TESTIMONY OF
THOMAS BURLIN
PARTNER, U.S. FEDERAL INDUSTRY AND GLOBAL GOVERNMENT LEADER
IBM CORPORATION

BEFORE THE
HOUSE ARMED SERVICES COMMITTEE
SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES
UNITED STATES HOUSE OF REPRESENTATIVES

REGARDING DOD BUSINESS TRANSFORMATION EFFORTS

 March 31, 2004  

Mr. Chairman and Members of the Subcommittee, I am Thomas Burlin, Partner, U.S. Federal Industry and Global Government Leader for IBM.  IBM appreciates the committee's invitation to talk about Business Modernization efforts at the U.S. Department of Defense (DoD).  We are pleased to submit this written testimony for the committee's record.

Team IBM

Leading the Defense Department's Business Management Modernization Program (BMMP) is Team IBM, comprised of IBM and main subcontractors KPMG, Science Applications International Corporation, Computer Sciences Corporation and American Management Systems, with small-business contractors Infolynx, Alliance International Corporation, Popkins, Spherion and Vertex Information and Computer Consulting Services.  In total, approximately 250 professionals from these organizations are working on the program.

IBM's Business Transformation

The committee has requested basic information about IBM's own business transformation.  We are pleased to share that story and show its obvious relevance to the business modernization efforts currently in progress at the DoD.

IBM has undergone a major financial, competitive, and cultural transformation since 1993. That year, a new vision took hold within IBM that sought to refocus on the customer and the marketplace as the measure of success, and recreate the company as an integrator that could translate technology into business value.

The need for this transformation was self-evident:  In 1993, our stock price hit a 20-year low.  We posted an $8.1 billion loss.  We failed to recognize fundamental changes in the marketplace and saw our profit margins evaporate.  IBM operated 24 separate business units, which together sold more than 5,000 hardware products and 20,000 software products.  Efforts at cost-cutting and efficiency were dampened by our size and complexity of our operations.

IBM's transformation began with a fundamental examination of everything the company was doing and the processes by which the enterprise was being run.  Cutting costs and driving common processes and systems across the entire global IBM organization became the key to going to market as One IBM.  Among our efforts:

• Internal Business Processes -- By consolidating and focusing on our internal business processes, IBM improved our time-to-market by 75 percent.  This saved more than $9 billion.

• Software Applications -- Prior to our transformation efforts, IBM ran more than 16,000 unique software programs.  Now that number is less than 6,000. 

• Infrastructure -- Within IBM, we consolidated 155 data centers, 128 CIO positions, 31 private networks and hundreds of different PC configurations into:  12 data centers worldwide; one network; four PC configurations; and one CIO.

These were but a few of our internal accomplishments.

As a recent IDG case study put it, "Since IBM embarked on its business transformation nearly a decade ago, the company has gone from a collection of siloed business units to an agile and integrated enterprise focused on the customer."

IBM has seen direct business results from this transformation:

• From 1994 through 2003, IBM's e-business transformation efforts have realized $17.4 billion in cost savings from $6.4 billion in investment.

• From 1993 to 2003, IBM reduced IT spending by 31 percent, while building our IT infrastructure to support new applications and processes, additional workload volume, enhanced functionality and acquisitions.

• We have continued to move procurement to the Internet, now purchasing some 95 percent of goods and services electronically, generating more than $400 million in cost avoidance.

Now we have taken our transformation a critical step further:  creating the e-Business On Demand model that we believe will be the driving force in global business in the near future and beyond.

An on-demand business is an enterprise whose business processes -- integrated end-to-end across the company and with key partners, suppliers and customers -- can respond with agility and speed to any customer demand, market opportunity or external threat.  An on-demand business:

• Is responsive -- responding almost intuitively to dynamic, unpredictable changes in demand, supply, pricing labor, competitors' moves, capital markets and the needs of its constituencies -- customers, partners, suppliers and employees.

• Uses variable cost structures and adapts processes flexibly.  This flexibility will enable it to reduce risk and to do business at high levels of productivity, cost control, capital efficiency and financial predictability.

• Is focused on its core competencies, its differentiating tasks and assets, while tightly integrated strategic partners manage selected tasks -- from manufacturing, logistics and fulfilment to HR and financial operations.

• Is resilient enough to manage changes and threats -- from computer viruses, to earthquakes, to spikes in usage -- with consistent availability and security.

IBM believes that as governments across the world, including the United States and its agencies, adopt and embrace the on-demand model, our leaders will be enabled to see and manage their agencies as an integrated whole, central to the transformation process.

