget reductions. That's part of it. But like always, all institutions, we are captive to and subject to environments. Challenges change. Threats change. And our world, our country, this institution is not in the same place as it was 12 years ago, or even 5 years ago, if you begin with we have unwound from one long war in Iraq. We are unwinding from the longest war we've ever been in, in Afghanistan. Different kinds of threats today, different dynamics. Strategic interests vary.

But the other part of that is that it doesn't mean that we are retreating from any part of the world. In fact, I'm leaving tonight for the Middle East to spend a couple of days in Bahrain, attending the Manama Dialogue, and then over to Qatar, and maybe some other countries.

But I will say in that speech that I give there -- and it does relate to what we're talking about here today -- that our interests, the United States of America's interests, are the world's interests. Our interests are not defined by one region or one country or one area. And that's part of what this announcement is today, as we develop toward and into the next year on a lot of changes and adjustments and realignments that will be made in this institution to better prepare this institution to deal with the threats and the challenges that not only are here today, but what we anticipate is to come, cyber being a very, very good example. Cyber threats are real. Five years ago, it wasn't the same dimension as we now see.

So let me begin this way. And then I'm going to ask General Dempsey to make some comments, and then we'll take your questions.

With the Pentagon confronting historically deep and steep and abrupt spending reductions after a decade of significant budget growth, there is a clear need and an opportunity -- and I emphasize opportunity -- to pare back overhead and streamline headquarters across this department. And that is a result of, really, an era of post-9/11 that we have appropriately been focused on, had to focus on to secure this country.

Our efforts have begun with the Office of the Secretary of Defense and the Joint Staff. And today, General Dempsey and I will announce decisions and organizational changes within, for me, the Office of the Secretary of Defense, General Dempsey, the Joint Chiefs, that would result in budget savings and better align our structures and resources with DOD's strategic interests and priorities.

Earlier this year, I directed a Strategic Choices and Management Review. That review developed options to help DOD plan for a range of future budget scenarios, including the persistence of sequester-level cuts over the next decade. And as all of you know, these cuts, unless changed, will represent roughly a $500 billion reduction over the next 10 years, and that's in addition to the $487 billion spending cut DOD is already implementing.

Included in the Strategic Choices and Management Review was a comprehensive look at a savings -- all savings that could be achieved by reducing overhead throughout the Department and streamlining organizations, including OSD and the Joint Staff. As you may recall, I announced this summer that DOD would reduce major headquarters operating budgets by 20 percent over the next five years. These reductions are only a first step in DOD's efforts to realign defense spending to meet new fiscal realities and strategic priorities.

Difficult, but necessary choices remain ahead for the Department, choices on compensation reform, force structure, acquisitions, and other major parts of DOD. These choices will be much more difficult if Congress fails to halt sequestration and fully fund the President's budget request.

Congress must be a full partner in our efforts to responsibly bring down defense spending and to implement needed institutional reforms that maximize the use of our resources. And I look forward to working with Congress next year in this effort.

When I announced the 20 percent headquarters reductions, I made clear that they would begin in the Office of the Secretary of Defense. Subsequently, I asked former Air Force Secretary Mike Donley, based on the initial findings of the Strategic Choices and Management Review, to lead a review of OSD that would determine how to implement these cuts and consider opportunities for organizational change and streamlining. Secretary Donley has completed his work, and we are moving now ahead with implementing a number of recommendations and changes in line with his work and the results of the Strategic Choices and Management Review.

Specifically today, I'm directing each of my principal staff assistants to begin implementing their plans to meet the 20 percent budget reductions by fiscal year 2019. Much of these savings will be achieved through contractor reductions, although there will be reductions in civilian personnel.

Ultimately, other headquarters elements will be implementing similar reductions, and we will detail our plans to achieve these savings in the Pentagon's budget submission next year.

The OSD reductions are comprehensive, touching many aspects of our organization, personnel and resources. We recognize that the dollar savings generated by the OSD reductions, at least $1 billion over the next five years, is a small percentage of the sequester-level cuts, underscoring the challenges that face this department in absorbing these very large sequester-level reductions.

Still, every dollar that we save by reducing the size of her headquarters and back-office operations is a dollar that can be invested in warfighting capabilities and readiness. Beyond these fiscal considerations, our goal is to use this opportunity to streamline OSD, making it more agile and responsive. A related goal was to reduce the number of direct reports to the Secretary of Defense, consolidate duplicative or overlapping functions, and strengthen department-wide management functions.

With these objectives in mind, Secretary Donley's review take a close look at OSD's organizational chart and reform proposals. Today I'm directing a series of changes that will reshape OSD and, I believe, better prepare us for our future fiscal challenges in an evolving strategic environment.

