Mckinsey on Government

McKinsey on Government Number 5 4 22 44 64 Spring 2010 Lessons from An expert Stabilizing Iraq: ‘Without taboos’: around the world: view on defense A conversation with France’s new Special Issue: Benchmarking procurement Paul Brinkley defense policy Defense performance in 28 50 70 defense Mastering military Supply chain From R&D 14 maintenance transformation investment to under fire Improving 34 fighting power, US equipment 25 years later Big savings from 56 acquisition little things: A dynamic strategy Non-equipment for uncertain times procurement 1 McKinsey on Government Number 5, Spring 2010 2 44 Introduction Stabilizing Iraq: A conversation with Paul Brinkley The leader of the US effort to revitalize Iraq’s economy 4 talks about the lessons he has learned over the 4 Lessons from around the world: past three years, the relationship between economic Benchmarking performance in defense development and security, Western misconceptions 14 A first-of-its-kind benchmarking effort compares of the Middle East, and the hardest part of his job. the productivity and performance of defense ministries across the globe, helping them pinpoint 50 areas of inefficiency and identify the highest- Supply chain transformation under fire potential opportunities. Deployments to Iraq and Afghanistan exposed weaknesses in the UK Armed Forces’ supply 14 chain and provided a powerful impetus for change. Improving US equipment acquisition The resulting improvements offer valuable 34 To address the perennial problems of cost overruns and lessons for other militaries’ supply chains. lengthy delays in its major acquisition programs, the US must introduce two elements critical to lasting acquisition reform: long-range budget planning 56 and objective portfolio management. A dynamic strategy for uncertain times A world of fast-changing conditions and heightened 50 22 uncertainty demands that defense agencies act An expert view on defense procurement with speed and flexibility. They can do so by taking an In 2009, Bernard Gray, an adviser to the UK Ministry iterative, dynamic approach to strategic management. 56 of Defence, wrote a scathing review of UK equipment acquisition. In this interview, he discusses 64 the massive challenges the MOD faces—and how ‘Without taboos’: France’s new defense policy to overcome them. Olivier Debouzy, one of the authors of the French White Paper on Defence and National Security, 28 reflects on its key recommendations and the rationales Mastering military maintenance behind them. Maximizing asset availability without increasing costs will be a critical priority for armed forces in the years to come. We have found that armed forces can 70 improve both the efficiency and the effectiveness From R&D investment to fighting power, of their maintenance, repair, and overhaul (MRO) 25 years later function by as much as 60 percent, but doing Countries have been investing in defense R&D at so requires fundamental changes to organization, widely differing rates—a fact that is likely to processes, and mind-sets. lead to significant shifts in the global military balance over the next two decades. 34 Big savings from little things: Non-equipment procurement Despite constituting a substantial portion of defense budgets, non-equipment purchases tend to receive scant attention. Defense organizations can capture savings of up to 20 percent in non-equipment categories if they raise their game in several dimensions, including capability building, the use of proven purchasing tools and processes, and performance management. 2 Now, with the current economic climate placing enormous pressures on government budgets across the board, it appears that a downturn in global defense expenditures is beginning. And although there are exceptions—such as India and South Korea—the trend is clear. Yet the world remains a dangerous place. Defense forces must still be capable of deploying and sustaining “boots on the ground.” Weapons must be maintained and upgraded. What, then, is to be done? In this edition of McKinsey on Government, we, Introduction along with some eminent military thinkers and practitioners, look at a range of challenges facing militaries that must do more things—some of Since the end of the Cold War, and certainly in the them relatively new things—with less. post–9/11 world, military forces around the globe have been shifting from a largely static, “Lessons from around the world: Benchmarking defensive posture to one that has to support performance in defense” contends that, contrary to more expeditionary operations far from their home what is routinely argued, performance is indeed bases. This shift has led them to invest more in comparable across defense ministries wherever de- training their armed forces, acquire transport assets, fense ministries engage in the same types of and build their supply chain and logistics activities. Evidence from a first-of-its-kind bench- capabilities—all of which costs money. As the 15th marking exercise comparing 33 of the world’s century Italian military commander Gian Giacomo largest national military structures supports our Trivulzio said, “To carry out a war, three things are most fundamental claim—that countries can necessary: money, money, and yet more money.” shrink their defense budgets without losing capability. In this regard, defense expenditure would appear to We proceed from this broad view to take on, in a be unique, in that it is driven more by threat and number of articles, a perennial challenge for all perceived threat than by affordability. The past de- militaries: acquiring and maintaining equipment cost- cade has borne this out. Since 2001, defense effectively. “Improving US equipment acquisition” spending in the United States, for example, has asserts that acquisition reform at the level of increased from about $300 billion to almost individual programs—“small a”—will fail without $700 billion for the current fiscal year. But the recent addressing “Big A,” or enterprise-level decade is not representative of the long-term issues. This candid analysis of America’s picture. Defense expenditure, appearances to the acquisition problems is followed by an contrary notwithstanding, is cyclical: it is simply equally candid discussion of the United Kingdom’s: that the cycle is much longer than in most other sec- Bernard Gray, an adviser to the UK Ministry tors, averaging some 20 years between peaks. of Defence, offers “An expert view on defense 3 procurement.” And because maintaining equipment makes a similarly robust case for change in “‘Without is fully as important as acquiring it, “Mastering taboos’: France’s new defense policy.” Debouzy military maintenance” explores the changes that discusses, among other things, the relationship defense organizations must make to maximize between defense and national security in an asset availability while keeping costs down. age of globalization, and the changing nature of activities related to “knowledge and anticipation… The next article, “Big savings from little things: without which one wastes time and money preparing Non-equipment procurement,” looks at a for the wrong kind of operations, in the wrong seemingly more modest matter. Non-equipment region, and against the wrong people.” procurement is a subject that rarely makes headlines, but it constitutes a surprising portion of Finally, “From R&D investment to fighting power, the defense budget: up to 25 percent. As such, it 25 years later” makes the intriguing claim, is a rich but typically untapped savings opportunity. based on recent research, that a country’s level of R&D spending correlates to the quality of its The next two articles deal with the on-the-ground military equipment a quarter-century later. On the realities of modern war. In “Stabilizing Iraq: A basis of this observation, the authors make conversation with Paul Brinkley,” the leader of the some provocative predictions about the defense US effort to revitalize Iraq’s economy discusses landscape a couple of decades from now: his view that “offering economic opportunity as part America maintains its dominance, but the global of protecting and helping the population is abso- balance shifts as Asia’s rising powers overtake lutely critical” in both Iraq and Afghanistan. “Supply the major European nations in military strength. chain transformation under fire” describes some of the logistical difficulties the UK Armed Forces We decided to publish an edition of McKinsey on faced in the Iraqi and Afghan conflicts, evincing the Government exclusively devoted to defense age-old truth that no army, however well equipped, because of its overwhelming importance, particularly can function without a good supply chain. at present, to governments worldwide. However, the articles in this edition are relevant across a range We close this edition with three articles that take on of institutions, both public and private. We welcome one of the biggest challenges for any large your comments on any or all of these articles at organization, the military being no exception: change. [email protected]. With the stability of the Cold War having been replaced by an altogether less predictable environment, defense agencies must shift from a traditional model of annual strategic-planning sessions to a more dynamic model attuned to a John Dowdy world in which new threats can emerge Director, McKinsey & Company overnight. “A dynamic strategy for uncertain times” presents such a model. Olivier Debouzy, one of the authors of the French Nancy Killefer

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