Creating Defense Excellence:

Defense Addendum to 

Road Map for National Security

May 15, 2001 

U.S. Commission on 

National Security/21st Century 

Prepared by: 

 Dr. Pat Allen Pentland 

 Study Group Coordinator 

 USCNS/21st Century
U.S. Commission on National Security/21st Century 

2 Creating Defense Excellence 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence i

Contents 

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

I. DoD Structural Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

A. Realigning Staff Roles and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 1. Staff of the Office of the Secretary of Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 2. The Joint Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 3. The Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 4. The CINCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

B. Reducing DoD’s Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 1. The Infrastructure Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 2. The Defense Working Capital Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

3. The A-76 Outsourcing Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

4. Need for Common Visibility over Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . 

5. A Plan to Outsource and Privatize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

II. DoD Process Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

A. Reforming the PPBS Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 1. How the PPBS Process Works — Theory and Reality . . . . . . . . . . . . . . . . . . . . . . 

 2. Adjusting the PPBS Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 3. PPBS Lacks “Top-Down” Guidance and is “Bottom-Up” Driven . . . . . . . . . . . . . 

 4. Involving Senior Defense Leadership in Strategic Planning . . . . . . . . . . . . . . . . . 

 5. Developing and Elevating Alternatives via the PPBS . . . . . . . . . . . . . . . . . . . . . . 

 6. Output Focus with Joint and CINC Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 7. Revising Programming and Analysis Mechanisms for the PPBS Process . . . . . . . 

B. Reforming the Defense Acquisition System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 1. Role of Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 2. The Defense Industrial Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 3. Acquisition Reform Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 4. Acquisition Reform Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 5. Innovation and Experimentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 6. Improving Program Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 7. Improving Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 8. Incentivizing New Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

III. Military Capabilities Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

A. Force Sizing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 1. Problems with Current Force Planning Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 2. A Capabilities-Based Planning Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

B. Military Forces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

C. Military Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

D. Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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U.S. Commission on National Security/21st Century 

Creating Defense Excellence ii

IV. Implementing Defense Reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

A. Defense Reform Prerequisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 1. Linking Reform to Strategic Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 2. Involving DoD Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 3. Selecting Critical Initiatives to Pursue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

 4. Establishing a Sound Implementation Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . 

B. Defense Reform Game Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

National Security Study Group Staff, Contractors, Consultants, and Advisors . . . . . . . . 

List of Figures 

1. The “Theory” of PPBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2. The “Current Reality” of PPBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

3. Current OSD (PA&E) Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

4. Proposed OSD (PA&E) Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

5. Current “Four-Phase” Acquisition System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

6. “Three-Phase” Acquisition system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

7. Defense Reform Game Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

List of Tables

1. Current Major Force Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

2. Joint Warfighting Capabilities Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

3. Proposed Major Force Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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U.S. Commission on National Security/21st Century 

Creating Defense Excellence iii

Preface 

he National Security Study Group (NSSG) is a chartered entity that provides basic 

research and analytical support for the U.S. Commission on National Security/21st

Century (USCNS/21). The NSSG has issued reports through its Executive Director, and has 

traditionally done so through the medium of “Supporting Research” or “Addenda” associated 

with specific reports. The NSSG prepared this Addendum at the original direction of the 

Commission. Because the Department of Defense (DoD) plays a crucial role in national security, 

the Commission and Study Group considered it important to expand on a number of defense 

reform recommendations in the Phase III report, Road Map for National Security: Imperative for 

Change. Of concern were those DoD structural, process, and military capability reforms in 

Section III, D, of the main report. The Commission believed that additional explanation and 

analysis would prove useful to those charged with reforming the Department. However, we 

deliberately excluded other defense reform topics and recommendations from this Addendum. 

The Phase III report contains sufficient details about DoD support to Homeland Security (Section 

I) and on military personnel reforms (Section IV). In addition, the Commission has developed 

detailed implementation plans for those sections of the report. (See Road Map for National 

Security: Addendum on Implementation.) 

Thus, this Addendum supplements the Phase III report, and primarily reflects the work of 

the full-time NSSG staff, a collection of national security scholars and practitioners. 

Nevertheless, while the Addendum mirrors the structure and recommendations of a section of the 

main Commission report, it also provides additional material. The Commissioners unanimously 

concurred on all 50 Phase III major recommendations contained in the main report and on the 

numerous supplemental recommendations, although they did not agree with every nuance 

contained in that report. 

Likewise, not all the expanded material in this Addendum has been reviewed and 

unconditionally approved by the Commission. To highlight this distinction, this Addendum 

presents fully approved Commissioner recommendations in bold, italic text, and it specifically 

identifies USCNS/21 proposals with the word “Commission.” Conversely, it presents

recommendations expanded by the Study Group in non-bold, italic text, and clearly identifies new 

material associated with these proposals with the acronym “NSSG.” Moreover, this Addendum 

informs a different audience, and contains a greater level of detail than the main report. Many 

senior executives would probably not concern themselves with such a “nuts and bolts” discussion, 

but the complexity of defense reform demands further elaboration. Thus, this Addendum should 

also assist interested parties in further understanding the Commission’s recommendations. 

Stemming from the last distinction—the intended audience—this Addendum offers more 

in-depth guidance to accountable authorities. The level of detail varies by topic. Part of the 

Commission’s chartered Phase III responsibility is to provide “an institutional roadmap” for 

implementation, “when appropriate.” In that spirit, the NSSG has expanded this Addendum. 

Charles G. Boyd, General, USAF (Retired) 

Executive Director 

 USCNS/21 

T
U.S. Commission on National Security/21st Century 

Creating Defense Excellence iv
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 1

Summary 

he Department of Defense (DoD) has gone through some monumental changes in the 

last two decades, and it faces some enormous future challenges. The changes include 

the Goldwater-Nichols Defense Reform Act of 1986, which realigned authorities and 

responsibilities in the defense establishment, and the end of the Cold War, which brought about 

significant reductions in force structure. The challenges encompass the rise of new commitments 

and missions, the problem of adapting revolutionary information technology, and the evident 

need to reshape DoD’s support systems, processes, and infrastructure. Both the changes and the 

challenges have made the need for defense reform evident. Numerous studies, commissions, 

panels, and Congressional reports have revolved around the single issue of transforming the 

Department to cope with the security needs of the 21st century. 

In 1997 one such effort, the Defense Reform Task Force, consulted a world-renowned 

management expert on how to reform DoD. After a short pause, he stated, “You of course realize 

that the most difficult problem in the entire world right now is the transformation of Russia into a 

democratic, free-market economy. You may not realize that the second most difficult problem I 

can possibly envision is that of reforming the Defense Department.” 

This vignette underscores the magnitude of the task and should disabuse those who see 

simple solutions that underestimate the complexities of the issue. Entrenched bureaucracies 

within the defense community, which either see no problem or which approach every solution 

with requests for increased funding, constitute a major component of the defense reform problem. 

A GOSPLAN mentality persists within much of the Department. Inevitably, prior defense reform 

efforts have focused on the margins. They rewire some organizations and tinker with existing 

processes, but refuse to articulate a vision of what military capabilities the Department needs to 

produce and how DoD might operate—in other words, the desired characteristics and outcomes. 

This Addendum offers recommendations that focus on structure and process, but here the 

NSSG also clearly states a vision—a set of desired outcomes—if the Department is to implement 

these recommendations. Thus, this summary aims to avoid a stovepiped examination of 

individual recommendations. Rather it offers an overview of the major recommendations and 

how they mutually reinforce each other to create excellence. This effort suggests seven future 

DoD outcome-oriented objectives worthy of pursuit that, if implemented, would make a 

remarkable difference in America’s national security posture. 

● Objective One: A leadership function within the Office of the Secretary of Defense 

(OSD) focused on strategic direction, resource allocation, mission assignment and 

management oversight, while it eschews direct ownership and daily supervision of 

operational agencies. 

o OSD staff function or responsibility is more important than establishing policy. 

That task should be the basis of everything OSD does. However, the Department 

now performs that task far less effectively than it should. Strategic direction suffers from a 

serious lack of overall focus, an absence of direction from a coherent national security process, 

and poor coordination of national security policy among the instruments of government—

particularly at the interagency level—where OSD should take the lead and orchestrate defense 

issues, but largely has not and does not. 

 T

N
U.S. Commission on National Security/21st Century 

2 Creating Defense Excellence 

OSD has fallen well short in its responsibility to 

lead and direct overall resource allocation. This stems 

from both lack of will and the absence of a management 

system and process to do so. It has left this critical function 

to a Service-driven, bottom-up process that OSD and the 

Joint Staff belatedly paw over, but is left largely 

unchanged by OSD leadership. Overall, OSD only impacts 

one percent of the Service budgets! Moreover, OSD has 

studiously avoided the assignment of missions, another core responsibility of leadership. That 

failure of OSD leadership has defaulted the task to the Services (who argue over missions), to 

periodic commissions (which “survey” the problem), and to the Congress (which interferes with 

and tries to steer the process). Moreover, there has been little improvement over thirty to forty 

years of Service “turf” wrangling. 

Management oversight by DoD has been lacking. The General Accounting Office (GAO) 

has largely inherited the role of commenting on management flaws, while the Services and OSD 

have been left the role of responding to outside criticism. This is an area where OSD should lead 

by setting goals and establishing broad output metrics, and then holding subordinates accountable 

for outcomes: in other words, the basic blocking and tackling responsibilities of leadership. 

The NSSG also strongly advocates that OSD must divest itself of activities not involved 

in providing strategic direction, resource allocation, mission assignment or management 

oversight. This is a sensitive matter, since it would immediately terminate OSD’s growing 

practice of establishing and running operating agencies that report to staff bureaucrats. DoD must 

assign some Defense Agencies to leaders and commanders accountable for producing results, 

along with the responsibility to justify budgets, programs, and practices. Other Defense Agencies, 

the Department should outsource or privatize. 

● Objective Two: Redesign Departmental infrastructure support functions to meet core 

military needs, but operate them under sound business principles that intelligently 

leverage the commercial sector—including outsourcing and privatization. 

his functional area is probably second only to resource allocation in its Serviceassociated sensitivities. In fact, much of the infrastructure problem is properly the 

Services’ responsibility. At the same time, the Services confront a heavy burden of excess 

facilities, poorly focused procurement and stocking policies, and duplicative and repetitive 

support capabilities. Because the emphasis, core talent, leadership, and training in the Services 

concentrates on “operations,” “support” often takes a second seat. Lacking pride of place, it is 

nonetheless the primary consumer of defense resources—a dangerous combination. 

Infrastructure support functions are a fertile field for substantial savings and efficiencies, 

estimated at a recurring $30 to $50 billion per year, according to every study and commission that 

has examined the problem. Even if the numbers are only 

half of what is predicted, they are substantial in these times 

of constrained funding and unfavorable “tail-to-tooth” force 

ratios. The fiscal savings associated with Base Realignments 

and Closures (BRACs) are well known, and more BRACs 

are crucial to further streamlining and reduction of excess 

capacity. 

