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Chapter 13


The Department of Defense is changing the way it does business. Just as industry was forced to change its ways to be competitive, so too must DoD upgrade its business operations to effectively support future national security strategy. DoD support systems that were once state-of-the-art are now antiquated compared to systems and practices in the corporate world. Other systems were developed in their own defense-unique culture and have never corresponded to the best business practices of the private sector. The November 1997 Defense Reform Initiative Report was a strategic blueprint for the Department that provided a comprehensive approach to adopt better business processes, pursue commercial alternatives, consolidate redundant functions, and streamline organizations while reducing excess infrastructure. The report identified a variety of objectives and laid the foundation for exploration of new ideas. Defense Reform is intended to reduce the Department’s overhead and apply resultant savings to offset modernization and quality of life shortfalls. In conjunction with launching the reform initiative, a Defense Management Council was established as the Secretary’s Board of Directors to provide advice about opportunities and implementation. The 1998 report outlines accomplishments and describes the challenges ahead to improve agility, support operations, and match world-class warfighting skills for the next century.


Incorporating successful private sector practices will bring the management techniques and processes that restored American leadership in the international marketplace into the Department of Defense. Working Capital Funds and Electronic Commerce are two examples of where the Department can benefit from lessons learned from industry.

Working Capital Funds

The Department of Defense annually generates over $70 billion in sales through the Defense Working Capital Funds (DWCF). Intradepartmental sales are primarily to military forces that use funds appropriated by Congress to purchase goods, services, and industrial capabilities from support organizations. The Department has made dramatic changes to DWCF operations over the past eight years in an effort to achieve a more business-like, buyer-seller relationship. Despite these changes, numerous opportunities remain for improvement of management and business operations. Given the size of the DWCF, even modest increases in efficiency to DWCF operations could produce significant benefits and provide savings to enable additional modernization.

A Defense Working Capital Funds Task Force has been established to identify potential improvements to current operations and to propose remedies that will address inefficiencies and customer concerns. While the bottom line is cost reduction, overarching goals are to promote warfighting readiness and enhance agility within the support systems. Previous reviews of the DWCF have focused more narrowly on policy and procedures. There are no such boundaries on the scope of this review. The only guidelines to the Task Force are that it should preserve the Department’s ability to request and account for funds in a manner that meets the needs of the armed forces and is acceptable to Congress. The Task Force will report its recommendations to the Secretary of Defense in spring of 1999.

Electronic Commerce

Electronic commerce refers to a concept adopted by industry several years ago but only recently instituted in a major way by the Department. Electronic commerce combines either incremental process improvement or reengineering of the Department’s business functions with commercially available technology to automate and improve operations. The aim is to establish one-stop shopping for DoD customers and industry. This demands integration of business functions across the entire Department with tools that provide for interoperability and seamless handoffs.

Most of DoD’s business affairs are paper and people intensive and, therefore, expensive and slow. Eliminating and reducing paper enable parallel coordination and processing of information. Thus, the time and expense of physically passing documents from one office to another are eliminated. Information is processed rapidly and responsiveness to contractors and customers is improved.

Electronic commerce is both an internal and external initiative that supports interoperability within the Office of the Secretary of Defense (OSD), among the OSD staff, the Services, unified combatant commanders, and defense agencies. Electronic commerce reform initiatives are not inventions, rather they are interconnected efforts to permit an orderly transition from existing, disparate practices to private sector commercial tools and languages. The Joint Electronic Commerce Program Office was opened in May 1998 to facilitate and develop a Department-wide transition roadmap to commercial practices, products, and standards, where practicable.

DoD recognizes the benefits electronic commerce provides to improve its combat support functions. The course DoD has taken toward a full commitment to electronic commerce will result in tangible savings and will substantively change DoD’s business operations.


The Department seized upon another lesson learned by American businesses and devolved day-to-day program management functions from the Office of the Secretary of Defense to the military departments and defense agencies so that OSD could concentrate on policy and oversight responsibilities. The Defense Reform Initiative outlined a series of improvements to streamline, reduce, or eliminate DoD headquarters elements, beginning with those closest to the Secretary of Defense— OSD and the Joint Staff—to set an example for the rest of the Department. At the same time, complex new challenges require organizations to sharpen their focus.

Defense Threat Reduction Agency

The nature of the nuclear, chemical, and biological challenges facing the nation has changed significantly from that of the Cold War. With the increased possibility of nuclear, chemical, or biological weapons use in regional conflicts or against the U.S. homeland, the weapons of mass destruction (WMD) threat is now far more diverse and complex. The Defense Threat Reduction Agency (DTRA) was established on October 1, l998, to provide the institutional means for a more focused response to new security challenges. The mission of the new agency is to reduce the threat from nuclear, biological, chemical (NBC) weapons and other conventional weapons; to support U.S. nuclear deterrent efforts; and to provide technical support on WMD matters to DoD components. Working in close coordination with OSD, the Services, and the commanders in chief, DTRA will provide the technological, operational, and intellectual underpinnings of the Department’s WMD expertise. By integrating the On-Site Inspection Agency, the Defense Special Weapons Agency, the Defense Technology Security Administration, and certain functions of the Assistant to the Secretary of Defense for Nuclear, Chemical, and Biological Defense Programs, the Department will provide for a more efficient and coordinated response to new WMD challenges. DTRA will implement technology security, Cooperative Threat Reduction, arms control treaty monitoring and on-site inspections, force protection, NBC defense, counterproliferation support, and nuclear sustainment missions and programs. OSD will continue to exercise critical jurisdictional oversight and authority over DTRA. A Threat Reduction Advisory Committee of distinguished experts from public and private sectors was established to advise the Secretary, the Under Secretary of Defense for Acquisition and Technology, and the DTRA Director. The Under Secretary of Defense for Policy remains responsible for supervising and directing the Department’s activities related to export controls.


