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The Department of Defense (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 weapons systems acquisition. Weaknesses in these areas adversely affect DOD’s efficiency and effectiveness, and hinder its ability to free up resources for higher priority needs. As a result, we designated many of DOD’s key business areas as high risk due to their vulnerability to waste, fraud, abuse, and mismanagement. These areas, and DOD’s overall approach to business transformation, are inextricably linked to DOD’s ability to perform its overall mission, directly affecting the readiness and capabilities of U.S. military forces.

We define the scope of DOD’s approach to the business transformation high-risk area as encompassing the activities of the Chief Management Officer (CMO) and Deputy Chief Management Officer (DCMO) in engaging with responsible leaders to influence and provide oversight of business transformation across DOD’s business functions to achieve progress.^[1] 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.

We have reported in our high-risk updates that DOD has taken some actions towards improving its business transformation efforts. For example, DOD developed and issued its first Strategic Management Plan in 2008 and has since updated the plan three times for its business functions. However, given the magnitude of the funds devoted to DOD’s business functions—billions of dollars each year—the impact any failures of these functions can have on national security and on the ability of DOD to meet its missions, and given the long-standing issues we have identified that impact these business functions, we determined during subsequent updates that this area remains high risk.

DOD has demonstrated some leadership commitment and improved capacity toward addressing its business transformation efforts, such as clarifying responsibilities for the CMO and DCMO, and developing the capacity to focus its oversight on such efforts, but more progress is needed. For example, DOD lacks a corrective action plan to help address weaknesses within its business functions, a comprehensive set of performance measures needed to monitor its business transformation efforts, and an ongoing demonstration of progress in achieving results. Until the DCMO works across the department to address these actions and outcomes, DOD will not make the progress needed to transform into a less costly and more efficient department.

Leadership Commitment. DOD has taken steps to demonstrate its leadership commitment for business transformation, but turnover and the ongoing reorganization within the Office of the DCMO presents challenges for DOD to demonstrate effective leadership for this high-risk issue. In February 2013, we found that DOD had issued directives broadly outlining the responsibilities of the CMO and DCMO. Also, the Secretary of Defense issued a December 2013 memorandum to significantly reorganize the Office of the DCMO by consolidating management activities from the Office of the Director of Administration and Management into the Office of the DCMO, and by reassigning responsibility for the oversight of business systems to DOD’s Chief Information Officer. In December 2013, the Secretary of Defense also issued accompanying memorandums outlining broad implementation steps for this reorganization that also acknowledged the need for improved oversight of DOD’s business functions. Office of the DCMO officials finalized its reorganization in December 2014. However, any impact the reorganization will have on DOD’s business transformation efforts is dependent upon future actions the Office of the DCMO undertakes to address long-standing weaknesses.

Several key leadership positions with responsibilities for business transformation efforts have experienced turnover since November 2013. The positions include the CMO, the DCMO, and the DCMO’s Director of the Planning Performance and Assessment Directorate.^[1] DOD has had two CMOs since November 2013. In addition, DOD currently has an Acting DCMO, but there is no time frame for submitting potential candidates for the DCMO position to Congress for confirmation. Until DOD demonstrates consistent leadership towards business transformation efforts, DOD may continue experiencing challenges achieving business transformation goals. To further enhance DOD in its oversight of business transformation efforts, Congress passed legislation in the Carl Levin and Howard P. ‘Buck’ McKeon National Defense Authorization Act for Fiscal Year 2015 to convert the Deputy Chief Management Officer position to an Under Secretary of Defense for Business Management and Information. This new position, to begin in 2017, is expected to provide greater management authority to oversee management of business operations and can help DOD further demonstrate its commitment to addressing business transformation efforts.

Capacity. In February 2013, we reported that the Office of the DCMO has increased its capacity to oversee DOD’s business transformation efforts. Further, as of October 2014, the Office of the DCMO has conducted a high-level assessment of its personnel to determine whom to place where after the ongoing reorganization is complete. The Office solicited preferences from its personnel about the directorates to which they would like to be reassigned. However, the Office of the DCMO has not fully assessed whether there are critical gaps in its capacity to monitor DOD’s business transformation efforts, specifically personnel with the skills needed to collect and analyze performance information. For example, many of the personnel in this office have expertise in business systems and information technology, but few have expertise in strategic planning and performance management. Until DOD fully assesses the skills of its personnel, specifically their ability to collect and analyze performance information, the Office of the DCMO will not have reasonable assurance that it has the capacity to effectively monitor its business transformation efforts.

Action Plan. DOD has not developed a corrective action plan to address business transformation weaknesses and associated root causes. In July 2014, the Office of the DCMO began developing an agency strategic plan that would replace the existing Strategic Management Plan for the business functions. This plan would include a corrective action plan for business transformation. The Office of the DCMO expects to issue the agency strategic plan in February 2015 to align with DOD’s budget. Without a process of accountability for achieving results in their business transformation efforts or a corrective action plan to address related weaknesses, the CMO and DCMO will not be able to effectively hold DOD’s business functions accountable for achieving their goals.

Monitoring. DOD has not established a process to monitor progress toward achieving business transformation efforts across all business functions and does not have a clear or comprehensive set of performance measures to assess progress. In addition, DOD does not measure performance across all business functions. For example, business function officials said that they did not receive feedback on the performance information submitted to the Office of the DCMO. Thus, they were unclear regarding the extent to which their performance information was reviewed or used. In addition, Office of the DCMO officials stated that its performance measures are ineffective in assessing progress. These officials also noted that the information provided by the business functions is unclear and not consistently collected across all business functions. For example, while some of the acquisition performance measures can only be calculated annually, information is requested quarterly. Current measures are also not well aligned with the strategic goals in DOD’s Quadrennial Defense Review, DOD’s most recent overarching defense strategy. As such, these measures will not enable DOD to determine the extent to which the business functions are helping to achieve their missions.