T

OSD has fallen well 

short in its 

responsibility to lead 

and direct overall 

resource allocation. 

Infrastructure 

support functions are 

a fertile field for 

substantial savings 

and efficiencies. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 3

Other areas offering the prospect of substantial savings and improved effectiveness lie in 

mastering the oversight, accountability, reporting, structuring, functions, and products of Defense 

Agencies. While OSD must retain its policy functions, it must give up all its agencies and their 

daily supervision must be placed under accountable leadership. Defense Agencies and field 

activities all need reinvention, with some actually candidates for elimination; some vastly 

modified in function; some substantially reorganized into a sensible military/commercial 

product/output mix; and some reoriented into new organizational structures designed to meet 

output user needs, not internally focused on a process. The only agency under OSD control that 

the NSSG endorses in its present form is the Defense Advanced Research Projects Agency 

(DARPA). This is an exception to the general rule, because of its role to peer into the future and 

examine conceptual feasibility and visionary/revolutionary technologies that the Department can 

feed into the processes of developing future strategy, policy, and acquisition. 

● Objective Three: An OSD fiscal function armed with the necessary management tools 

that would allow leadership to correlate the allocation of resources and budget with 

achievement of desired policy objectives more coherently and in a more timely fashion.

oday, the Department’s planning and programming process and fiscal functions are at 

best a poorly structured ledger entry and journal-oriented accounting system. It 

knows the cost of countless disconnected and unrelated pieces (program elements) but not the 

value of the various purposes of the enterprise. This state of affairs results from the Department’s 

budgetary focus on “inputs” versus “outputs.” Then Secretary of Defense Robert McNamara took 

a first cut at the problem in 1961 by setting up the basic Planning, Programming, and Budgeting 

System (PPBS) with its various program elements, but the 

Department stopped there. This archaic, industrial-age 

accounting system has persisted, still mired in the 1960s. For 

example, the Department can point to any number of program 

element codes associated with tactical systems, but it cannot 

evaluate the price of tactical operations or missions—it does not 

think that way, nor does is it set up and aggregate program 

accounts in that fashion. Nor does the Department possess the 

means to measure progress toward achieving any objectives. The current Defense Planning 

Guidance (DPG) does not specify objectives or priorities, nor do the current Major Force 

Program categories in the PPBS process lend themselves to analysis by useful mission area. 

Without missions or objectives specified, the Department cannot measure meaningful “outputs.” 

Several years ago, a Defense Science Board (DSB) study suggested that the Department 

establish an “input-output” style resource table. Such a table would have the various DoD (e.g., 

military Service) organizations arrayed along the ordinate, and the various output organizations 

(CINCs) along the abscissa, with the right vertical column totaling to the overall DoD budget at 

the bottom. The DSB’s notion was to construct better methods to grasp the true costs of task 

execution, with further potential drill-downs contemplated to peel away the layers and improve 

understanding. When this idea was carried forward, the Services and the Joint Staff uniformly 

recoiled from such a relatively small change. Admittedly, the effort would have been difficult—

no question—but that was certainly not justification for rejecting the proposal. In many ways, the 

Services do not want to know the answer, because such an answer would eventually pull together 

the true cost of providing particular functional outputs to the field. Once known, the door might 

be open to find newer, cheaper, and better ways to accomplish military missions. As long as costs 

remain input-collected and functional costs are obscured, military judgment remains the sole 

entering argument—further assistance neither required nor desired. 

 T

PPBS is an archaic 

industrial-age 

accounting system, 

still mired in the 

1960s.
U.S. Commission on National Security/21st Century 

4 Creating Defense Excellence 

This is a paradigm on its head. Every business wants to know what it costs to accomplish 

a task, produce a product, or provide a service—but DoD deliberately chooses not to know. 

Despite institutional resistance, the Department needs to work diligently to change this situation. 

DoD needs to better understand what it costs to achieve desired outcomes effectively. To do this, 

it must determine if the envisioned military capability-related “outputs” justify the various 

attributed costs of the “input” functions. Such a tool would provide senior leaders the needed 

visibility over investments, and an understanding of current resource allocation effectiveness. It 

would create a useful mechanism to compete and adjust resource allocations in order to achieve 

improved outcomes. 

● Objective Four: An OSD tasking function, which ensures that departmental “input” 

elements (the four military Services) have clear cut lines of responsibility and authority 

for organizing, training and equipping forces, as well as ensuring that the “output” 

elements (Joint Staff and CINCs) have the authority, capability, resources and means to 

assure successful mission execution. 

f there is a first-order sensitive nerve in the Department, this is it. One can best 

describe DoD’s fifty-three year history as a titanic struggle to reallocate the authorities 

of the military Services—budgetary as well as operational—among the supervising OSD staff, 

Service secretariats, military departments, Joint Staff, and the CINCs. Nothing absorbs more 

Departmental energy than this issue. While incremental progress toward clear lines of 

responsibility has occurred over time, the ball has not moved down the field to any significant 

extent since Goldwater-Nichols in 1986. The reasons are evident: too hard to do; causes huge 

fights; involves the Congress; and takes on entrenched constituencies. 

However, the attack plans for reforms have never been sound. Attempts to alter the status 

quo have most frequently occurred through the plans and policy route. However, a more effective 

attack axis would be through the ultimate OSD weapon, the resource allocation tool—by 

leveraging the Golden Rule: “He who controls the gold sets the rules.” If OSD truly controlled 

the allocation of resources, and performed that task in a visionary up-front fashion linked to 

OSD’s responsibility for strategic direction, the budgeting entities would be obliged to conform to 

the established direction. 

The NSSG is not naive enough to believe this could happen overnight. Quite the contrary, 

we appreciate that it cannot. There would be substantial resistance to such an approach, but this 

proposal would set changes in motion, which, over time, would gain traction. With the OSD 

policy and planning function setting forth outcome objectives, linked to strategic guidance from 

the President and the Secretary, the resource allocation processes could both establish financial 

“guidelines” and use “competition” to leverage innovative change. For example, OSD could hold 

back portions of the defense budget, and allocate different percentages of funding to research and 

development (R&D) or to space. Moreover, such a system would force the Services to compete 

for different shares of the budget during the Quadrennial Defense Review (QDR) process for 

certain capabilities and systems. OSD could use reallocation and competition to better balance 

operations, readiness, sustainability, and modernization needs throughout defense programs. It 

also might begin producing the future capabilities this nation needs. 

Alteration of the financial investment and expenditure 

guidelines should be the focus of the QDR debate among the 

Services, the Joint Staff, and the CINCs, with OSD retaining 

ultimate control. Once OSD settled the debate, the Services 

would then compete for resource allocations by designing 

I

The QDR should 

focus on altering 

resource investment

and expenditure. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 5

fiscally constrained programs and proposals within their assigned mission areas to “capture” the 

funds required to sponsor and execute desired policy outcomes. 

Part of this outcome objective proposes that the Joint Staff and CINCs possess “... the 

authority, capability, resources and means to assure successful mission execution.” This is a 

highly controversial issue among the Services—empowering the “output” function by providing 

them direct access to resources. In DoD, the current approach provides money and resources only 

to the “input” functions, while the business world does just the opposite. In the latter case, the 

function that produces the product and/or service—the purpose of the enterprise—drives the 

various corporate inputs to hew to its needs. If DoD were to adopt such a system, the Services 

would still remain the stewards of force structure and most of the resources. The Services must 

take the long view of requirements and force modernization because they support force structures 

over the full life cycles of personnel and equipment. As currently structured in DoD however, 

only the Services determine what the executor will have—in organization, training, and 

equipment—and OSD largely looks on as a spectator rather than a referee. 

At the same time, the NSSG is not suggesting a revolution but rather a series of sensible 

modifications to the current policies and processes. Stated simply, fund output entities to execute 

some of the functions for which they are directly accountable. In the case of the Joint Staff, the 

budget/funding list is short, mainly: the funding of the staff and those output functions assigned, 

such as standardization, interoperability, joint education, and joint testing. CINCs must also 

receive sufficient resource authority to carry out their uniquely assigned tasks, primarily the 

command and control of joint forces at the strategic and theater level, and preparation of those 

forces for potential employment through the design, planning, control, and execution of joint 

exercises. Placing the control of standardization and interoperability resources in the hands of the 

Chairman and exercise funds in the hands of the CINCs would over time enormously improve 

warfighting capabilities. 

● Objective Five: Reinvigorated military Services that embody authority, responsibility, 

and accountability, and who participate as true partners in key resource decisions, while 

managing programs effectively and efficiently. 

his is the “flip side” of Objective Four above. While it recognizes the struggle for 

power over resources and authority within 

the Pentagon—and the primacy of OSD—it 

acknowledges that sound management within the 

Department requires Service cooperation and 

participation. Secretary Rumsfeld needs to establish a 

shared vision that enjoys “buy in” from the Services. 

Rivalry and opposition between the Pentagon’s staffs exist for several reasons, but 

primary among them is the deeply-held belief that each organization is “doing what’s right” for 

the security of the nation. The Services spar with each other over doctrine and missions, because 

these drive requirements and ultimately force structures, programs, and resources. The Joint Staff 

possesses particular views on the requirements for “Joint Warfighting” and some senior career 

civil servants in OSD hold long-established opinions that can be incompatible with Service plans. 

Major differences can also exist between the uniformed Services and the political appointees 

within OSD. Bluntly stated, the military Services clearly acknowledge civilian authority and 

control, but occasionally distrust political appointees—many of whom can be young, 

inexperienced academics—as “interlopers” who can severely damage well-established Service 

programs, which the Services institutionally view as critical to national defense. Thus, when 

 T

The Secretary needs to 

establish a shared vision 

that enjoys “buy in” 

from the Services. 
U.S. Commission on National Security/21st Century 

6 Creating Defense Excellence 

political appointees fail to consult seriously with the Services or oppose Service programs, the 

Services, in turn, resort to a strategy of “using the system” to delay and wait out the political 

appointees’ tenure. This management culture must change. 

 Reform should begin by selecting Service Secretaries (and OSD appointees) for their 

management skills and experience, not as political window dressing or to satisfy political debts. 

Secretary Rumsfeld has shown true judgement on this issue. The Service Secretaries should act as 

the principal agents of the Secretary of Defense in managing the departments. While OSD should 

set policy and expect cooperation from the Services in “corporate decisions,” the Services must 

be re-empowered to execute. For example, retaining authority for major acquisition decisions in 

OSD, while holding the Services responsible for programs, divides accountability and results in 

nobody being “in charge.” 

