Key Issues > High Risk > DOD Approach to Business Transformation
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DOD Approach to Business Transformation

This information appears as published in the 2017 High Risk Report.

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The Department of Defense (DOD) has taken some positive steps since the 2015 high-risk update to improve its business transformation efforts.1 For example, DOD has established the Defense Business Council (DBC) to serve as a senior-level governance forum for its business functions, and issued an Agency Strategic Plan that includes business transformation priorities and which the department is using to guide its business operations. However, additional steps are needed to address long-standing weaknesses in DOD's business operations and remove this issue from the High-Risk List.

DOD spends billions of dollars each year to maintain key business operations intended to support the warfighter, including systems and processes related to the management of contracts, finances, the supply chain, support infrastructure, and weapon systems acquisition. Weaknesses in these areas adversely affect DOD's efficiency and effectiveness, and render its operations vulnerable to waste, fraud, and abuse. DOD's overall approach to transforming these business operations is inextricably linked to DOD's ability to perform its overall mission, directly affecting the readiness and capabilities of U.S. military forces.

We added DOD's overall approach to managing business transformation as a high-risk area in 2005 because DOD had not taken the necessary steps to achieve and sustain business reform on a broad, strategic, department-wide, and integrated basis. Further, DOD's historical approach to business transformation has not proven effective in achieving meaningful and sustainable progress in a timely manner. For example, DOD had not established clear and specific management responsibility, accountability, and control over business transformation-related efforts and applicable resources across business functions. Also, DOD did not have an integrated plan for business transformation with specific goals, measures, and accountability mechanisms to monitor progress and achieve improvements.

[1] The scope of DOD's approach to the business transformation high-risk area encompasses the activities of the Chief Management Officer and Deputy Chief Management Officer in engaging with responsible leaders to influence and oversee business transformation across DOD's business functions to achieve progress. DOD's business functions include: financial management, acquisition, defense security enterprise, installations and environment, logistics, human resources and healthcare management, security cooperation, and enterprise information technology infrastructure.

DOD Approach to Business Transformation

Since 2005, DOD has demonstrated some leadership commitment and notably improved capacity toward addressing business transformation efforts, such as assigning responsibility for agency goals and objectives. DOD has also taken several notable steps to improve its capacity to monitor DOD’s business transformation efforts, such as developing position descriptions for management analysts, and updating the mission for the Office of the Deputy Chief Management Officer’s (DCMO) Planning, Performance, and Assessment directorate to fulfill performance management-related requirements. While DOD has demonstrated some progress through undertaking initiatives intended to improve the efficiency of its business processes, DOD has not 1) fully developed a corrective action plan, 2) consistently held performance reviews that include department-wide performance information, and 3) fully established accountability mechanisms for meeting performance targets. Until DOD makes further progress in addressing these actions and outcomes, its progress in transforming into a more efficient department will be limited.

To date, Congress has passed legislation that could assist DOD in addressing this high-risk area. For example, the National Defense Authorization Act for Fiscal Year 2017, among other things, created a distinct Chief Management Officer (CMO) position effective February 1, 2018, with the mission of managing, establishing policies on, and supervising the business operations of the department. This position would also have the authority to direct the Secretaries of the military departments and the heads of all other DOD components with regard to matters for which the CMO would have responsibility. Before the implementation of this position, the Secretary of Defense is required to conduct a review of the disposition of leadership positions, subordinate organizations, and defined relationships, including the placement and responsibilities of the new CMO position. Specifically, it requires

  • a proposed implementation plan for how the Department would implement its recommendations;
  • recommendations for revisions to appointments and qualifications, duties and powers, and precedent in the Department;
  • recommendations for such legislative and administrative action, including conforming and other amendments to law, as the Secretary considers appropriate to implement the plan; and
  • any other matters that the Secretary considers appropriate.

A final report is due to the defense committees by August 1, 2017. Continued congressional attention to addressing this high-risk area will be essential going forward.

In August 2014, we provided DOD with a letter that outlined 13 actions and outcomes that we believe it should address in order to mitigate or resolve long-standing weaknesses in its business transformation efforts. Based on discussions with DOD officials and recent efforts across the department as of October 2016, we believe that DOD has addressed 5 of the 13 actions and outcomes, but have yet to address 8 actions and outcomes. These actions and outcomes are based on the five high-risk criteria for removal: leadership commitment, capacity, action plan, monitoring, and demonstrated progress. For the capacity criterion, while we believe the actions and outcomes we have identified remain important, we also believe they have made notable progress in this criterion to be considered as met, such as reviewing the systems and functions of the Office of the DCMO and Office of the Secretary of Defense (OSD) organizations, and improving the alignment of its personnel with the strategic goals in the draft Agency Strategic Plan. For the remaining four criteria, DOD needs to show measureable and sustained positive outcomes in addressing the remaining eight actions and outcomes. This includes, among other things, DOD continuing to hold business function leaders accountable for performance, refining or developing a more comprehensive corrective action plan as well as existing performance measures, and achieving measurable and sustained outcomes.

Leadership Commitment: DOD should

  • continue to hold business function leaders accountable for diagnosing performance problems and identifying strategies for improvement; and
  • continue to lead regular DOD performance reviews regarding transformation goals and associated metrics and ensure that business function leaders attend these reviews to facilitate problem solving.

Action Plan: DOD should

  • refine the performance action plan or develop a corrective action plan that identifies initiatives to address root causes, including critical links that must be present among the initiatives, and the processes, systems, personnel, and other resources needed for their implementation. The corrective action plan should also identify tradeoffs, priorities, and any sequencing needed to implement the initiatives, and help leaders plan for and provide the resources needed to make the corrective actions identified.

Monitoring: DOD should

  • continue to refine existing performance measures to ensure that measures assess progress in achieving all business transformation initiatives as needed, and hold owners of DOD’s business functions accountable for providing input into performance targets; and
  • conduct frequent and regular data-driven performance reviews using established performance measures, and use existing governance structures, such as the DBC, to assess department-wide performance including the military departments.

Demonstrated Progress: DOD should

  • make substantial progress in implementing a corrective action plan that includes measures addressing the root causes of shortfalls in business functions, and details how corrective actions designed to improve DOD business functions will be implemented;
  • continue to implement initiatives that result in measurable and sustained positive outcomes over several years, including cost savings and increased efficiencies, thus promoting actions that control costs across the department envisioned by the Secretary of Defense, as noted in DOD’s 2014 Report to Congress on the Defense Business Operations; and
  • document and report on progress in implementing corrective actions across business functions to Congress and other key stakeholders to strengthen accountability; progress could be reported in the annual report to Congress on DOD Business Operations or through other means.
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  • portrait of Elizabeth Field
    • Elizabeth Field
    • Acting Director, Defense Capabilities and Management
    • (202) 512-2775