Competition is a driving force in the American economy. However, public-private competition presents both an opportunity and a dilemma for the military. Efficiencies derived through competition must be balanced with readiness and warfighting capability. Competition can improve quality, reduce costs, and provide better focus on customers’ needs. Maintaining unneeded facilities drains limited resources. Non-core functions should not be performed by DoD uniformed or civilian personnel unless the Department can do the job better and more cheaply, and uniformed personnel can meet wartime planning requirements.

Every review of the Department’s costs has resulted in recommendations for expansion of competitive outsourcing of selected government functions to the private sector. Public-private competition is a critical enabler for Defense Reform Initiative reforms because it generates disclosure of activity-based cost data, provides a fresh review of functional processes and procedures, and provides options for decision makers. The internal examination phase of this process creates a transparent environment that encourages and identifies greater efficiencies within the organization. The larger the scope of a function to be competed, the greater the potential savings—even when the government wins the competition. Competitive sourcing will produce estimated savings of over $11.2 billion from 1997 to 2005, with annual recurring savings thereafter of more than $3.4 billion. DoD has dramatically increased the number of public-private competitions to be considered for evaluation, and major improvements have resulted from the process. Changes under existing regulations include expanding authority to waive required studies, limiting the length of the process, standardizing costing methodology, and considering performance and value, rather than just focusing on cost. As a result, contract performance measures and cost standards can now be used more widely to assess and compare public and private sector performance. Efforts to improve implementation of the public-private competition process include incentives to conclude competitions early and to catalogue lessons learned. DoD has established a Competitive Sourcing and Privatization Directorate in OSD to assist the Services, focus Department efforts, remove barriers, and improve the process.


Reform initiatives are not just about reductions and eliminations. They also enable improvement of the work environment and conservation of resources that can directly benefit the quality of life of DoD civilians and service members. A few of the many ongoing quality of life initiatives that the Department is pursuing include establishment of the career transition office, establishment of the Office of Chancellor for Education and Professional Development, reengineering more efficient travel procedures, and streamlining the shipment of household goods.

The Career Transition Office is intended to advise and counsel military and civilian personnel regarding employment options and alternatives. The office provides information and assistance for personnel who are threatened or displaced by downsizing, outsourcing, and other changes in the working environment.

The Office of the Chancellor for Education and Professional Development for civilian professionals has been established to enhance the quality of the Department’s professional education, including standards for curriculum and faculty. The Secretary selected the first Chancellor in October 1998.

Reengineering the travel process in the Department is another example of quality improvements. Until recently, the DoD travel system served neither the customer nor the Department appropriately. The system imposed cumbersome procedures and paper-intensive processes on employees. The revised process focuses on three critical areas: temporary duty (TDY), ready reserve travel (RRT), and permanent duty travel (PDT). Early successes in TDY reengineering efforts resulted in cutting travel regulations from 220 pages of complex text to 17 pages of plain English. The process is simplified and automated, administrative costs are reduced, and millions of dollars are saved per year. TDY improvements provide a foundation for reengineering both the equally cumbersome and costly RRT and PDT processes. These travel processes are further simplified by taking advantage of automated procedures such as electronic funds transfer. Reimbursement to the customer has been expedited.

Another quality of life improvement adopted from industry led to the fundamental redesign of the DoD system for moving household goods. This system, previously mired in red tape, burdened by excessive regulation, and plagued by poor customer satisfaction, is now more customer-oriented and simplified. Household goods shipping costs have been reduced substantially since the employee participates in all aspects of the moving process.


Change is difficult. But nowhere is the need for change more obvious than on the business side of defense. Taking advantage of lessons already learned in private industry has made it possible for the Department to lay out a sensible road map for improving efficiency and reducing overhead costs. Applying lessons from private industry is not always easy but the urgency to do so is underlined by DoD’s aging equipment and availability of a new generation of information-based systems. Competition, elimination, and reengineering are not the only answers, but they are essential ingredients to defense reform. If DoD can streamline organizations, focus on current threats and concerns, and care for career civil servants and military members, it will be able to reapply the savings to modernization programs. The Defense Reform Initiative is an effort to build a new and more flexible Department of Defense for the challenges of the future. It is a long-term and comprehensive initiative designed to institutionalize fundamentally new approaches to conducting business and transform one of the world’s largest organizations into a world-class operation that supports its warfighters efficiently and effectively.

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