Just as importantly, the Service chiefs and the Joint Chiefs must also be revived as 

institutional actors. Their influence has been overly reduced by Goldwater-Nichols, and the result 

has not improved decision-making in the Department. When the Service chiefs routinely send 

vice-chiefs or even deputies to weekly “Tank” sessions, it is primary evidence that substantive 

issues are not being elevated or addressed in these meetings. This is because military advice to 

the Secretary and the President is now predominantly coming from a single individual—the 

Chairman—and contrary views are infrequently sought or desired from the Joint Chiefs. What 

this also indicates is that Goldwater-Nichols has fully swung the pendulum in the opposite 

direction from the days of watered-down, consensus-derived advice by the Joint Chiefs. There 

needs to be a happy medium, and Service participation in resource allocation and policy decisions 

should be improved via three venues. 

 First, within the proposed Quadrennial Defense Review competition, the Services would 

be responsible for surfacing proposals to satisfy high priority objectives of the Secretary of 

Defense, but just as important, they should also have an input into those objectives. Second, after 

competition decisions are made, Secretary Rumsfeld needs to call the Service secretaries and 

chiefs in for regular meetings. There the Secretary must empower them to manage their Service 

programs, and require them to eliminate the unfunded modernization “bow waves.” Essentially, 

the Secretary must allow them to act and make management decisions within resource 

constraints, and if they cannot or will not do so, only then be ready to issue OSD guidance to do it 

for them. Third, Secretary Rumsfeld should invest enough confidence in the Joint Chiefs to seek 

their guidance and military advice on issues, even though it is technically no longer required by 

Goldwater-Nichols. This would not impact the legal authority of the Chairman, but would inject 

additional views and new vitality into the mechanism of the Joint Chiefs. 

Ultimately, the Secretary needs to embrace 

the Services as managing partners within the 

Department. Competition among the Services is 

good when it stimulates alternative solutions, 

military capabilities, and forces from which 

Secretary Rumsfeld can make decisions. But once 

reached, the Services should execute decisions and 

run programs to provide effective and efficient operational capabilities of unique forces that can 

jointly operate. 

● Objective Six: A Departmental acquisition system that puts high technology 

capability in the hands of the U.S. warfighter more quickly than the development, 

decision, and execution cycle of potential adversaries. 

Ultimately, the Secretary 

needs to embrace the 

Services as managing 

partners in the Department.
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 7

or the past decade, the focus of acquisition reform has been on improved processes, 

not better outcomes. We now have: fewer, but larger suppliers; a greater 

concentration of funding going to system-of-system companies larded with growing overhead and 

institutionalized methodology (oriented on evolution, not revolution); a declining ability of OSD 

and the Services to manage programs competently; and much slower technology-to-shooter 

developmental times. The latter is a dangerous characteristic for a nation committed to 

substituting high technology for “mass” in warfighting, and intent on reducing risks to the 

fighting forces. 

Defense acquisition is an area ripe for implementing incredible improvement. The 

Commission and NSSG recommendations intend to shift acquisition investment policy to the 

perspective of a “going concern.” That is, DoD should develop and execute long-term funding 

strategies for major defense accounts—modernization, readiness, force structure, and supporting 

infrastructure. The current year-to-year expenditure pattern lacks coherence and vision, results in 

substantial sector instabilities (e.g. spotty readiness funding profile), damaging funding 

“holidays” (e.g. R&D, procurement/ modernization), and creates burgeoning bow waves (e.g. 

infrastructure renewal). 

DoD should look to the marketplace to solve the value proposition—cost, performance, 

timeliness, need, and mission functionality. To break down barriers to innovation, the Department 

needs to focus its effort on providing improved product “outcomes,” rather than simply justifying 

accumulated costs and rescheduling programs. A new approach must include restructuring 

existing centralized and arguably inefficient agencies, many—if not most—of which the 

Department can outsource, privatize, or operate on a competitive business model to promote 

management responsiveness and accountability. 

The Department must shift its acquisition perspective to one that focuses on defining the 

required system capabilities that contractors must produce by a certain time to function within 

increasingly rapid technology development cycles. The Department should accept more tradeoffs, 

rather than insisting on specific performance for a fixed fee during a time when technology is 

advancing rapidly—as is happening in the commercial sector. Failing to pursue such a policy 

would deny a unique American strength—technology to deliver decisive battlefield outcomes at 

minimum loss in U.S. lives. 

The Department must incentivize innovation, bolster industrial base sustainment, and 

leverage free market strengths by embracing the principle of continuous competition (more than 

one supplier) as much as practical. In selected 

circumstances, it may be necessary to grant waivers in 

competition due to the low quantity under order (e.g. 

aircraft carriers); unfeasibility of provisioning a second 

supplier (submarines); or unique but narrow technology 

applications (nuclear power plant). But, in the main, the 

Department must embrace the principle and practice of 

continuous competition as the soundest way to procure 

major defense articles at best value and, overall, best 

price. 

The Department should underpin, stabilize, and focus modernization planning by 

directing sustained year-to-year “level of effort” funding for: research and development; 

prototyping/capability demonstration; and upgrades to platforms, systems and capabilities. Such 

F 

Embrace the principle of 

continuous competition as 

the soundest way to 

procure major defense 

articles at best value and 

best price. 
U.S. Commission on National Security/21st Century 

8 Creating Defense Excellence 

an approach entails a commitment to the principle of sustained low-rate stream production 

schemes, that stabilize production costs, improve price predictability, utilize resources and 

facilities more efficiently, but most importantly, facilitate the timely and rapid insertion of 

technology. 

The Commission’s objective is a broad “industrial base for defense,” rather than today’s 

discreet “defense industrial base.” The Department can accomplish this goal by designing and 

strongly advocating a procurement system characterized by the lowest possible barriers for new 

entrants to government business by new, agile, technologically innovative companies. Today's 

commercial marketplace increasingly relies on intellectual power and timely market presentation 

to compete successfully—characteristic strengths of smaller rather than larger firms. The 

Congress and the Department should embark on a course that rewrites current acquisition 

legislation in a fundamental fashion that revises the 

current Federal Acquisition Regulations. Like welfare 

reform in the 1990s, such a revolutionary approach 

has a better chance for success because it would be 

easier to start over than amend the current mountain 

of laws and regulations. In the interim, the 

Commission recommends simplifying the acquisition 

process from a four-phase to a three-phase system, 

providing waivers more easily, and reducing the 

overwhelming auditory and oversight requirements 

that inhibit business with DoD. The present practices 

currently bias procurement to select larger, evolutionary-oriented companies, rather than small, 

revolutionary-oriented firms marketing fast moving technologies. The Department is now 

incorporating technology at a slower pace than ever before, while the commercial sector has 

solved this challenge and is moving even faster because of its entrepreneurial spirit, the power of 

new ideas, and its ability to manage risk. 

The government should retain proprietary title to all contractor work fully funded at 

taxpayer expense. The goal should be the protection of taxpayer valuables purchased with 

government funds, whether it is in R&D, processes, or products. The purpose should be to 

facilitate constant competition. Such an approach also promotes standardization and 

interoperability, while at the same time, it moves away from proprietary procurement practices 

where, in effect, the taxpayer pays twice... and sometimes three times for the same taxpayerfinanced development. The policy of retaining proprietary rights—along with the policies of 

constant competition, evolutionary step upgrades, and funded and stabilized R&D—would 

eliminate some important contractor needs to “game” the current system. Namely, the system 

drives many to underestimate R&D risks or to understate first article procurement costs, which, in 

turn, forces them to present sharp price increases during follow-on contracts to recover expenses. 

The Services abet this process by their willingness to accept such low estimates in their desire to 

move programs through major milestones. They know that “sunk costs” in a system leverage 

arguments for continued expenditures, despite cost increases. This process needs to stop. 

● Objective Seven: Flexible DoD mechanisms that constantly adapt to change, and 

produce military capabilities and future force structures better suited to the emerging 

national security environment, rather than replicating legacy forces and missions. 

ith a radically altered vision and mindset—an empowered and policy-focused OSD 

staff; fiscal authority and accountability; a reformed infrastructure support system; 

a PPBS process oriented on objectives; reinvigorated Services; and a technologically driven, 

W

The Congress and the 

Department should rewrite 

current acquisition 

legislation in a 

fundamental fashion that 

revises the current Federal 

Acquisition Regulations. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 9

output focused, and lean acquisition system—the Department could solve some very tough force 

structure challenges. Namely, these include how to evolve the pace and scale of change over the 

next few years, and how to decide what entities are responsible and accountable for existing and 

emerging missions—particularly for homeland security, for rapid expeditionary capabilities, and 

for space. This entails breaking the Two Major Theater War (2MTW) paradigm and reallocating 

modernization resources to transform the force. 

As the Commission indicated in its Phase II report, the concept of fighting nearsimultaneously two major theater wars—the current basis for US military force structure 

planning—is not producing the capabilities this nation requires. The present commitment to 

readiness for all-out engagement in two regions of the world at the same time, without strategic 

prioritization and sequencing of campaigns, is by itself an extraordinary notion. To envision at 

present, two opponents capable of or willing to challenge the United States in a theater-wide 

conflict simultaneously is indeed an extraordinary notion. Far more likely is the need to retain 

readiness for a major conflict while also securing the homeland and responding to small-scale 

conflicts, international terrorism, peacekeeping, humanitarian actions, and other commitments 

requiring U.S. support. Failure to plan for the more likely scenarios impedes the transformation 

process needed to produce capabilities better suited to the actual security environment. 

The Commission clearly emphasizes that the current 2MTW construct is a force sizing 

tool, not a strategy. As a sizing tool, it is utterly inadequate for any sensible strategy. It fails to 

support transformation and over-invests in the past. A useful force sizing tool must both shape

and size the force, but the present method only preserves size, by assuming that complex 

contingency requirements are “lesser included demands” satisfied by the current force. The 

Commission contends that force capabilities are not infinitely flexible and fungible, and 

emphasizes a basic need to also shape military forces to ensure they are prepared for a wider 

range of operations with extremely deployable, lethal, and agile units. One cannot train military 

forces and hold them ready for an array of fundamentally different missions without degrading 

their readiness to perform core war fighting tasks. The Commission also recognizes the high 

opportunity costs of the current force posture: sub-optimizing for contingencies; deferring 

modernization; and crowding out transformation. Worse still, the precipitous readiness erosion 

inside today’s armed forces will accelerate unless the Department realistically matches forces to 

anticipated uses. 

The key to producing such a shift lies with altering the Department’s current threat-based 

force sizing metric into a capability-based force sizing tool. This proposed process would 

measure requirements against recent operational activity 

trends, actual intelligence estimates of potential 

adversary’s capabilities, and the national security 

objectives as defined in a new national security strategy 

and national military strategy. U.S. military force 

planning should both size and shape U.S. forces against a 

strategy of deterring war, precluding crises from 

evolving into major conflicts, and winning wars rapidly 

and decisively when necessary. 

