DEFENSE BUSINESS BOARD Submitted to the Secretary of Defense The Chief Management Officer of the Department of Defense: An Assessment DBB FY 20-01 An assessment of the effectiveness, responsibilities, and authorities of the Chief Management Officer of the Department of Defense as required by §904 of the FY20 NDAA June 1, 2020 DBB FY20-01 CMO Assessment 1 Executive Summary Tasking and Task Force: The Fiscal Year (FY) 2020 National Defense Authorization Act (NDAA) (Public Law (Pub. L. 116-92) required the Secretary of Defense (SD) to conduct an independent assessment of the Chief Management Officer (CMO) with six specific areas to be evaluated. The Defense Business Board (DBB) was selected on February 3, 2020 to conduct the independent assessment, with Arnold Punaro and Atul Vashistha assigned to co-chair the effort. Two additional DBB board members comprised the task force: David Walker and David Van Slyke. These individuals more than meet the independence and competencies required by the NDAA. Approach: The DBB task force focused on the CMO office and the Department of Defense (DoD) business transformation activities since 2008 when the office was first established by the Congress as the Deputy Chief Management Officer (DCMO), and in 2018 when the Congress increased its statutory authority and elevated it to Executive Level (EX) II and the third ranking official in DoD. The taskforce reviewed all previous studies of DoD management and organizations going back twenty years and completed over ninety interviews, including current and former DoD, public and private sector leaders. The assessments of CMO effectiveness since 2008 are focused on the performance of the CMO as an organizational entity, and is not an appraisal of any administration or appointee. Conclusion: The DBB concluded that there is a critical need for a top-level official to drive the Business Transformation effort within DoD with the support of and in partnership with the SD and the Deputy Secretary of Defense (DSD). This critical need is driven by changing near peer competition and other threats, growing fiscal pressures, and the failure of past business transformation efforts. At DoD, transformation needs to be defined as making major changes in the size, structure, policies, processes, practices, and technologies to improve the economy, efficiency and effectiveness of the organization. Transformation goes far beyond traditional cost cutting exercises and should result in much larger sustained reductions in costs and improvements in effectiveness over time that can be used to enhance readiness. Transformation within DoD includes many actions, including addressing the many Government Accounting Office (GAO) “High-Risk” areas, reducing the tail (overhead) in order to sharpen the tooth (readiness), while rationalizing the workforce mix (e.g., military, civilian and contractors), and restructuring/rightsizing the “Fourth Estate,” and fundamentally shifting the output performance benchmarks to compete with near-peer adversaries, particularly China. Since its establishment in 2008, the Office of the CMO (OCMO) has failed to deliver the level of department-wide business transformation envisioned in the legislation, nor met the expectations of multiple SD, DSD, other senior officials or the Congressional defense leadership. There are many reasons for this: since its inception in 2008 and especially since the addition of enhanced statutory authorities in 2018, the OCMO has not taken advantage of its inherent authorities or organizational position; the position has frequently been assigned or assumed tasks unrelated to its core transformational mission, which served to shift focus and effort away from the critical job of long-term transformation of the department; the OCMO has substituted short-term budget cutting drills for fundamental business transformation of the scale required; there continues to be significant overlap and confusion across the department on the role of responsibilities of the CMO relative to the role of the DSD as the Department’s Chief Operating Officer (COO) and other Presidentially Appointed and Senate Confirmed (PAS) positions; the CMO has not shifted the business performance metrics to deal with near-peer adversaries and the DBB FY20-01 CMO Assessment 2 National Defense Strategy (NDS) despite its adoption over two years ago; the CMO does not have an approved charter – a fundamental DoD document that provides leadership and authority; for almost fifty percent of the time during this over 12 year period, the DCMO and then the CMO position has been either vacant or filled by a non-PAS individual in an “acting” or “preforming the duties” of status. For these and other reasons that follow in this assessment, the OCMO has not delivered the needed transformation to the Department. Assessment: Task 1: The extent to which the position has been effective in achieving the desired results, and in exercising its specified powers and authorities: The nearly unanimous response from interviews and document reviews was that the position has not been effective. DoD has not had true transformation of major business processes in decades. - While the OCMO has made positive changes and identified savings – with the substantial help of the Director of Cost Analysis and Program Evaluation (CAPE), the Under Secretary for Comptroller (USD(C)), and outside consultants, it has not been transformational or led to sustained improvements in effectiveness and enduring reductions in costs of existing business processes, gone beyond traditional cost-cutting exercises, or adapted performance outputs to the NDS. Task 2: The perspectives of the Under Secretaries of the military departments based on their experiences as the Chief Management Officers of their military departments: There was a unanimous response from interviewees that the CMO role has not been effective and provided little value added. - Service CMOs are much more effective at utilizing their inherent authorities as the line Under Secretary in their Military Departments (MilDep), whereas the OCMO has not similarly exercised its statutory authorities, particularly since their enhancement in 2018. Task 3: The extent to which the ingrained organizational culture of the Department of Defense poses fundamental structural challenges for the CMO position: The nearly unanimous response received was that the DOD culture and subcultures remain resistant to transformational business process changes. - This is a significant problem and has been for many years. Strong incentives and norms persist to “ignore” or “wait out” transformational or budgetary changes that may negatively affect positions or organizations. Task 4: The observations of the Comptroller General of the United States on progress and challenges during the twelve years since the establishment of the CMO position in DoD: The consistent response among those interviewed was that the CMO has not been effective in most areas. The position has failed to transform and institutionalize enterprise-wide business process changes. This is well documented in dozens of specific GAO reports on the subject. - When the DCMO was created in 2008, GAO had six “High Risk” areas it created in 2009 that are relevant to the position, in 2020 the same six High Risk areas are still on GAO’s list while six others have been added, a condition pointing to a lack of sustained leadership to business process transformation enterprise-wide. GAO continues to believe that the CMO position, as designed and implemented, has not been successful. Task 5: An identification and comparison of best practices in the private sector and the public sector of a CMO-like position: Private and public sector best practices have not been effectively adopted within the DoD. DBB FY20-01 CMO Assessment 3 - The private sector has evolved to a shared services management model commonly known as Global Business Services. In this approach, successful business transformation processes involve the transfer of a function along with ownership of the related people, resources, data, budgets and tools. - This is not the case in DoD. Task 6: An identification and assessment of differences in responsibilities and authorities of the CMO with the DoD Chief Operating Officer (COO) and the Deputy Secretary of Defense: There is much overlap and confusion between the DSD, the CMO, and other organizations and PAS officials with respect to responsibilities and authorities. - Additionally, as currently structured and authorized, the DBB does not believe the CMO can review and oversee the Fourth Estate and simultaneously jumpstart and drive business transformation successfully across the department. In addition to the need to substantially improve the output for enterprise business transformation, the additional areas for major reforms include: • The Defense Agencies and Field Activities (DAFA) have grown substantially in number, costs, and scope. The SD has correctly targeted them for improved management and efficiencies as the current approach is insufficient, to include the more recent role of the CMO. • The Defense Working Capital Funds (DWCF) are used by some DAFA and the services in the range of $100 billion annually. There are close to 200,000 personnel in the organizations that use DWCF. The DWCF do not always realize the purported advantages of decreased costs, price transparency, and price stability. • The large DoD intelligence agencies have also grown in size, complexity, and cost as the threats have changed. However,