BMMP Background

In April 2002, the U.S. Department of Defense (DoD) contracted with IBM to develop a framework to transform and modernize the way DoD conducts all of its business operations, to include strategic planning and budgeting, financial management and accounting, installations and environment, human resources, logistics, and procurement. This framework has four main keystones:  1) A "to-be" DoD Business Enterprise Architecture; 2) A capabilities driven Transition Plan; 3) Portfolio management and system assessment; and 4) A transformation governance and champion organization.  Developing this framework has been and remains a massive undertaking involving over 2,000 information systems and many thousands more business processes.

The "Business Enterprise Architecture" (BEA) is the executable reference model of the Enterprise Business and Technology Strategy.  The BEA model is described in terms of the integrated views that represent the enterprise end-to-end operational processes and activities, information exchanges and the corresponding systems and technology requirements.  The BEA model is executable because it provides a clear template for programs and solutions that enable the end-to-end missions of DoD Services and Agencies.  The operational results of these BEA compliant programs and solutions will collectively achieve the Enterprise strategic goals.  The BEA model is executable because it facilitates the development of a Transition Plan based on BEA derived operational capabilities.  The BEA model is executable because it enables portfolio management and system assessment in support of the Transition Plan.

With over $1 trillion in assets, an annual budget of $378 billion and 3 million military and civilian employees, DoD may be the world's largest and most diversified enterprise. Therefore, the DoD's business enterprise architecture is the largest, most complex and most pervasive business enterprise architecture developed to date, either in the public or private sectors.

Historically, the Department's Services and agencies have used many individual procedures to conduct their work, as well as a multitude of systems to support those procedures.  Most of these business processes have focused primarily on the Services' and agencies' own operations, and frequently lack the ability to communicate or share data within the Department.  This has placed limits on DoD's ability to provide timely, accurate, and reliable business and financial-management information.  In turn, this has created higher than necessary costs for performing the business of defense.

From April 2002 to April 2003, the focus of the Business Management Modernization Program (BMMP) was on the development of the department-wide Business Enterprise Architecture and the transition plan under which DoD will move from its "as-is," or current, processes and systems to the "to-be" processes and systems that will drive its business operations in the future.  IBM delivered the initial version of the Business Enterprise Architecture on May 1, 2003, on schedule and under budget.  This initial version is the "to-be" Activity Model view of the architecture depicting more than 740 activities, 2,589 information exchanges, 9,946 definitions, 76 data stores, 1,081 business rules, and 4,020 business and financial requirements.

BMMP will enable DoD to provide greatly improved support for the warfighter.  The program will aid DoD in a vast array of tasks, from the mundane - such as issuing supplies on time and with reduced paperwork - to those critical to our country's defense - such as identifying chemical warfare experts through an integrated employee information profile or pinpointing what munitions are available at any given place at any given moment.  When the transformation is complete, DoD should be able to spend fewer dollars on business processes and systems, and more on its war-fighting mission.

The Business Enterprise Architecture is just the first step on a long road to transformation.  Just as IBM honed its focus on a select group of processes as it began its own transformation some 10 years ago, DoD has selected seven high-impact segments of the architecture for further work.  These seven segments are detailed later in this testimony.  Those segments include further business process re-engineering and definition of corporate data.

Culture change is a key component of BMMP.  Hundreds of existing policies will change.  Dozens of existing systems will be modified.  More than 1,000 existing systems will be phased out and more than 100 new systems will be implemented.

IBM is leveraging its transformation and enterprise architecture development experience by providing senior advice on transformation to the Department of Defense.  This advice includes strategy and change consultants who establish the necessary framework  for the enterprise architecture as a foundation tool to enable business management modernization.  Team IBM provides the architecture development methodology and the corresponding skilled activity and process-modeling experts.  The architecture development scope also includes the information exchange modeling to support the Department's leading Net Centric Enterprise Services strategy.  Team IBM is also providing architecture integration and quality assurance expertise.  Further, Team IBM is providing advice on how to leverage the BEA to enable system assessment and portfolio management.

Finally, IBM is providing senior advice and assistance to development of the Transition Plan as the roadmap for DoD transformation.  This transition plan is based on the identification of the "to-be" capabilities.  These capabilities describe the BEA in terms of executable portions to achieve key enterprise operational outputs, in support of DoD Services and agencies end-to-end missions.

In summary, IBM will continue to support architecture development and transformation efforts to help DoD achieve world-class business management and operations while enabling appropriate financial management.