 

During the transformation to a capability-based force, the Commission recommends 

retention of current near-term capabilities to fight a major theater war. As the transformation 

process advances, the primary focus would emphasize multiple complex contingencies and 

homeland security. Noting that U.S. overseas bases and force structure have decreased 

dramatically over the last decade, while the frequency and duration of commitments have 

U.S. military force 

planning should both 

size and shape U.S. 

forces against a deter, 

preclude, win strategy. 
U.S. Commission on National Security/21st Century 

10 Creating Defense Excellence 

increased, the transformation process must concentrate on fielding fast, agile, and rapidly 

deployable forces. 

It would be inappropriate for the Commission to dictate the exact number and type of 

divisions, wings, and naval battle groups this nation needs to execute its strategy, however it can 

provide guidance and a mechanism to help the Department move in the necessary direction. 

Accordingly, the Commission recommends that Secretary Rumsfeld revise the categories of 

Major Force Programs (MFPs) used in the Defense Program Review to focus on a different mix 

of military capabilities, and use the MFPs to capture mission-oriented functional outputs. New 

MFPs should be created corresponding to the five military capabilities the Commission deemed 

essential in its Phase II report—namely: Strategic Nuclear Forces; Homeland Security Forces; 

Conventional Forces; Expeditionary Forces; and Humanitarian Relief and Constabulary Forces. 

This Commission recognizes the transformation process will produce these five 

capabilities over time, yet some must mature at a faster rate. Ultimately, the transformation 

process should render the distinction between expeditionary and conventional forces moot, as 

both types of capabilities will eventually possess enhanced mobility, survivability, and lethality. 

For the near term, however, expeditionary capabilities are the most critical to the existing and 

future security environments. Consequently, the Commission recommends that the Department 

should devote its highest priority to improving and further developing its expeditionary 

capabilities, which implies the need for long-range power projection and theater missile defense. 

From a Departmental perspective, there will be heavy lobbying by all the Services for 

these missions including homeland security and National Missile Defense. By achieving 

dominance in any area, a Service could achieve preeminence for up to a decade with major 

control of resources and significant force structure. If OSD fails to exercise strong policy 

direction or control of the resource allocation process, these issues alone will consume all the 

available bureaucratic energy, while obscuring sound transformation of the force. 

his Commission has identified what the Departmental vision should look like—a set 

of desired outcomes—to meet this nation’s military needs for the future. The 

Department must concentrate on internal reform. It must empower OSD and restructure the other 

Pentagon staffs along core roles and responsibilities. The Department must consolidate, 

outsource, and privatize defense infrastructure to free up resources. It must institute a strategydriven planning and resource allocation process that is focused on mission outputs. It must 

reinvigorate the Services as management partners within the Pentagon. The Department must 

streamline the acquisition process to place high technology capabilities in the hands of 

warfighters more swiftly and at lower cost. Lastly, the Department must use these reforms to 

transform military capabilities to meet future requirements. 

This nation may discover that a transformed U.S. force structure will require even more 

resources. It may result in a capability baseline that is actually higher than that possessed by the 

current 2MTW construct. The transformation process will require a reprioritization of current 

resources. Ultimately, the result may be a larger force, or a smaller one, but the Commission is 

confident that it will be a better force. That is the crucial issue. 

T
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 11

Section I. DoD Structural Reform

tructural reforms are critical to a healthy, lean, and effective Department of Defense. 

They rest upon five principles. 

First, focus on core competencies. Government organizations must concentrate on core 

competencies, must divest themselves of non-core activities, and should outsource or privatize 

support functions clearly appropriate to the private sector. 

Second, establish clear lines of authority. Organizations function best with clearly 

defined roles and responsibilities. This helps to eliminate redundancy, duplication of effort, micro 

management, and the constant revisiting of minor decisions. It also elevates strategic alternatives 

to senior decision-makers. 

Third, become lean. Lean organizations are the most productive. Excessive management 

layers adds costly overhead, increases complexity, inhibits speed, and contributes to duplication 

of effort and confusion of functions. 

Fourth, simplify processes. Organizations focused on timely, meaningful outputs do not 

use overly complex processes encumbered in regulations and red tape. Processes in effective 

organizations are simple and occur only as necessary. 

Fifth, embrace adaptiveness. Organizations that recognize the need for constant change 

thrive on unpredictability, empower lower level managers, and develop processes to elevate 

problems and alternatives to senior managers. The structures and processes of adaptive 

organizations are responsive to external circumstances. 

 Innumerable commissions, governmental organizations, and individuals have studied 

DoD and then urged significant structural reform.1

 Two structural areas of DoD warrant major 

reform: deconflicting the roles and responsibilities of the major staffs, civil as well as military, 

within the Pentagon, and reforming DoD’s infrastructure. This Addendum addresses these in turn. 

A. Realign Staff Roles and Responsibilities

he NSSG recognizes the Department’s efforts to introduce reform over the years. 

However, the Congress and the President, often working in concert, have imposed 

most meaningful reforms from the outside. Examples include the 1949, 1953, 1958, and 1986 

Amendments to the original 1947 National Security Act. The Defense Reform Initiative (DRI) of 

1997 serves as a good example of an attempt to reform DoD from “within.” An external Defense 

Reform Task Force, chartered by the Secretary, primarily focused on reducing manpower within 

the Department by examining the major staffs (the OSD staff, the Joint Staff, the Service staffs, 

and CINC staffs) and Defense Agencies and field activities. An internal study conducted by OSD 

manpower (known as the Pang/Rossetti Task Force) complemented this effort. The final DRI 

report, published by the Department, reflected the Defense Reform Task Force’s management 

emphasis, but proposed relatively modest bureaucratic realignments.2

 Many of the core 

 

1

 These include GAO studies in 1976, 1978, 1996, 1999, and 2000, as well as the Rockefeller Committee, 

the Rice Defense Resource Management Study, the Packard Commission, the SASC study leading to 

Goldwater-Nichols, the Commission on Roles and Missions (CORM), the Hicks & Associates study, the 

Defense Reform Initiative (DRI), and the BENS Tail-to-Tooth Commission. 

2

 William S. Cohen, “Defense Reform Initiative Report,” November 1997 

S

T
U.S. Commission on National Security/21st Century 

12 Creating Defense Excellence 

recommendations of the task force concerning reduced staffs, realigned functions, and 

restructured Defense Agencies disappeared as “too radical.” 

The Pentagon chartered the Defense Management Council in December 1997 to oversee 

implementation of the DRI Report. It sought to improve DoD business practices and to convert 

defense staff work from “paper” to “electronic” tracking methods. It succeeded in divesting and 

realigning some DoD organizations, but few of the 

even modest structural reforms recommended in the 

final DRI Report ever occurred.3

 Headquarters’ 

staffs are still large by comparison to civilian and 

governmental counterparts.4

 While DoD has 

clarified many minor overlapping functions and 

processes listed in the DRI report, many basic roles 

and responsibilities between the staffs still overlap, 

creating significant inefficiencies and impairing the 

Department’s strategic and organizational 

transformation.5

 

he Cold War structure supported a large military oriented toward a potential war with 

the Soviet Union, and served as the mold for a particular DoD organizational 

structure. Today, however, there is no such focus and the DoD structure of staffs, agencies, 

commands, and military Services may not be the most efficient or effective structure for 

emerging threats and challenges. There is an ongoing debate in today’s defense arena and within 

the Department regarding the need to abet organizational change and innovation in DoD. 

Prior efforts to accomplish organizational transformation within DoD have focused on 

three basic approaches. The first advocates shifting more authority and resources to Joint and/or 

OSD control (e.g. the Joint Staff, Defense Agencies, and the regional/functional Commanders-in 

Chiefs (CINCs)) to assure that more “Jointness” is achieved—a centralized approach. The 

second attempts to retain or bolster semi-autonomous military Services, properly guided by an 

overarching strategy and an effective OSD decision-making and resource allocation process. The 

focus of this approach is to promote creativity, innovation, and overall effectiveness through 

competition—a decentralized method. The third popular approach tries to infuse “business 

management” structures into the Pentagon’s staff processes, using cross-functional, formal and 

informal “teams,” “boards,” and “councils”—essentially a business matrix approach. The current 

structure of DoD’s major staffs (and their functions) represents a meshwork of all three models, 

and the net result has been a diffusion of authority, responsibility, and accountability. In many 

 

3

 See the list of DRI Directives and Management Reform Memoranda posted at 

http://www.defenselink.mil/dodreform/directives-memorandums, and compare them to the DRI Report. 

The site reports that approximately 70 percent of the DRI Directives and Memoranda have been 

“implemented.” However not all the structural recommendations of the DRI Report were actually translated 

into DRI Directives. One ASD in USD(P) was disestablished, but its functions and most of its personnel 

were redistributed within USD(P). Consolidations recommended between USD(AT&L) and ASD/C3I 

have not occurred. Several OSD activities were divested to Defense Agencies, and some consolidation has 

been pursued within Defense Agencies and field activities. The Joint Staff has been divested of most 

Chairman-controlled activities, by transferring them to Joint Forces Command. Some reductions in CINC 

staffs are on-going, but primarily as a result of Congressional direction. 

4

 See GAO, “Defense Headquarters, Status of Efforts to Reduce Headquarters Personnel,” GAO/NSIAD99-45, February 1999, GAO, “Defense Headquarters, Status of Efforts to Redefine and Reduce 

Headquarters Staff,” GAO/NSIAD-00-224, September 2000. 

5

 Examples of excess functional overlap within DoD include manpower, plans, readiness, and acquisition. 

T

Many basic roles and 

responsibilities between the 

staffs still overlap, creating 

significant inefficiencies and 

impairing the Department’s 

strategic and organizational 

transformation. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 13

Aggregating authority 

and weakening the 

organizational 

cultures of the 

Services may decrease 

overall effectiveness. 

cases the three different paradigms work at cross-purposes to obstruct and block each other. This 

dilutes the Department’s ability to transform itself internally. It hinders the identification of 

problems, the development of alternative solutions, and the elevation of decisions to senior 

officials for resolution. A clearer vision needs to be adopted for DoD’s major staffs. 

 

In the past few years the Department has undertaken organizational changes such as 

creating powerful Defense Agencies, empowering the Joint Warfighting Capability Assessment 

(JWCA) mechanism of the Joint Requirements Oversight Council (JROC), and establishing Joint 

Forces Command (JFC). At the same time that new organizations were created to respond to new 

threats, DoD met other demands within the framework of established organizations. For example, 

it strengthened the authority of the Undersecretary of Defense for Acquisition, Technology, and 

Logistics (USD/AT&L). Some suggest the nature of many of DoD’s new missions and challenges 

require total reorganization around functions or capabilities, rather than Services.6

 Efficiency and 

effectiveness, they argue, may be best realized if DoD takes on increasing responsibilities based 

on operational requirements and missions, centralizing the organization and authority under the 

Joint Staff and OSD and, as necessary, creating new organizations as extensions of the Joint Staff 

and OSD. 

