CHIPS Articles: A Legacy of Efficiency

When Gates took office in December 2006, the defense budget was buoyed by a strong economy. As he leaves office June 30, the defense budget is declining, strongly affected by the fiscal crisis. While there are many questions regarding the conflicts the United States may become involved in, and other missions the military may be required to perform, in the future, one thing is clear: the defense budget will decline.

From the onset of the financial downturn, Gates proactively worked toward increasing the efficiency of the department with a four-track efficiency program. This approach is designed to move the defense enterprise toward a more efficient, effective, and cost-conscious way of doing business, Gates wrote in a memorandum issued Aug. 16, 2010.

The first track specifies shifting overhead costs to fund force structure and future modernization. The second track invites outside experts to suggest ways for the department to become more efficient. The third track uses front-end assessments to inform fiscal year 2012 budget requests. The fourth, and most challenging track, focuses on reducing excess and duplication across the entire defense enterprise.

Track 1: Shifting Overhead Costs to Force Structure and Future Modernization

The demand for military missions continues to rise; however, savings are still possible. Gates instructed each of the services to find efficiencies in overhead costs and use the savings to strengthen direct support to the warfighter. Gates said, "The goal is to cut our overhead costs and to transfer those savings to force structure and modernization within the programmed budget. In other words, to convert sufficient 'tail' to 'tooth' to provide the roughly 2 to 3 percent real growth — resources needed to sustain our combat power at a time of war and make investments to prepare for an uncertain future."

Secretary Gates originally introduced his efficiency and savings initiative in a May 8, 2010 speech at the Eisenhower Presidential Library in Abilene, Kan., Gates said, "I am directing the military services, the Joint Staff, the major functional and regional commands, and the civilian side of the Pentagon to take a hard, unsparing look at how they operate — in substance and style alike."

This initial direction was codified in a memo to all services June 4, 2010. The memo emphasizes the logic behind the efficiencies, which is to move resources from bureaucracies to accounts for new weapons, existing force structure and personnel bills.

For this tail to tooth effort, Gates directed the Army, Navy, Marine Corps and Air Force to find savings of a combined $84.9 billion from the fiscal year 2012 to 2016 budgets and divert those funds into acquisition, personnel and maintenance accounts. To find these savings Gates instructed the service secretaries to look to many areas of the budget, but to focus in particular on headquarters and administrative functions, support activities and other overhead costs.

Another $17 billion in efficiency savings is sought from other DoD agencies and field activities, such as the Joint Staff, Under Secretary for Intelligence, and others. The total savings are to be spread over five years with each department tasked to find $2 billion in FY 2012; $3 billion in FY 2013; $5.3 billion in FY 2014; $8 billion in FY 2015; and $10 billion in FY 2016. The savings goals and plans will be incorporated into the services' FY 2012 program objective memorandum (POM) proposals.

Jan. 6, 2011, the military departments announced the results of their efforts as outlined below.

The Air Force proposes efficiencies measures will total some $34 billion over five years. Among the proposals are:
• Consolidating two air operations centers in the U.S. and two in Europe;
• Consolidating three numbered Air Force staffs;
• Saving $500 million by reducing fuel and energy consumption within the Air Mobility Command;
• Improving depot and supply chain business processes to sustain weapons systems, thus improving readiness at lower cost; and
• Reducing the cost of communications infrastructure by 25 percent.

The Army proposes $29 billion in savings over the five years. The measures include:
• Reducing manning by more than 1,000 civilian and military positions by eliminating unneeded task forces and consolidating six installation management commands into four;
• Saving $1.4 billion in military construction costs by sustaining existing facilities; and
• Beginning consolidating the service’s email infrastructure and data centers, which should save $500 million over five years.

The Department of the Navy proposes savings of more than $35 billion over five years. Actions include:
• Reducing manpower ashore and reassigning 6,000 personnel to operational missions at sea;
• Using multi-year procurement to save more than $1.3 billion on the purchase of new airborne surveillance, jamming and fighter aircraft; and
• Disestablishing staffs for submarine, patrol aircraft, and the destroyer-squadrons, plus one carrier strike group staff.

Track 2: Inviting Outside Experts

The Defense Business Board provided Gates with recommendations to increase efficiency and find savings across the department in July 2010. Most of the suggestions were incorporated in Gates’ initial efficiencies memo of Aug. 16. The recommendations are grouped under four major recommendations.

First, initiate a hiring freeze and headcount control process. The board recommends that the DoD establish a high-level process to track and control military, civilian and contractor staffing and costs denominated by full-time equivalents. The DBB recommends reducing civilian staffing levels back to FY 2003 levels, or reducing by 15 percent, whichever is greater.