Overview

Team IBM -- and in this, we mean IBM and our BMMP partners -- has made, and is making, significant progress in its collaboration with DoD to achieve the Department's transformation goals.  During the past two years, we made inroads in defining the direction and tools necessary to develop a Business Enterprise Architecture that will be enduring and effective in the near and far terms.  This architectural framework includes high-level processes that will serve as the integrated blueprint to transform the Department's business and financial systems.  It is comprised of models, diagrams, tables and narratives that will translate DoD's business activities into meaningful business processes.  It will also help the Department to accomplish its primary goal to achieve a Clean Audit Opinion by 2007 and provide timely and accurate information and support to the warfighters and support staffs.

As part of IBM's transformation, we documented and refined certain "best practices" and lessons learned that are vital to organizational change and improvement.  IBM has used these not only within our corporation, but with commercial customers as well.  These practices and lessons learned are now being applied to our government customers, including DoD and its modernization program.  Our intent is to ensure that we bring all available knowledge and skill to this project.  While there are many successful transformation stories, none to our knowledge can rival the size and complexity of the work at DoD.  Therefore, it is critical to proceed with precision and deliberateness to assure we address the right issues in the right manner to achieve the desired outcomes and results.

During this past year, working with the government staff, we have completed the difficult task of refining our strategy, solidifying our approach and determining the appropriate model to eliminate the costly stovepiped and duplicative systems that DoD currently maintains.  In building the BEA, we are developing a Defense-wide information technology infrastructure that will include all appropriate system requirements associated with critical infrastructure protection and information assurances to ensure consistency with DoD's Joint Technical Architecture.

BMMP Accomplishments

From our own transformation experience, IBM realized that the basic transformation process is a journey and not an end.  Results and change are evolutionary, not revolutionary.  While we have indeed encountered challenges implementing BMMP at the Department, already we are seeing measurable results that have positive impact on the Department's business processes and capabilities.  These successes include the following:

-    Developed and implemented a broad-based program strategy.

-    Created initial versions of a Business Enterprise Architecture (BEA) and a Transition Plan.

-    Established a Department-wide governance structure for business transformation.

-    Outlined a portfolio management process and corresponding system-assessment process design.     

-    Developed the methodology for business processes reengineering and modeling.

-    Provided extensive support for the Domain's business process reengineering.                      

-    Developed an initial inventory of business systems.

-    Completed 27 Accounting and Finance workshops with our Domain partners    resulting in the identification of accounting and financially relevant rules and     requirements necessary to correct material weaknesses in the Department's Financial Statements and the corresponding required financially relevant transactions.

-    Identified the basic template for a Standard Accounting Code Structure.

-    Developed the template and pro forma entries for implementation of a Standard General Ledger.

-    Developed an initial Business Process Reference Model to use as a starting point for Business Process Reengineering and Modeling across the Department.

Please recognize that the journey toward total transformation has just begun.  The architecture is still evolving and will be updated continually.  Realizing that there must be an active and implementable plan of action, we are taking steps to ensure that the transition plan correlates with the architecture and that it contains measures that help us control future investments in business systems.  It will also encourage retirement of outdated legacy systems as quickly as possible.

Strategic Implementation

Determining where to begin this transformation process was, and is, a critical success factor for designing the BMMP.  It was not an easy task.  Given the fact that the Department is comprised of separate but interrelated Services and agencies, we spent time familiarizing ourselves with the disparate functions, missions, and cultures that would have to be addressed and/or changed to effect a successful business transformation process.  Using the lessons learned from the IBM transformation, we diligently explored the landscape to determine the best approach needed to the tackle the mammoth task of eliminating the inefficient systems and procedures that impede progress towards establishing systems integration with a traceable audit trail.  In this regard, we supported the Department's decision to organize its architectural development around the seven functional Domains that own the processes and could thereby determine the best means to identify problems and help formulate solutions.  This Domain approach allows specific focus on key functional process improvements and portfolio management.  It also brings additional challenges to the overall transformation, governance, and integration of the different Domain views into end to end models and integrated capabilities that are necessary to support end-to-end missions of the Department.

The Department's six Domains and one mission area are listed below:

-    Accounting & Finance - Under Secretary of Defense (Comptroller);

-    Acquisition - Under Secretary of Defense (Acquisition, Technology and Logistics);

-    Human Resources Management - Under Secretary of Defense (Personnel and Readiness);

-    Installations and Environment - Under Secretary of Defense (Acquisition, Technology, and Logistics);

-   Logistics - Under Secretary of Defense (Logistics);

-    Strategic Planning & Budgeting - Under Secretary of Defense (Comptroller), and;

-   Enterprise Information Environment Mission Area - Assistant Secretary of Defense (Networks and Information Integration/Chief Integration Officer).