However, aggregating authority and weakening the 

organizational cultures of the Services may decrease overall 

effectiveness through over-centralization, lost managerial 

competence, and the loss of Service esprit de corps. The 

centralized approach may instill greater efficiency toward a 

unified end state, but less agility over the long run, less 

organizational commitment among Service personnel, and 

exacerbated civilian control could also result. Instead of 

solving the “problem” of interservice rivalry, the Joint/OSD 

control “solution” could just move Service competition into 

new or unintended arenas. Additionally, the loss of Service identities and organizational authority 

could decrease the advantages of inter-Service competition in critical areas such as doctrine 

development, research, and experimentation. 

The “business approach” borrows from the “Revolution in Business Affairs” (RBA), and 

is typified by the 1997 Defense Reform Initiative. This corporate management emphasis is 

enticing and appealing because it promises efficiency and savings. Unfortunately, it often has 

difficulty meshing with existing acquisition and PPBS authorities vested in different staff 

functions and organizations at various levels within DoD. The net result has been to diffuse 

accountability and decision-making authority, and the clash with existing organizational 

paradigms has to date not produced the anticipated benefits. 

efense reform must begin with DoD identifying its core competencies and assessing 

specific capabilities that various organizations within its structure need to perform. 

This would permit divestiture or realignment of many activities not related to core competencies, 

allow the use of performance goals to measure success, and encourage its constituent 

organizations to focus more on missions and outcomes. You cannot manage what you cannot 

measure, and very few organizations within the Pentagon have established performance goals.7

 

 

6

 See William Owens, Lifting the Fog of War, (New York: Farrar, Straus, & Giroux, 2000). 7

 See the 17 August 1999 letter from Senator Fred Thompson to Secretary of Defense Cohen, in Inside the 

Pentagon, 19 August 1999, and GAO Report B282836, “Observations on the Department of Defense Fiscal 

Year 2000 Performance Plan,” 20 July 1999. 

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U.S. Commission on National Security/21st Century 

14 Creating Defense Excellence 

Based on a review of the core roles and responsibilities of the staffs of the Office of the 

Secretary of Defense, the Joint Staff, the Military Services, and CINCs, the Secretary of 

Defense should reorganize and reduce those staffs by 10 to 15 percent. 8 The Department could 

develop a reorganization plan, as suggested here, in the first year of the new Administration, and 

implement it in the second and third year. Extending reform beyond three years serves no useful 

purpose, because it only would allow an entrenched bureaucracy to delay needed reforms. 

The DoD bureaucracy complains about the current burden of tasking and is sure to resist 

efforts to further reduce staffing. For example, DoD has not even implemented current 

Congressional guidance to trim its staff personnel levels. The key to success lies in working four 

areas. First, reduce redundancy so that the appropriate functional staff is properly empowered to 

work problems, and ensure that efforts are not being duplicated elsewhere. Second, streamline the 

coordination and approval process for actions through improved processes and the removal of 

unnecessary staff layers. Third, eliminate nonproductive, self-imposed tasking. Much that occurs 

in the Pentagon on an annual basis could be either omitted or slipped into a biennial or even a 

quadrennial schedule. Lastly, the Congress should share responsibility for empowering Secretary 

Rumsfeld to accomplish this objective by eliminating unnecessary reporting requirements that 

justify larger staffs. 

1. Staff of the Office of the Secretary of Defense 

he staff of the Office of Secretary of Defense (OSD) is still approximately 30 percent 

larger than advertised because of billets and duties “hidden” within other agencies, 

and bodies masked by extensive contractor support.9

 Even discounting contractors, OSD is still 

roughly 90 percent of its end-of-Cold War level, while the number of personnel in uniform is 

roughly 60 percent of the 1989 level. This results from staff duties remaining unchanged and 

intact, despite the overall force reductions, because of U.S. global commitments and 

Congressionally mandated reporting requirements. Another reason, however, is that the major 

staffs within the Pentagon (OSD, the Joint Staff, and the Services) typically have six to seven 

layers of management between action officers and the Secretary. Some staffs require such 

layering because of constant travel duties by the primary deputy, while legislation and 

Congressional pressure have added some functional billets. But the Pentagon should recognize 

many billets for what they are—places for political appointees and staff favorites in the Senior 

Executive Service (SES). Organizations should be required to justify why more than three or four 

layers of supervision are necessary to perform their function. 

The proliferation of positions within OSD contributes to its sluggish pace. Since the mid1980s, the time required to prepare a response to the Secretary has nearly tripled (thirty-nine days 

versus fourteen days), while over 50 percent of taskings are now completed “late” compared to 8 

percent a decade and a half ago.10 The practice of requiring General Counsel review of all

 

8

 This number was estimated as a “reasonable goal” by the Commission given post Cold War force 

structure reductions, similar mandates by the Congress, and the apparent layering and redundancy of staffs 

within the Pentagon. Streamlining the defense planning process, the QDR, and the Joint assessment 

process would assist the staff reductions. See the PPBS section below. 9

 See GAO/NSIAD-99-45, and GAO/NSIAD-00-224. 

10 Taskings logged by Correspondence and Directives Office during March-June period in one year from 

Secretary Weinburger to Secretary Cohen. True, there are many exceptions and explanations, mostly 

stemming from missions added to OSD, but the general trend is clear. Defense Reform Task Force 

Briefing, “Streamlining Central Support Management,” December 1997. 

T
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 15

Secretarial actions, while necessary, adds further delay in a circumstance where fewer staff 

officers process far more items—and where the General Counsel rarely delegates authority. 

Structural reform within the Department must 

begin by clearly defining basic roles and responsibilities 

for the various major players: OSD, the Joint Staff, the 

Services, and the CINCs. This is necessary because the 

evolution of joint warfighting and defense economics has 

shifted many past roles and responsibilities to joint and 

defense-wide activities. While “jointness” is generally a 

good thing, these new patterns further confuse DoD’s traditionally ill-defined divisions of labor.11 

OSD’s role is to establish policy, to provide advice to the Secretary, to integrate the 

defense program into a coherent whole, to allocate tasks and resources, to provide oversight, and 

to develop strategic alternatives meriting Secretary decisions. The role of the OSD staff, in 

particular, has become blurred because it has increasingly acquired a management habit focused 

on what is being done, and how it is being done, within its various functional areas, as well as 

attempting to manage many programs directly. At its current size, OSD is too small to manage the 

Service plans and programs it attempts to direct. Delegation of authority must occur, and OSD 

must hold the Joint Staff and the Services accountable for implementing Secretary Rumsfeld’s 

policy decisions. To the extent that OSD has to manage detailed plans and programs, it detracts 

from its primary responsibilities.12 

The new Administration’s leadership must establish a new vision for OSD’s role in the 

Department, one that refocuses on its basic functions. OSD needs to improve its strategy and 

planning function, divest itself of direct reporting agencies, and eliminate both its hidden billets 

and its excessive management layers. The Commission recommends that the Office of the 

Under Secretary of Defense for Policy (USD(P)) be restructured by: creating a new office of an 

assistant secretary dedicated to Strategy and Planning (S/P), and abolishing the office of 

assistant secretary for Special Operations and Low-Intensity Conflict (SOLIC). A new office of 

Strategy and Planning would be responsible for the Defense Planning Guidance, which should tie 

the Department’s internal budgeting and weapons acquisition processes to strategic planning. 

This office would also support the Secretary of Defense in a National Security Council-led 

strategic planning process as well as the Joint Staff’s military contingency planning process.13

As stated above, the Commission also believes that a separate assistant secretary for 

SOLIC is no longer needed. Special operations are no longer an “orphan” among the Services. 

Moreover, they also possess a CINC to advocate SOLIC 

issues. Such activities are now widely integrated into U.S. 

strategy, plans, and forces, and the Department can and 

should address special operations in a fashion similar to other 

mature missions. Such change is also consistent with 

removing OSD from directly managing resources and programs. 

 

11 “Directions for Defense,” Report of the Commission on Roles and Missions of the Armed Forces, 24 

May 1995, p. 4-2. 

12 Examples of OSD program management include: Defense Airborne Reconnaissance Office, Cooperative 

Threat Reduction Program, Special Operations Program, Humanitarian Assistance Program, Counterdrug 

Program, De-mining Program, ACTD Oversight, and the POW/MIA office. 

13 See “National Security Council” chapter in Road Map for National Security: Addendum on 

Implementation, USCNS/21, April 15, 2001. 

A separate assistant 

secretary for SOLIC 

is no longer needed. 

Structural reform must 

begin by clearly defining 

basic roles and 

responsibilities. 
U.S. Commission on National Security/21st Century 

16 Creating Defense Excellence 

 

To make OSD leaner and faster, and to keep taskings moving, the Office of the Secretary 

of Defense should also create a true “chief of staff”—similar to the Director of the Joint Staff. As 

currently structured, the OSD staff has no director (other than the Secretary, or the Deputy 

Secretary) to manage the cross flow taskings between a cadre of co-equal Under Secretaries, the 

Joint Staff, and the Services. While the Secretary of Defense has a number of designated military 

and civilian advisors, personal secretaries, and a “chief of staff” for his personal office, there is no 

single point of contact to coordinate the flow of paperwork to and from the Secretary. That is why 

the Joint Staff will generally process a Secretarial tasking faster than OSD. A civilian OSD 

“Director” or “Chief of Staff,” equal in rank to an assistant secretary would help solve this 

problem. 

OSD’s analytic capabilities would improve if OSD’s Program Analysis and Evaluation 

(PA&E) directorate was aligned organizationally with the Major Force Programs. Because this 

proposed structural reform is minor, it is discussed below, in Section II, A, 7, relating to PPBS 

analysis. The Under Secretary of Defense for Policy (USD(P)) also requires a strong in-house 

analytical capability focused on the policy, planning, and resource allocation aspects of the PPBS 

process. OSD Net Assessment should be strengthened in its role to provide this analysis. Without 

an organic analytical capability, USD(P) often issues guidance without the benefit of being able 

to develop and analyze tradeoffs.14

2. The Joint Staff

he Joint Staff, too, has gone well beyond its core function of supporting the 

Chairman and the Joint Chiefs in their responsibilities, namely: providing military 

advice to the Secretary; providing unified strategic direction for combatant forces; managing the 

strategic planning process; and insuring the integration and interoperability of the armed forces.