In June 2014, the Office of the DCMO initiated a series of business process and systems reviews of DOD’s business functions, defense agencies, and the Office of the Secretary of Defense to determine the extent to which cost savings and efficiencies can be achieved within these organizations. As part of these reviews, the Office of the DCMO is also working with DOD’s business functions to develop new performance measures. However, there is no timeline for completing this effort across all of DOD’s business functions. As of October 2014, the Office of the DCMO had not provided guidance to business function leaders regarding the development of these new measures, although Office of the DCMO officials mentioned that they may have a draft agency strategic plan prepared by February 2015 that provides new performance measures. Further, the Office of the DCMO is participating in a pilot with OMB to develop a standardized federal data collection system with dashboard capabilities to monitor performance and progress. This system is intended to provide the CMO and DCMO with tools to implement an effective performance management system. However, similar to the business process and systems reviews, no completion date had been set for when this system will become operational. To effectively monitor progress, DOD needs to refine its existing performance measures. Additionally, DOD should conduct data-driven performance reviews frequently and regularly, and use existing governance structures, such as the Defense Business Council, to monitor performance. Until the Office of the DCMO implements a program to better monitor performance, and develops performance measures that will allow it to assess progress and address systemic challenges in its business functions—this office will lack the tools necessary to effectively oversee its business transformation efforts areas.

Demonstrated Progress. While the CMO and the Office of the DCMO are working to improve DOD’s approach towards business transformation, their efforts are in the early stages and the impact on the department is unclear. Specifically, the Office of the DCMO has developed a portfolio-based investment management process for its business systems, known as the Integrated Business Framework. This framework is intended to align business system investments with the guiding principles established by DOD and to enable the department to strengthen efforts to better consider cost. DOD is also required to certify business system programs with a total cost over $1 million. The Office of the DCMO has used this framework to review and certify more than 1,000 DOD business systems to date. However, this framework has neither been aligned with DOD’s budget process nor has it been used to help DOD make better investment decisions across all of its business functions. Moving forward, the Office of the DCMO plans to work with the Defense Business Council to further develop this framework, focus more broadly on other business functions and their cost, and identify needed corrective actions across all business functions. The Office of the DCMO plans to use the Integrated Business Framework to help automate data collection from DOD’s strategies and to help them achieve better alignment across the business functions. Once DOD fully implements its Integrated Business Framework, it will be better positioned to demonstrate progress across DOD’s business functions.

The actions taken by the CMO and the DCMO thus far have not resulted in measureable and sustained positive outcomes, such as cost savings and increased efficiencies across DOD’s business functions. The Office of the DCMO is developing an agency strategic plan expected to be finalized in February 2015, and according to Office of the DCMO officials, it will lay out a strategy for addressing business transformation weaknesses and for identifying cost savings and efficiencies across DOD. The Office of the DCMO expects the agency strategic plan to include corrective actions needed to address business transformation weaknesses which will enable the department to better report on any progress made. Until the Office of the DCMO demonstrates sustained progress by implementing a corrective action plan and a program for implementing corrective measures for all of its business functions, this office will be unable to demonstrate its role in contributing to more effective and efficient business functions at DOD.

In August 2014, we provided DOD with 13 actions and outcomes that we believe it should take to address long-standing weaknesses in its business transformation efforts. Going forward, DOD needs to show measurable and sustained positive outcomes in its efforts. In doing so, it will be important for DOD to make continued progress in addressing the 13 actions and outcomes we provided and also listed below.

• Fill key leadership positions, such as the Director of the Planning and Performance Management Directorate, and demonstrate how these positions directly support efforts to strengthen business functions and implement change and accountability across these functions.
• Implement mechanisms to demonstrate oversight across business functions, to include having business function leaders provide written objectives that contain explicit goals with linkages to department-wide goals.
• Establish expectations and mechanisms to hold business function leaders accountable for diagnosing performance problems and identifying strategies for improvement.
• Lead regular DOD performance reviews regarding transformation efforts and associated metrics and ensure that business function leaders attend these reviews to facilitate problem solving.

• Complete the ongoing human capital gap analysis and take action to address any identified gaps to ensure that DCMO staff have the knowledge, skills, and abilities to analyze and clearly communicate complex data for decision making.
• Ensure that the Office of the DCMO has capacity to collect accurate, useful, and timely performance data.

Complete the development of a corrective action plan that:

•  Identifies roles and responsibilities for implementing corrective actions across DOD’s business functions.
• Establishes implementation goals and time lines to monitor progress in implementing corrective actions.
• 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.
• Identifies 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.

• Refine existing performance measures and update as needed to ensure that the measures assess progress in achieving all key business transformation initiatives, and hold owners of DOD’s business functions accountable for providing input into performance targets.
• Conduct frequent and regular data-driven performance reviews using established performance measures that ensure linkage between DOD goals, program activities, and resources, and use existing governance structures, such as the Defense Business Council, to monitor performance.

• Make substantial progress in implementing a corrective action plan that includes measures addressing the root causes of weaknesses in business functions and details how corrective actions designed to improve DOD business functions will be implemented.
• Complete business process systems reviews across key areas of the business enterprise to identify areas for cost savings and increased efficiencies and effectiveness.
• Implement initiatives that result in measurable and sustained positive outcomes, including cost savings and increased efficiencies, thus promoting the cost culture envisioned by the Secretary of Defense, as noted in DOD’s 2014 Congressional Report on Defense Business Operations.
• 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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• Transforming DOD's Business Operations