Issue 23 www.nps.edu/DRMI January 2008 Send Us Your News! Feature Article Change jobs? Get promoted? New Insights in Defense Management from We want to hear from you! Transaction Cost Economics, by Dr. Francois Stay connected with DRMI by Melese sending us your news and making sure we have your Faced with ballooning budget current e-mail address. When a deficits, growing entitle- new newsletter becomes available, we’ll send ments, and an aging work- you an email with a newsletter link so you can force, the U.S. Government keep in touch with your classmates and stay and many of its allies are informed as to the latest with DRMI. Send your searching for savings by out- news to [email protected]. sourcing both positions and products. This presents sen- ior defense officials with a Issue Highlights: dual challenge: First, what C.J.’s Corner (p. 1) should the Department of Defense (DoD) make Feature Article (p.1) itself and what should it buy in the marketplace? DRMI News (p. 2) Second, if the decision is to buy (or outsource), Participant News (p. 2) how can we ensure better outcomes for both the Curriculum Development (p. 4) taxpayers and the military? Staff & Faculty News (p. 4) Publications (p 5) A new literature called transactions cost Future Courses (p. 7) economics (TCE) helps answer these two questions. TCE offers useful principles for defense managers, and new insights for cost estimating and defense acquisition. C.J.’s Corner The "make-or-buy?" decision Comments from Dr. C.J. LaCivita, Executive Nobel Prize winner Ronald Coase launched the Director, DRMI study of TCE in the early 1930s with a simple question: "Why are there firms?" His answer: firms minimize transaction costs. TCE views At the end of our courses at firms and government organizations as complex DRMI, we never say good webs of contractual relationships among bye to our participants. resource owners. Each relationship - the Instead, we say until we meet acquisition of an input, employment of a worker, again because it's a small transfer of a product or service from a supplier to world, and there's a good a customer - is a transaction. The contribution of chance we'll see each other TCE is to focus on motivation and management again. This was reinforced costs of coordinating transactions. for me on a two-and-half week trip I made at the end Even where there is an obvious "production of October. On the trip I visited Montenegro, cost" advantage to outsourcing, Coase explains Serbia and Kazakhstan, stayed overnight in that internalizing some transactions may be less Beijing, China, and in the process flew around expensive than relying on the market. This the world. raises a key question that defines every private and public organization - the "make-or-buy?" (See “C.J.’s Corner” on page 2.) (See “New Insights” on page 5.) Issue 23 www.nps.edu/DRMI January 2008 C.J.’s Corner (Continued from page 1.) The exercises of Drmecia played a key role in the execution of the course. Comments from Al Polley and I departed Monterey on 30 Octo- the participants were very positive and DRMI ber en route to Montenegro, the latest state of expects to return again next year. the former Yugoslavia to become a separate nation. The Montenegrins are in the early DRMI Provides En-route Education to Rear stages of organizing their military and an MoD, Admiral Kevin Quinn and the purpose of our visit was to determine if DRMI courses were appropriate for Montenegro At the request of the Center at this time. During our talks, the Montenegrins for Executive Education, Dr. told us that there was a Norwegian officer on Natalie Webb organized edu- assignment there to assist them. When we met cational exchanges between him, we recognized him as a graduate of our DRMI faculty and Rear Admi- DRMC. Next, Al and I flew to Belgrade to con- ral Kevin Quinn. Adm. Quinn duct a four-day seminar on PPB under the will soon assume duties as sponsorship of the Marshall Center. We had Commander Naval Surface conducted a similar seminar for Serbia at the Forces Atlantic (SURFLANT). Marshall Center in December of 2006, and the Adm. Quinn met with Drs. seminar in Belgrade gave us the opportunity to Kent Wall, Bob McNab, Francois Melese, Nata- renew friendships with some of the participants lie Webb and Jim Blandin, Mr. Don Bonsper, Mr. in the previous seminar and with personnel from Luis Morales, LTC Mark Hladky and LtCol Chris the Marshall Center. Leaving Belgrade, Al flew Page. Discussions focused on defense re- to Poland to participate in a seminar there, sources management and included topics such where he again met some of our graduates. I as cost, effectiveness, risk, analytical tools for flew to Vienna and met up with Diana Angelis. managing defense resources, PPBE and other Diana and I then flew to Astana, Kazakhstan, budgeting and financial management issues, where we met with officials