Several areas that require examination in the Joint Staff include the overlap between it and 

USD(P) on regional policy, as well as the overlap between the manpower functions of the Joint 

Staff, OSD, and the Services. 

The Joint Staff has moved past its initial role of providing review and validation of 

military requirements, a role that has advanced somewhat the establishment of common 

interoperability requirements.15 In 1994 using Goldwater-Nichols authority, the Joint Staff 

expanded its purview into programming and budgeting as 

required by legislation (U.S. Code Title 10, Section 153). 

Unfortunately, it largely duplicates OSD’s analytic efforts to 

evaluate defense programs in the PPBS process, and the Joint 

Staff’s assessments have actually slowed an already plodding 

decision process.16 Just recently, the Joint Staff tried to inject 

itself into Service personnel and health care programs and other 

 

14 Some would argue that OSD Net Assessment currently provides this capability. While Net Assessment 

does support USD(P) in some areas, much of its effort is independent. Another alternative would be to 

transfer OSD PA&E from the Defense Comptroller to USD (P), which would have other drawbacks. 

15 We refer in particular to the Joint Requirements Oversight Council (JROC) and the Joint Warfighting 

Capabilities Assessments (JWCA) process. See below under PPBS discussion. For a critique of 

interoperability see GAO Report, “Joint Military Operations: Weaknesses in DoD’s Process for Certifying 

C4I Systems’ Interoperability,” GAO/NSIAD-98-73, March 1998. 

16 Frank Hoffman, “Goldwater-Nichols After a Decade,” in The Emerging Strategic Environment, 

Challenges of the Twenty-First Century, ed. Williamson Murray (Westport: Praeger, 1999). 

T

The Joint Staff’s 

assessments have 

actually slowed an 

already plodding 

decision process. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 17

defense infrastructure issues. As noted in the report of the Tail-to-Tooth Commission, “The size 

of the Joint Staff and OSD staff may have reached the point where their efforts in programming 

and budgeting are more duplicative than synergistic.” 17 Much of the traditional “creative tension” 

between OSD and the Joint Staff has been lost, resulting in “homogenous” alternatives rising to 

the Secretary. The old truism holds, “If everyone is thinking alike, no one is really thinking at 

all.” 

3. The Services

oldwater-Nichols has reduced the operational focus of the Services, but by law they 

still have the obligation to recruit, organize, train, and equip forces. The Services 

should retain their role as custodians of military culture, training, education, and operational 

expertise within their particular environments. They possess the relevant expertise for this, and 

that expertise represents a decentralized competition for innovation in DoD that is often and 

inappropriately disparaged as “interservice rivalry.” Competition between the Services is good 

when it stimulates alternative solutions, military capabilities, and forces from which Secretary 

Rumsfeld can make decisions. But once reached, the Services should execute decisions and run 

programs to provide effective and efficient operational capabilities of unique forces that can 

jointly operate. 

More importantly, the Services should remain the stewards of force structure, although 

not to the point where their posturing harms the overall defense program. The Services take the 

long view of requirements and force modernization, because they must support force structures 

over the full life cycles of personnel and equipment. The Service Secretaries should act as the 

principal agents of the Secretary of Defense in managing the military departments and acquisition 

programs. Service Secretaries need to be highly competent, informed managers and leaders, not 

individuals selected to satisfy political debts.18 

Proposals to modify Service staff structures have ranged from recommendations to 

“eliminate” them to suggestions to “merge” the military and civilian staff components.19 Other 

proposals have suggested embedding them as Service “Undersecretaries” in the OSD staff. The 

NSSG advocates none of these measures. Embedding 

Service staffs in OSD would blur the relationship 

between OSD oversight and direct involvement in 

program management. Some entity needs to execute 

detailed Title 10 functions, and this entity should be the 

Services. The NSSG acknowledges, however, that 

unnecessary redundancies exist both within the Service 

staffs (between military and civilian secretariats), and 

between the Services, OSD, and the Joint Staff—

particularly among personnel/manpower elements, but also in the areas of acquisition 

management, plans, and policy. Studies have shown that of all the principal staffs within the 

Pentagon, the Service staffs have reduced the most—by approximately 30 percent—although this 

was recently questioned.20 

 

17 M. Thomas Davis, “Changing PPBS,” BENS Tail-to-Tooth Commission Report, 4 December 2000, p.18. 

18 Eliot Cohen, “Defending America in the Twenty-first Century,” Foreign Affairs, November/December 

2000, pp. 51-53. See also, Paul Davis, David Gompert, Richard Hillestad, and Stuart Johnson, 

“Transforming the Force, Suggestions for DoD Strategy,” RAND Issue Paper 179, 1998, p. 5. 19 See Owens, Lifting the Fog of War, and CORM, “Directions for Defense,” pp. 4-23 to 4-25. 20 The Pang/Rossetti Task Force, 1997 and 1998. But also see GAO/NSIAD-00-224. 

G

Embedding Service 

staffs in OSD would blur 

the relationship between 

OSD oversight and 

direct involvement in 

program management. 
U.S. Commission on National Security/21st Century 

18 Creating Defense Excellence 

Additional reductions may be possible, if a comprehensive review of all the principal 

staffs occurred. However, major savings would likely not appear unless additional defense-wide 

functions, such as acquisitions, were consolidated, or unless subordinate Service headquarters 

received the same close examination that could result in further consolidation and reduction. 

Some Services have made more progress than others in this latter area. Secretary Rumsfeld could 

incentivize the process by tasking the Services to examine every subordinate headquarters and 

agency. For every military or civilian staff or support position “cut,” OSD would add and fund 

one equivalent combat position. 

4. The CINCs

he CINCs exercise command over assigned forces, focus on current operations and 

contingency planning, and advocate security issues within a region or a functional 

area. Like others in the defense establishment, CINC staffs have grown considerably in absolute 

numbers since the end of the Cold War, but their short-term focus has remained consistent. The 

CINC’s planning horizon rarely exceeds three years, and they remain advocates of readiness—

often at the expense of long-term modernization—lest anything go wrong on their “watch.” The 

Joint Staff openly solicits the views of CINCs, because of the weight their support adds to Joint 

positions. Often overlooked, however, is the almost complete lack of analytic capability at CINC 

headquarters to make substantive program judgements. This is only matched by the small amount 

of time CINC staffs expend in examining programmatic issues. CINC input is important to DoD 

processes, but the Department must recognize their analytic limitations and not allow short-term 

concerns to prejudice long-term force modernization requirements.21 

The Department also needs to examine the 

number of sub-unified and component command 

headquarters under the CINCs and limit the role of 

Joint Forces Command (JFCOM). The Joint Staff has 

divested many of its activities to JFCOM, while that 

command has recently received other missions to 

include, joint training, joint doctrine, joint 

experimentation, and Joint Task Force-Civil Support 

(JTF-CS) in the homeland security mission. Some 

experts also advocate tasking JFCOM to represent all CINCs in the requirements definition 

process. As the JFCOM commander also wears the SACLANT22 hat, a span of control problem 

looms. JFCOM’s portfolio is becoming too diverse, over-populated, and lacking in focus. 

 B. Reducing DoD’s Infrastructure

ut realigning staffs is not enough. The Secretary of Defense should establish a tenyear goal to reduce infrastructure cost by 20 to 25 percent through outsourcing 

and privatizing as many DoD support agencies and activities as possible. Many current debates 

focus on the overall defense budget, but not on how to shift portions of the budget to meet combat 

needs. The primary effort should be on how to do business differently within DoD—how to solve 

problems, increase savings, and shift resources from DoD’s “tail” to its “teeth.” An internal 

 

21 John Shalikashvili, “Keeping the Edge in Joint Operations,” in Keeping the Edge, Managing Defense for 

the Future, eds. Ashton Carter and John White, (Cambridge: Puritan Press, 2000), p. 43. 22 SACLANT is a North Atlantic Treaty Organization command. It is short for Supreme Allied 

Commander, Atlantic. 

T

 B 

DoD needs to examine the 

number of sub-unified and 

component command 

headquarters under the 

CINC’s and limit the role 

of Joint Forces Command.
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 19

redistribution of DoD’s supporting infrastructure can provide a significant percentage of 

modernization resources. Any person or function that is not fully used in a necessary, core role in 

the Department is a “misallocation” that slows down the Pentagon and retards transformation. 

Every General, who pretends to be a “businessman” within some Defense Agency that the 

Department could privatize, detracts from combat capabilities. 

Most Defense Agencies place little emphasis on achieving performance goals or 

measuring meaningful outputs. A good example is the Defense Logistics Agency (DLA). DLA 

looks at its inventory and support to warfighters purely in terms of numbers and quotas, not in 

terms of a hierarchy of warfighter requirements. As such, because DLA is not 100 percent funded 

to meet all warfighter needs, it seeks to carry an inventory capable of filling the great majority, 

but not 100 percent, of customer needs. DLA’s “metrics” are 

based on internal efficiencies, not support effectiveness. In 

DLA’s practices, meeting 85 percent of needs is seen as an 

admirable metric. However, the 15 percent of inventory not 

stocked is often the most important and critical to customers 

tasked with achieving a military objective. When the most 

critical customer needs are not met, the customer will resort 

to buy arounds and other sources to meet its needs. This method bypasses DLA, which is not able 

to capture customer demands, and further exacerbates the problem. Additionally, the DLA field 

representative program is organized around business areas, not to solve warfighting problems. 

DLA field representatives tend not to have knowledge of the processes and capabilities of other 

business areas, nor are they aggressive in solving problems to address the needs of warfighters in 

the field.23

 

Worse yet, Defense Agencies suffer conflicting and often passive supervision by both 

OSD and the Services, while receiving strong advocacy from the Congress, which seeks to 

protect local constituent jobs and installations.24 Several defense activities have combat support 

roles, but they poorly address the harmonization of business efficiency and combat support 

effectiveness in the current bureaucratic process. Approximately two dozen DoD-operated 

Defense Agencies and field activities exist, and these clearly outstrip any sensible management 

arrangement. Cost effectiveness analysis must be implemented to gain oversight of the linkages 

between the workload, the workforce, and the applied resources. This would allow restructuring 

decisions to be based on the measurement of performance value.25 

1. The Infrastructure Problem

ven conservative estimates suggest that nearly half of all defense resources (a 

minimum of 48 percent of personnel and 46 percent of budget) are consumed by 

DoD’s infrastructure. Other estimates place this percentage as high as 60 percent.26 Defense 

experts commonly referred to infrastructure as DoD’s “tail,” and define it as non-combat 

activities and support services, which operate from fixed locations (such as installation support, 

 

23 DLA Combat Support Agency Review, Booz, Allen & Hamilton, 1998, pp. IV-2 to IV-13. 24 Judith Miller, “Implementing Change,” in Keeping the Edge, pp. 290-291. 25 A vehicle similar to the Army Workload and Performance System (AWPS) could be adopted to facilitate 

input/output measurement. See “Report of the Committee on Armed Services, House of Representative on 

H.R. 4205,” Report 106-616, May 12, 2000, and briefing “Army Workload and Performance System,” for 

the Assistant Secretary of the Army for Manpower and Reserve Affairs, February, 2001. 