We are supporting these Domains with manpower resources, advice, and counsel to help them achieve their assigned mission:  Establish and maintain an intra-Domain governance process; develop the functional enterprise architecture; and manage its portfolio IT systems to ensure compliance with the BEA. 

The Architecture

Designing a dynamic and enduring architecture continues to require total commitment, cooperation, and leadership support across all components and functional areas in DoD.

The initial version of the BEA was delivered in April 2003.  The current version of the BEA is being delivered in three incremental phases, with versions 2.0, 2.1, and 2.2 being delivered February, April and July 2004, respectively.

The BEA versions to be delivered in the third quarter are focused on five objectives:  1) The determination and consolidation of the necessary business rules and requirements to be observed by business management operations in order to achieve Increment 1 goals; 2) The integration of the Domain business process reengineering efforts into one architecture, activity and process views to represent both the Domains models and the enterprise end to end operations; 3) The incorporation of the requirements and rules into the process model in enough detail such that resulting transactions from compliant programs and solutions enable Increment 1 goals; 4) A new enhanced system assessment process to leverage the new BEA version; and 5) Updates to the Transition Plan.

Increment 1 is focused on resolving material weaknesses, providing asset accountability, and supporting the achievement of an unqualified audit opinion.  The additional incremental releases will enable end-to-end process models that define capabilities, data ownership, information flows, and unique responsibilities for each succeeding release.

Governance

The management of business transformation has been vested with the owners of the Department's major business areas called Domains, as previously cited.  The Department's Comptroller and Chief Information Officer oversee the major activities undertaken to implement business transformation goals.  We have worked within the Department to establish a governance structure that includes participation of the Department's senior military and civilian leaders.  We have created, and are using, a hierarchy of governance committees to address and resolve both higher and lower-level management issues.  Through the Program's Executive and Steering Committees, the Secretary's senior political leaders provide strategic direction and guidance.  These committees and other program governing bodies include representatives from both the Office of the Secretary of Defense, the Military Services and Defense Agencies.  Team IBM attends all meetings, assists with agenda planning, and ensures appropriate tasks and activities are completed timely and incorporated in the BEA as appropriate.

Transition Plan

We have assisted in designing a transition plan that provides a high-level approach to guide effective implementation of the business architecture.  Like other program components, the plan is evolutionary and designed to support the capability-based structure.  We focus on those capabilities that are core, fundamental building blocks for the program.  These capabilities represent an implementable portion of the architecture and replaces the former concept of segments.  In brief, the plan:

-    Outlines a systematic approach to managing the implementation of the architecture;

-    Establishes key milestones for implementing each capability, and;

-    Provides an enterprise-level view of the transition process by summarizing implementation plans and related decisions from the business Domains and DoD's components. 

Procedures exist to update the transition plan by identifying more specific timeframes for our transformation efforts and by adding portfolio reviews of information-technology investments.  Future versions of the plan will incorporate the pertinent changes stemming from the release of each version of the architecture.  We will work closely with the Chief Information Officer to assure the requirements included in the architecture conform to the Department's net-centric strategy.

Stakeholder Involvement

Our personnel are working side-by-side with our government leaders to garner acceptance of, and support for, the BEA, and to provide the necessary information and support to Services and agencies.

Challenges/Lessons Learned

Team IBM has a wealth of knowledge and experience, but we are aware that adapting transformation models from the private sector to the Federal Government structure is not easy.  Given the shared leadership among the military and civilian leaders, the resounding culture differences among the Services, varied infrastructure stages of development, existing policies and past practices, delivering a top-down model for implementation is formidable.  The breadth, depth, and different missions, compounded by national and international interests, further add complexity to our mission.  We are cognizant of the need for change management and individual Service involvement in the planning and execution stages of the BEA development and are providing our technical advice and support wherever needed.  Further, we are aware of other related ongoing DoD transformation activities that must be considered and integrated into the enterprise architecture, so we are busy working with all interested and affected stakeholders to receive their support and ideas to make the BEA acceptable as an enhancement and expansion to all other reform actions.

Summary

We are pleased that we were selected to assist the Department in achieving its business transformation goals.  We are committed to delivering the best possible advice and a BEA that will support the BMMP.  We look forward to working with our Defense partners to deliver a first class BEA to improve business operations and provide timely information to leaders so they can make timely and informed decisions to more effectively support DoD readiness and joint strike capability to enable the nation's defense forces to be both agile and adaptive to any emerging threat.

Thank you for this opportunity to discuss this most important program with you.