from the Kazakh both theoretic and practical. MoD to discuss resources management issues. The leader of the Kazakh delegation was a DRMI gets a new web address graduate of our IDMC. It is indeed a small world. You may have noticed in the header of this newsletter that the DRMI’s web site has a new DRMI News address. Effective immediately our new address is: Mexico MET, by Senior Lecturer Don Bonsper http://www.nps.edu/DRMI A DRMI team of Dr. Jim This new address was necessitated by NPS’ Blandin, Dr. Jim Airola and move from the .MIL domain to the .EDU domain. Mr. Don Bonsper (course co- ordinator) presented a third mobile course in Mexico City Participant News 5-9 November 2007. DRMI conducted mobile courses in DRMI Congratulates Graduates Who Have 2005 and 2006 to officers of Been Promoted the navy, but this course in- cluded 10 officers each from Lebanon elects General Michael Suleiman the navy and army. The inclusion of participants (SIDMC 95) as President from both military services was important be- (include photo) cause the navy and army are in separate minis- tries and seldom have the opportunity to attend From Smith, Jeff (ed.) (2007, December 12). courses together. The main goal of this one- Lebanon finds a new president. Eurasia Security week course was to present a sound approach - Watch (164), American Foreign Policy Council, both efficient and effective - to high level deci- Washington, D.C. sion making and resource allocation. 2 Issue 23 www.nps.edu/DRMI January 2008 LEBANON FINDS A PRESIDENT I am appointed to the new post, Chief of J-8 of the General Staff of the Slovak Armed Forces, Lebanon's warring political which is the highest post for financial officer in factions appear to have finally our armed forces. Historically, I am far the settled upon a consensus youngest officer appointed to that significant candidate to fill the vacated post, and I have to emphasize that it is also post of president. The West- thanks to my study at DRMI. (DRMI faculty say, ern-backed "March 14th" bloc "thanks!")." LTCOL Ivancik also says he has and the Iranian and Syrian- been chosen also for the position of Chief of the backed coalition led by Hez- Financial and Economic Section (J-8) of The bollah had been locked in a Joint Operational Command of European Union political and constitutional crisis for weeks, with in Potsdam, Berlin, Germany for years 2009 and each group denying the other's candidate a ma- 2010. He is sending one of his subordinates jority in parliament. The deadlock has finally Captain Jozef Dedic (senior officer of J-8), to been broken, however, with all parties involved - DRMI for the 11-week course starting in Febru- including the United States and Syria - settling ary 2008. upon General Michael Suleiman, the com- mander of the Lebanese Armed Forces, who is FADM Jamil Osman from Malaysian Navy widely respected as both a pragmatist and a (SIDMC 07) Promoted to Chief of Staff, Joint political moderate. A significant constitutional Operations Headquarters hurdle still needs to be cleared to allow for a FADM Jamil Osman writes that he will begin a "grade-one" public servant to serve in the office new assignment on 4 January as the Chief of of the president, but most expect Suleiman to Staff for the newly established Joint Operations take the reigns of power sometime next year. Headquarters, Malaysian Armed Forces. (Beirut Daily Star, November 29, 2007) Col Abood Abdullah Al-Shahrani, Saudi Brigadier General Andrzej Falkowski, Polish Arabian National Guard (IDMC 07-2) MoD, (MIDMC 95-5, IDMC 94-3) elected promoted Assistant Director, Logistics and Resources Col Abood Abdullah Al-Shahrani was promoted Division, IMS to colonel during his stay at DRMI in the fall. He had a small celebration and invited participants On November 22, 2007 BG Andrzej Falkowski and staff to join him. has been elected for the post of the Assistant Director, Logistics and Resources Division in the Class Notes 2007 International Military Staff (IMS). The Polish general has been elected by the Military LTC Hassan Alharbi, Saudi Arabian National Representatives to the Military Committee of Guard (IDMC 07-1, DRMC 07-2, SGOP, OBS NATO. BG Fal?kowski will be the highest- and Misc. training), sent his greetings to DRMI ranking Polish general serving in the IMS. He and mentioned that his cousin, Hussain Jaber H. will be in charge of the Logistics and Resources Alharbi, will be attending IDMC 08-1. Division; will represent the Military Committee and act as chairman and deputy or co-chairman GP Capt Kit Caesar, Ghana Air Force (IDMC of a number of senior NATO committees 07-2) writes, "I must express my thanks to the including NATO Defence Manpower Committee faculty members and the admin staff for their (NDMC), Senior NATO Logistics Conference warmth and support during the period of the (SNLC), Senior Resources Board (SRB), course.