26 GAO, “Defense Budget, Observations on Infrastructure Activities,” GAO/NSIAD-97-127BR, April 

1997. GAO, “Future Years Defense Program, Funding Increase and Planned Savings in FY2000 Program 

Are at Risk,” GAO/NSIAD-00-11, November 1999. 

E

DLA’s “metrics” are 

based on internal 

efficiencies, not 

support effectiveness.
U.S. Commission on National Security/21st Century 

20 Creating Defense Excellence 

central training, central medical, central logistics, acquisition infrastructure, central personnel, 

and central command, control, and communications). Approximately 50 percent of DoD’s 

infrastructure falls into two categories—central logistics and installation support—and more than 

75 percent of DoD’s infrastructure resides within the Services. It is easy to get confused over 

“infrastructure” because infrastructure remains buried in both Defense Agencies and Service field 

activities. The accounts stretch across programs, and many budgeting elements are intermixed. 

No single office within OSD retains oversight of the defense infrastructure. 

DoD’s “tail-to-tooth” ratio is too large by any measure. Nearly 30 “division-equivalents” 

of support personnel (approximately 450,000 people) perform service and support functions 

similar to jobs in the civilian sector. Despite the 

dedicated and hard working people in these jobs, much 

of their work falls far outside of DoD’s core warfighting 

missions. The sharp end of the spear, the “teeth”—the 

infantry, armor, artillery, marines, sailors, and pilots jobcoded into actual combat positions—constitutes barely 

200,000 warfighters out of DoD’s 2.0 million full-time 

military and civilian personnel. That means that there are 

almost four DoD civilians for every uniformed soldier, 

sailor, airman, or marine in the active combat units. 

There are also nearly five uniformed military personnel in the “tail” for every individual assigned 

combat duty. The NSSG recognizes the logistics “tail-to-tooth” ratio of U.S. forces will never 

reach an absolute “one-to-one” ratio because of the power projection requirements of U.S. 

strategy, the current focus on precision weapons, and second-to-none support for our fighting 

forces. However, the Department and Services could probably reduce that ratio significantly 

through consolidation, outsourcing, and privatization.27 

 Consuming approximately $134 billion in FY2001, DoD’s infrastructure constitutes the 

world’s 31st largest GDP, ranking just between South Africa and Thailand.28 It does not operate 

according to market forces, but rather functions under a bureaucratic planning and budgeting 

process, the acquisition process, DoD Instructions and Directives, and a system of 

congressionally-driven audits and investigations. Six of the top-ten “defense contractors” are 

Defense Agencies or field activities. For example, both the Defense Logistics Agency and 

defense health programs are larger than Lockheed Martin and the defense portions of Boeing; the 

Defense Commissary Agency (DeCA) is larger than Raytheon; and the Ballistic Missile Defense 

Organization (BMDO) is the same size as General Dynamics.29 

Business costs and practices within these agencies are not competitive compared with the 

civilian sector. For example, the Defense Finance and Accounting Service (DFAS) consumes 

 

27 Similar to the need for visibility over Defense Agencies, the infrastructure reengineering effort needs to 

be based on methods that better capture workloads, performance, and resources such as the Army 

Workload and Performance System. See section I, B, 3 below. 

28 “Defense Budget Materials, FY2001 Budget,” at http://dtic.mil/comptroller/fy2001budget. “The Defense 

Budget Scene,” briefing by Bruce Dauer, OSD Deputy Comptroller Program Budget, February 2000. GAO, 

“Future Years Defense Program, funding Increase and Planned Savings in FY2000 Program Are at Risk,” 

GAO/NSIAD-00-11, November 1999. “The World in 2000,” The Economist, (London: The Economist 

Intelligence Unit, December 1999). 

29 Based on 1999 contractor data and FY01 defense agency budgets including Defense Working Capital 

Fund (DWCF). Defense health based on Defense Health Programmed (DHP) portion of FY01 budget and 

excludes Service medical funding outside DHP. DISA and DFAS make up the remaining “six.” Arnold 

Punaro, “Keep the Tooth—Cut the Tail,” briefing to NDU QDR Symposium, 8 November 2000. 

Nearly 30 “divisionequivalents” of support 

personnel perform 

service and support 

functions similar to jobs 

in the civilian sector. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 21

nearly one-third of DoD’s total travel budget in administrative costs. In 1999, DFAS still charged 

approximately $4 to process a simple civilian paycheck, when the private sector charged less than 

$2 for a similar service, and some civilian companies have reduced the cost to twenty cents per 

paycheck.30 OSD and the Services have tried to reduce these costs. DFAS, too, has struggled to 

merge the two dozen different accounting systems it inherited from DoD into a common 

electronic format. Unfortunately, all too much remains to be accomplished. 

The Defense Information Systems Agency (DISA) like its DFAS cousin operates and 

maintains a DoD-owned information system that the Department could competitively outsource, 

despite its unique and secure requirements. The same is true for the Defense Contract Audit 

Agency (DCAA). There is no “unique” mission that DCAA and its nearly 3,000 auditors perform 

that a commercial auditing agency could not do under contract—probably more cheaply. A 

similar observation could be made for the approximately 13,000 auditors employed in the 

Defense Contract Management Command (DCMC) under the Defense Logistics Agency. 

In the field, the Services continue to maintain redundant staffs and facilities for many 

types of common acquisition support activities. 

Consolidating acquisition functions into a unified 

organization under OSD or the Joint Staff enjoins the 

great risk of separating those functions from their 

operational elements and unique Service expertise. 

However, collocating similar program offices and 

consolidating particular acquisition support activities 

where wide duplication exists across Service lines, 

would enjoy considerable potential savings and 

represent the greatest opportunity to encourage 

cooperation. Co-location of program management 

offices should achieve the following: cut overhead; 

move the program manager’s technical and business 

support functions into a single chain of command; and encourage joint adoption and use of 

common equipment and subsystems across Services. 

2. The Defense Working Capital Fund

ll to often, the Department erroneously treats Defense Agencies as a “free good” to 

the Services. Just because these largely business entities often have military 

leadership they are not “free.” They receive their funding primarily through the Defense Working 

Capital Fund (DWCF), which often inhibits rational business decision-making, because it 

includes all overhead as well as “mobilization costs” in the rates charged for goods and 

services—costs the Services have to bear, but often feel are unfairly overpriced. “Mobilization 

costs” are associated with mobilization or surge capabilities needed for wartime operations. 

Excess or unutilized plant and equipment not considered a mobilization “requirement” is not 

supposed to be included in mobilization costs reimbursed to the DWCF. There are obvious 

disagreements between the Services and Defense Agencies as to what the actual mobilization 

“requirement” should be. The Defense Comptroller approves these costs, and Defense Agencies 

obviously try to include as much excess infrastructure as possible in this category. 

 

30 See Paul Taibl, “Outsourcing & Privatization of Defense Infrastructure, Case Studies: Defense Travel 

System and Military Family Housing,” BENS Special Report, April 1997, p. 5. Thomas McInerney and 

Erik Pages, “Bolstering Military Strength by Downsizing the Pentagon,” BENS, Winter 1997-1998, p. 3. 

Also see “Moving With the Times,” Jane’s Defense Weekly, 15 November 2000, pp. 20-23. 

A

Consolidating acquisition 

function into a unified 

organization under OSD 

or the Joint Staff enjoins 

the great risk of 

separating those functions 

from their operational 

elements and unique 

Service expertise. 
U.S. Commission on National Security/21st Century 

22 Creating Defense Excellence 

The DWCF needs 

reengineering to 

increase its 

effectiveness. 

The DWCF also forces organizations to purchase through DWCF sources rather than 

locally, which in some cases distorts prices four to six fold. Moreover, DWCF pricing policy 

tends to be “linear” rather than distributing fixed costs among customers via an initial payment 

followed by incremental cost on a per work unit basis.31 The simple process of allowing the 

Services to purchase directly from cheaper, non-Defense Agency sources would introduce much 

needed competition into the entire system and force Defense Agencies into better business 

practices. 

The DWCF needs reengineering to increase its 

effectiveness. The Department must remove unnecessary 

mobilization costs from DWCF rates for goods and services. The 

DWCF currently has four objectives: 1) to show full cost 

visibility including sunk and fixed costs; 2) to encourage 

competition between DWCF and commercial sources (A-76); 3) 

to stabilize defense programs by encouraging constant prices; 

and 4) to finance other defense costs indirectly when Congress is reluctant to do so by producing 

some “profit.” The NSSG sees these objectives as conflicting and counter to market forces, and 

recommends that the DWCF concentrate on the first two of the above objectives. 

 3. The A-76 Outsourcing Problem

fforts to reduce infrastructure costs by “outsourcing” under OMB Circular A-76 

guidelines have been somewhat successful, but disappointing to date.32 Under A-76 

rules, DoD may award an outsource contract for support services to a private vendor only if the 

bid is more than 10 percent less than projected government costs. Government costs, however, 

are based on a hypothetical “Most Efficient Organization” (MEO), which is a paper estimate that 

ignores indirect and overhead costs. Nor does the process allow examination of past 

governmental performance, while all private sector bids must include such information. There are 

cases, moreover, in which employees, whose jobs depend upon the outcome of contract awards, 

preside over the competition process.33 Many competitions deliberately avoid contract 

“bundling,” which achieves efficiencies across sectors and installations, and instead focus on 

breaking contracts up in piecemeal fashion so that they are unattractive to private sector 

contractors. 

Moreover, the A-76 process itself is cumbersome and bureaucratic, often taking two to 

four years to complete. Between 1978 and 1994, DoD could only finalize 2,138 competitions—or 

less than 150 per year—involving approximately 90,000 positions. Under the Defense Reform 

Initiative, DoD expected to conduct 750 competitions per year through 2005. It hoped to convert 

approximately 230,000 positions and save $11 billion over the Future Years Defense Program 

(FYDP), but with the same staff and funding level performing the competitions.34 It is unlikely 

 

31 Edward Keating and Susan Gates, “Defense Working Capital Fund Pricing Policies: Insights from the 

Defense Finance and Accounting Service,” RAND, MR-1066-DFAS, 1999. 

32 See GAO, “DoD Competitive Sourcing, Lessons Learned System Could Enhance A-76 Study Process,” 

GAO/NSIAD-99-152, July 1999. GAO, “Defense Reform Initiative: Organization, Status, and Challenges,” 

GAO/NSIAD-99-87, 21 April 1999. 