First, we will be restructuring the Office of the Under Secretary of Defense for Policy, based on an extensive internal review of the organization led by the current Under Secretary of Defense for Policy, Jim Miller. This restructuring will better balance workload across policy's assistant Secretary of Defense, sustain our emphasis on the Asia Pacific region, space and cyber capabilities, and better integrate our focus on emerging threats with homeland defense efforts and strengthen our security cooperation efforts, while eliminating some senior executive positions. Specifically, the plan eliminates a deputy Under Secretary of Defense position and SES Chief of Staff, phases out the SES-led task force on business and stability operations, and realigns the portfolios of the five assistant secretaries of defense for policy.

The plan also eliminates four Deputy Assistant Secretary of Defense positions and their corresponding support structures through a consolidation and realignment of the policy staff overall structure.

Second, we will strengthen the Deputy Chief Management Officer, the DCMO position, by realigning the Office of the Director of Administration and Management and its components under the DCMO structure. Secretary Donley's review found that, since its inception, the DCMO has lacked the resources and the mandate to effectively fulfill its role as a DOD-wide manager. Meanwhile, the DA&M and others have important organizational management planning and oversight functions across the Department and the National Capital Region that will further enable the DCMO's work.

The consolidation of these offices into a true DOD-wide management office will provide for better coordination and integration of DOD's business affairs, including performance management and compliance, and result in a much stronger and more empowered deputy chief management officer.

Third, as the DCMO organization becomes the focal point for DOD- wide management, administration, business oversight, it's my intent to transfer specific responsibility for business IT systems from the DCMO to DOD's chief information officer. I will work with Congress to make this change because it will strengthen DOD's ability to address growing IT and cyber challenges. The Under Secretary of Defense for Acquisition, Technology and Logistics will continue to be responsible for acquisitions of IT systems.

Fourth, in order to consolidate intelligence oversight and privacy compliance functions, I am directing that the Office of the Assistant to the Secretary of Defense for Intelligence Oversight and the Defense Privacy and Civil Liberties Offices be combined into a single office that will be aligned under the new DCMO organization.

Fifth, as part of our overall streamlining efforts, the Office of Net Assessment, ONA, will report to the Under Secretary of Defense for Policy. We will preserve ONA as a distinct organization with direct links to the Secretary of Defense, but this change will better ensure its long-range comparative analysis inform and influence DOD's overall strategy and policy.

Six, I'm directing that the acting Under Secretary of Defense for Personnel and Readiness rebalance resources across their office's three Assistant Secretaries of Defense in order to sharpen P&R's focus on force management, force readiness, and military health care and military compensation and retirement reform.

Seventh, I'm directing the Under Secretary of Defense for intelligence to move forward with planning for how its mission and focus should evolve after the drawdown of the post-9/11 conflicts, including staffing levels, organizations, and programs.

Eighth, I've also approved plans for eliminating the five remaining deputy undersecretaries of defense who are not presidentially appointed or Senate confirmed, fulfilling direction from the Congress. To further improve the management administration of OSD, I'm directing additional longer-term follow-up actions to include refining OSD budget categories, improving oversight of contractor support, completing a review of OSD's workload, and directing a biannual review of OSD to establish a regular assessment of the office's requirements.

Once fully implemented, these actions will provide for improved and sustained oversight of OSD structure and resources. All these decisions will not only result in a smaller and flatter OSD, but one that I believe will be better prepared for the serious and complex 21stcentury security challenges that we face as a department and as a nation.

In this constrained budget environment, we will continue to look for ways to reduce overhead, improve efficiency, and maximize combat power. But we must do so in a deliberate manner after careful consideration of how best to ensure this department is able to carry out its mission of defending the nation.

Most of the reductions in OSD staff that I've announced today will occur through a process of natural attrition in order to minimize the impact on our workforce. If the Department is forced to take the steep sequestration cuts on the order of $500 billion over the next 10 years, we may need to implement additional reductions.

As I've said before, sequestration is irresponsible and poses an unnecessary risk to our military's ability to accomplish its mission and our readiness. Congress should roll back sequestration and fully fund the president's budget request, which provides the Department with the time, the flexibility, and the certainty needed to strategically transition our military to a postwar posture.

One final point. Bureaucracies are often derided, but the reality is that an organization of DOD's size, complexity, and global reach will always require sophisticated headquarter structures that provide effective oversight and management of our half-a-trillion- dollar enterprise. The men and women who work at the Pentagon and other headquarters elements, whether civilian, military or contractors, are dedicated individuals who deserve respect and appreciation.

Even as we realign our headquarters organizations, we will focus new energy on retaining the world-class professionals who we depend on every day to fulfill our mission and keep this country safe. My expectation is that the changes we make will empower our people by reducing layers of bureaucracy and making our organization more adaptable, accountable, and agile.

I know this has been a trying period for all DOD personnel and their families in the wake of sequestration, furloughs, and a government shutdown. Through it all, our workforce has remained focused and dedicated, and I know that they will remain just as focused as we work to put our organization on a strong path for the future.

Thank you. 

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