Second, the DBB recommends eliminating organizational duplication and overlap, focusing first in areas, such as in the Office of the Secretary of Defense and Joint Staff, in areas like public affairs, legislative affairs, legal affairs, personnel oversight, and in the office of the Director of OSD Cost Assessment and Program Evaluation (CAPE), Joint Requirements Oversight Council (JROC) and Under Secretary of Defense for Acquisition, Technology and Logistics (USD AT&L).

Third, the DBB recommends downsizing the combatant command staffs. Finally, the DBB recommends curtailing indirect spending by reducing the frequency of duty station moves, reducing travel requirements and the number of conferences, and modifying its end of the year “use it or lose it” policy.

Track 3: Front-end Assessments

In April 2010, the Defense Department released a memo detailing updates to the budget process. As part of the revamping of the budget process known as planning, programming, budgeting and execution (PPBE), Gates directed front-end assessments of 20 capability areas that drive operational, force structure and investment needs, such as long-range strike, shipbuilding, electronic attack, satellites and end strength, to better shape Pentagon spending decisions.

The CAPE is conducting the assessments. The systems to be assessed are: tactical aircraft; integrated air and missile defense; reset of equipment from operations; global posture; cybersecurity; surveillance and reconnaissance; airborne intelligence; long-range strike capabilities; and strategic communications/information operations.

Track 4: Reducing Excess and Duplication Across the Entire Defense Enterprise

The fourth track initially consisted of a series of initiatives designed to reduce duplication, overhead and excess, and instill a culture of savings and restraint across the DoD. As the budget continued to tighten through the end of 2010, the Defense Department refined the objective to include a targeted amount of efficiency savings that will not be reinvested in the DoD.

Jan. 6, 2011, DoD announced that it will cut $78 billion over the next five years from its previously projected Future Years Defense Program (FYDP). The cuts come from four major areas: DoD-wide overhead reductions and efficiencies; shifts in economic assumptions and other changes relative to the previous FYDP; savings to the Joint Strike Program to reflect re-pricing and a more realistic production schedule given recent development delays; and finally, a reduction in the number of active duty Army and Marine Corps personnel.

The Army and Marine Corps will take a 6 percent reduction in ranks starting in FY 2015 with end strengths of approximately 542,000 and 180,000, respectively.

The DoD estimates that its department-wide overhead reductions and efficiencies will generate roughly $54 billion in savings. These changes will affect three areas: personnel, day-to-day operations and individual agency structures. To reduce the costs associated with personnel, the DoD will start by freezing all government civilian salaries for two years. Additionally, for the next three years, the DoD will cut the size of its staff of support contractors by 10 percent per year.

Finally, Gates approved the elimination of more than 100 general officer and flag officer positions from the roughly 900 currently on the books. He also directed the elimination or downgrading of nearly 200 Senior Executive Service, or equivalent positions, from a total of 1,400 civilian executives.

Although the savings will be modest, the primary purpose behind the shift is to create fewer, flatter, more agile, and thus more effective, organizations. Thus, the personnel changes are designed to create a leaner, more efficient cadre of government employees.

The zero-based reviews of OSD, defense agencies, field activities and combatant commands to rebalance resources, staffs and functions within and across components produced a number of opportunities to trim the size of the workforce. Additionally, Gates approved a plan to consolidate hundreds of data centers and move to a more secure information technology enterprise system.

Finally, Gates focused on paring down the costs associated with the multitude of reports that the DoD produces each year. He eliminated nearly 400 internally-generated reports, representing about 60 percent of all non-statutory reports. Also, effective April 2012, the requirement for any internal report with a commissioning date prior to 2006 will be canceled. To increase awareness of the costs associated with producing a report, every report printed after February 2011 must include the cost of its production.

Secretary Gates looked at individual agency structures and the overarching structure of the department and the combatant commands for opportunities to increase efficiency. After the Sept. 11 terrorist attacks intelligence operations multiplied. Therefore, one efficiency effort Gates backs is the consolidation of various redundant intelligence programs into two task forces located within the Defense Intelligence Agency (DIA).

The two task forces will focus on counterterrorism and investigate how terrorism is financed. This effort will change the intelligence organization from one with a permanent organic apparatus staffed on a wartime level to one that can surge intelligence support as needed from the DIA. Additionally, Gates examined possible rearrangements and disestablishments within the DoD. At press time, the Assistant Secretary of Defense (Networks and Information Integration) (NII), Business Transformation Agency and U.S. Joint Forces Command are in the process of disestablishment, with a reduced number of their essential functions transferred to other organizations.

Secretary Gates’ efficiency measures are in motion, but several of the measures proposed require congressional approval.

Although, some independent sources raised questions as to what the true monetary savings of the initiatives may be, Mr. Gates’ changes instilled a cultural change in the Defense Department for more effective resource management.

All speeches by the Secretary of Defense are available at www.defense.gov/secdef/speeches/. Defense Business Board reports are available at http://dbb.defense.gov/.

Amanda George is a strategic analyst in the corporate strategy group of Space and Naval Warfare Systems Center Pacific.