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Center for Naval Analysis Annual Conference
As Delivered by Deputy Secretary of Defense Dr. John J. Hamre, , Wednesday, December 02, 1998

Thank you, Dick [Moose]. I would like to talk about the tension that I think all of you must feel, that I certainly feel, where on the one hand, we are saying to the President of the United States, to the OMB [Office of Management and Budget] and to the Congress that we [the Department of Defense] need more money and at the same time saying we need business reform. Although there's obviously a great deal of tension in that, I personally do not feel that tension. As a matter of fact, I think they are inextricably tied to each other.

By way of introduction, I think it's important to cast a somewhat larger context for this endeavor and the importance of it. At the outset, let me thank CNA and [Under Secretary of the Navy] Jerry Hultin for having the courage and the vision to try to tackle defense business reform.

I'm struck by how inconsistent it is, that inside this single Department of Defense and the components inside the Department of Defense, and the Navy, for example, we live simultaneously with the demands for absolute excellence in one dimension, and we're willing to live with wreckage in another.

I had an occasion to talk with Jack Welch, who is the head of General Electric. Jack Welch is one of the icons of American business, and people emulate him. We had a very interesting conversation. He said, "You ought to learn more about this Six Sigma." Six Sigma involves taking the experience really pioneered by Motorola in building pagers and extrapolating that into the broader business enterprise. Motorola didn't start with the goal of producing a pager that would work for 15 years without a failure, but it happened because of the way in which they thought about building the product. It opened up their thinking and it's since been carried into other elements of business. [It holds] that we really ought to be trying to design perfection into all stages of the business process. Six Sigma is about having only one error out of ten million transactions. I think the average American business now is a two or three [sigma]. It's the very rare American business that's at a Six Sigma performance level.

Granted, with all the chaos and confusion of war, it's probably an inappropriate analogy, but if you think that Six Sigma represents the finest that a business can do, I firmly believe that [DoD is] a Six Sigma organization when it comes to our primary work product, which is waging war and winning it. Nobody in the world is as good as we are in what we consider to be our primary product. We challenge ourselves. We put our finest talent to it. We devote our deepest strategic thinking to it. We bring our finest managerial skills to work it. We do this very well. I think it shows up when we go out and try to do coalition operations. It's hard to slow down enough to help our allies fight with us. No one is doing as well as we do for our primary business product -- defending America and winning its wars.

At the same time, this same organization is perfectly prepared to live with two Sigma operations for our support activities. We are prepared to live with mediocre behavior in our support activities, and I ask myself why. I can only think that all organizations have a distribution of talent, and that you put your finest talent on the thing that's most important to the organization. I think we've come to realize, and I know Jerry Hultin has been relentlessly bringing you all to consider the fact, that our finest efforts are now being held back sharply by the costs of our support activities with which we've encumbered ourselves.

Therein lies the central problem. [Defense reform] isn't just about saving money. [Our support structure is] holding back our ability to sustain that war fighting, winning edge that we've developed over the last 25 years. That's what is really at risk here.

So the real challenge, is how do we take that same driving demand for excellence that has been built up over the last 25 to 30 years to wage and win wars and bring that demand for excellence into what people consider to be the mundane business of supporting forces and maintaining this capability over time. That is the central challenge. Above all, it is not a technical problem. This is a management problem. It [involves] sustaining that kind of intellectual energy on things that people have traditionally considered less important.

Jack Welch has a very easy solution to this problem. His main line of work he keeps in-house. His secondary activity he contracts out. He can shed himself of secondary activities that aren't his primary work product. I don't know how many of you have testified to Congress recently about closing depots, [but] our board of directors [Congress] doesn't agree that we ought to just shed these things.

We do not have the tools that are available to a Jack Welch. We don't have the luxury of saying, "Well, we're just going to go a different path." We have to live within political constraints. We have a very {asymmetrical} relationship with the Congress -- we want the money and they have it. (Laughter) So it forces you into a certain behavior that a corporate executive and its board of directors doesn't have to go through. So we've got to find a way to become more efficient inside this framework, our Constitution. We're not going to change that. So we have to find some way inside of these constraints to get the entire enterprise to be four and five Sigma.

I don't think we'll ever be able to get the support structure to be the same kind of world class [organization] as the fighting side, because, as I say, we are going to put our finest talent on our primary work product. But we can't live with second best or third best or fifth best when it comes to support activity.

Now, let's go to the central question about why we are pressing defense reform so hard at the same time that we're trying to get additional dollars allocated to the Defense Department. First, I believe that we have this underlying problem that isn't going to go away as much as we would wish it to go away. We are going to have to find ways to make the support infrastructure associated with the Defense Department less burdensome so that we can have more resources and more creativity that we can bring to our primary activity.

Now, I don't believe that pushing for streamlined operations is in conflict with our efforts to get additional resources. Indeed, the only credibility we have going to the President of the United States and to the Congress to say that we need additional resources is to demonstrate that we've done everything possible in-house to become more efficient. Otherwise, our request for additional resources is absolutely implausible. We're living in a climate when most Americans say, "I'd rather make sure Social Security is funded properly." There are a whole range of other things Americans would like to have. They don't worry as much about defense because we're not as concerned about the security of the United States in this era. I think we should be, but we're not. And so, for those reasons, we have no credibility in either going to the White House or going to Congress to ask for additional resources if we haven't demonstrated that we have gone an extra mile in trying to work through problems here in the department.

So I don't feel they're inconsistent. As a matter of fact, I feel they're very reinforcing. I think we will have a lot harder time selling a requirement for additional resources when they can point a finger and say, "But now, look what you're doing over here. This kind of activity is clearly obsolete in terms of business practice." So, we have to embrace business reform if we are going to increase our budget.

I don't know how this is going to play out. We are at a crucial stage in the budget cycle. We're talking about additional resources for the Department. But there is absolutely no basis [under which] I would be willing to go forward and talk to the President if I couldn't demonstrate to him absolutely everything we're trying to do ourselves to become more efficient.

Two years ago when we put together the Quadrennial Defense Review we were pressing ourselves to find resources to fund it. We said we were going to compete 150,000 jobs so we could free resources in the department. We are now going forward with this budget proposal to compete 250,000 jobs. We are stretching ourselves in unbelievable ways. Some people say, "I don't know [if] we'll be able to make that [goal]." We haven't the luxury of saying we're not going to try. We're not going to ask for any pennies from the White House or from Congress to help us if we fall short.

I absolutely have to ask for your help. What I most admire about the work that Jerry has done and the other senior leaders in the Navy and with CNA , is how they are tackling the very, very hard business of business process change. I can't think of anything harder to accomplish this [than] to get huge, rule-based successful organizations, to think of a very different way to do business. This is a profoundly difficult thing to do. It would be beyond our abilities except for the talented people here that are working on it.

So I need your help and your success. I've heard it's been a very good conference, generating interesting ideas and proposals. A lot of them are probably not feasible. But if we get one out of ten that works [it will bring to the support side of DoD] the same energy and innovation that people have brought to war fighting. We've had a lot of ideas that haven't worked there, too. But it has produced the finest military force in the world because we had the energy and the [determination] to press ahead. We have to do the same thing here or we will let down the people that are right now, this day, out on the high seas, defending us.

Thank you.