33 Bill Landauer, “Contractors Back away from DoD Outsourcing,” Federal Times, 11 September 2000. 

Also see, “Report of the Acquisition Reform Working Group,” December 2000, pp. 7-8. 

34 GAO/NSIAD-99-152. BENS Update #9, “The Myth of Public-Private Competitions – OMB Circular A76 and Other Obstacles to Change,” 23 January 1998. Also see Michael Lippitz, Sean O’Keefe, and John 

White, “Advancing the Revolution in Business Affairs,” in Keeping the Edge, pp. 165-202. 

E
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 23

that DoD will achieve its outsourcing objectives given current systemic obstacles. DoD and the 

Office of Management and Budget need to revamp Circular A-76 guidelines and competition.

This requires a Presidential directive to the OMB, which has resisted past A-76 changes. The aim 

must be to make the selection process quicker and competition more equitable. 

The Congress has already injected itself into this issue, in the Defense Authorization Act 

for FY2001 and Public Law 106-398, October 30, 2000. It directed the Comptroller General of 

the United States to convene a panel of experts “to study the policies and procedures governing 

the transfer of commercial activities for the federal government” under A-76. The panel will have 

representatives from the GAO, DoD, private industry, federal labor organizations, and OMB, and 

must submit a report to the Congress by May 1, 2002.35 The Administration would be wise to 

support solid recommendations that can improve the A-76 process. 

4. Need for Common Visibility over Infrastructure

ou cannot improve what you cannot define and measure. On the larger scale, DoD 

needs the ability to review the allocation of funds between “infrastructure” and 

“forces” within the different categories of the Major Force Programs (MFP). It also needs better 

horizontal visibility over activities that are truly “forces,” and activities that are truly “combat 

support,” and “service support.” This will require changes in MFP categories, as detailed later in 

this paper (see Section II, A, 7). The objective should be to maintain or improve productivity 

while reducing infrastructure. In the OSD staff review, Secretary Rumsfeld should consider 

creating an Assistant Secretary of Defense from existing staff entities dedicated to monitoring the 

Department’s infrastructure; the Assistant Secretary could also assist in the restructuring effort.36 

 On the smaller scale, individual Program Elements and activities with the MFPs require 

detailed methods to capture workload costs and measure 

performance values to determine required trade offs. An 

effective infrastructure reduction effort within DoD must 

also include the military departments. DoD needs to 

develop clear and common definitions of what constitutes 

a “support activity.” Currently, different Military 

Departments define identical activities as both “support” 

and “non-support.” This prevents efficient contracting 

across sectors and functions. DoD needs to work directly with the Congress to reduce narrow 

legislative restrictions in certain sectors clearly intended to preserve civil service jobs. Prime 

examples of this include DFAS, fire fighting activities on defense installations, and military depot 

workloads. Tightly coupled with developing common definitions and policy, the Department and 

OMB need to revamp the Circular A-76 competition. Outsourcing will never achieve the desired 

level of savings under current procedures.37 Only if the Department changes processes and puts 

systems in place to gain visibility over its inputs and outputs, will it be able to determine trade 

offs and develop a comprehensive plan to reduce its infrastructure costs.

 5. A Plan to Outsource and Privatize

 

35 Federal Register, Vol. 66, No. 57, Friday, March 23, 2001, Notices, pp. 16245-6. 36 Currently infrastructure issues are scattered between the military Services, USD (AT&L), ASD (C4I), 

and the Defense Agencies. 

37 Examples of recommended A-76 changes can be found in the CORM report, also the “Report of the 

Acquisition Reform Working Group,” pp. 7-8, and in Lippitz, O’Keefe, and White, “Advancing the 

Revolution in Business Affairs,” in Keeping the Edge. 

Y 

DoD needs to develop 

clear and common 

definitions of what 

constitutes a “support 

activity.” 
U.S. Commission on National Security/21st Century 

24 Creating Defense Excellence 

efense Agencies and field activities are “big business” and need to be treated as 

such. The Department should consolidate, outsource and privatize them into fewer, 

leaner organizations. They also must institute commercial business practices, create competition, 

and establish oversight of workload and performance outputs.38 As noted by the Defense Reform 

Initiative, restructuring and reengineering are long, arduous campaigns that require many years 

for implementation to succeed. 

Outsourcing represents an intermediate step toward privatizing those portions of DoD’s 

infrastructure that lack any combat support role. 

Outsourcing combines government ownership with the 

private contracting of various functions. Privatization 

means reducing government ownership and getting DoD 

out of the counterproductive process of competing with 

private industry. While outsourcing should aim at 

achieving 10 percent savings, privatization may achieve 

additional savings of 20 to 25 percent in some sectors. For 

privatization to occur the NSSG recommends that DoD establish a future vision for defense 

infrastructure—essentially a plan to show the Congress where the completed effort stops. 

This plan should include: what would remain as government owned and operated; what 

would be outsourced; and what would be privatized. Those categories of Defense Agencies and 

field activities that should be candidates for consolidation, restructuring and reengineering under 

this plan are easy to identify. Intelligence, Acquisition, and Criminal Investigation should remain 

government owned and operated. On the other hand, the Department should outsource military 

health, personnel, DISA, and many support functions on local installations. DLA, DFAS, DCAA, 

and defense exchanges and commissaries (DeCA) are clear candidates for privatization. 

Privatizing exchanges and commissaries does not mean they “go away.” It simply means they 

become privately owned and operated on military installations. This privatization will not be 

easy, but it is absolutely necessary. 

The plan should include a five-year roadmap on how to get to outsourcing, and a ten-year 

roadmap for getting to privatization. Consolidation and outsourcing will require detailed 

collaboration with the Congress and most likely another two rounds of Base Realignment and 

Closures (BRAC). The BRAC requirement exists, because DoD has already consolidated and 

reduced some support infrastructure within existing installations. Further consolidations must 

eliminate unused facilities and excess capacity, which will require base closures and reductions in 

civilian positions. Privatization will invite intense congressional scrutiny and may generate 

additional BRACs. But failure to correct DoD’s infrastructure imbalance could prove most 

injurious. For example, attempts to reduce costs by squeezing savings from the current system—

without fundamentally restructuring that system—will eventually jeopardize adequate funding for 

core needs such as modernization and personnel. 

mplementing structural change requires firm leadership from Secretary Rumsfeld. The 

Secretary of Defense and the President can direct many structural reforms within and 

among the DoD staffs. However, DoD’s infrastructure reduction should rely on a BRAC-like 

commission that reports to both the Legislative and Executive Branches. The Defense Reform 

Initiative effort within DoD, or something similar to it, could support analysis for the envisioned 

commission. The infrastructure reforms will undoubtedly require enabling legislation. 

 

38 The Army Workload and Performance System would be an excellent starting point. 

D 

I

Privatization means 

getting DoD out of the 

counterproductive 

process of competing 

with private industry. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 25

DoD, like most large institutions, exhibits a change-resistant culture. It has difficulty 

anticipating and adapting to change. In an increasingly volatile world, this inherent resistance to 

change represents a dangerous vulnerability. Senior leaders must focus on leading change. It must 

be their highest priority and responsibility. Defense reform is a “journey” not a “destination.” It 

must be a continuous process directed and supported from the top. Leaders should employ 

techniques to break DoD’s attachment to the past. They should create a renewal process to 

identify the need for change by scanning the horizon, recommending changes to policies, 

programs, organizations, and procedures, and helping to implement those changes. Finally, they 

should sharpen DoD’s focus on missions and outcomes to facilitate the identification of the need 

for change. 

Today’s complex, rapidly changing security environment has placed a premium on 

modern leadership skills and exposed the shortcomings of DoD’s 1960s-style management. 

Leaders must set strategic goals and motivate people to achieve them. DoD must create a 

leadership culture that values effective performance. Secretary Rumsfeld must make leadership a 

selection criterion for senior DoD civilian positions, and increase the attention paid to leadership 

development.39

 

39 Ideas to accomplish the latter are presented in the Commission’s “Civilian Personnel Reform” section of 

Road Map for National Security: Addendum on Implementation. 
U.S. Commission on National Security/21st Century 

26 Creating Defense Excellence 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 27

Section II. DoD Process Reform

wo major areas of DoD responsibility require major process reform: the planning and 

budgeting process, and the acquisition process. This Section addresses each in turn. 

A. Reforming the PPBS Process

ther government departments and agencies often view DoD’s Planning, 

Programming, and Budgeting System (PPBS) as a “model” strategic planning 

process, because it successfully provides detailed and logical budget data to the Congress. The 

process itself, however, is extremely complex, cumbersome, expensive, and time-consuming. 

Even more important, the system is not as logical as it seems. The real problems of the PPBS 

system do not lie in its complexity or how the process is executed. They lie much deeper. 

The first is the “bottom-up” driven nature of the system, where budgets dominate 

planning, and programming. 

Flowing from this, the second problem is the disproportionate weight senior leaders 

devote to budgeting versus strategic planning. 

Third, the PPBS process fails to generate major options for change or elevate them to the 

Secretary for decision. 

Fourth, the PPBS process in not focused on measuring “outputs.” 

Lastly, PPBS analysis mechanisms, which are used to evaluate capabilities across defense 

programs, are not useful decision tools, nor do they focus on future requirements. 

The net result is that when left on “autopilot,” the PPBS system endorses the status quo 

and blocks any significant effort at transformation. After describing how the PPBS system works, 

this section will discuss the above problems in turn.

1. How the PPBS Process Works – Theory and Reality

he PPBS is one of two key processes within the Department of Defense. At any given 

time, some aspect of the PPBS process is consuming a large part of OSD’s activities, 

not to mention those of the Joint Staff and the Services. Secretary of Defense Robert McNamara 

instituted the PPBS process in 1961 to tie “ends” to “means,” so that planners could relate the 

defense budget as a whole to national strategy in a sequential process of planning, programming, 

and budgeting. McNamara intended PPBS to enhance OSD’s oversight by producing common 

measures horizontally across defense programs, so that he and his staff could examine outputs 

and evaluate strategic alternatives. 

It is worth underlining that McNamara had just come to the position of Secretary of 

Defense from the Ford Motor Company. As such, McNamara cast the PPBS process very much 

in the mode of the top-down, highly bureaucratized approach that characterized the American 

automotive industry in the late 1950s. In other words, PPBS represents the philosophy of heavy 

industry in America of forty years ago—an approach that was soon challenged by leaner, more 

decentralized industrial regimes. PPBS created the original ten Major Force Programs (MFP) as 

the basis for matching defense missions (outputs) with defense resources (inputs). This mission 

T

O

T
U.S. Commission on National Security/21st Century 

28 Creating Defense Excellence 

structure has been little changed since 1961, suggesting that the functions the DoD has to perform 

are also little changed. The only “major” change was in response to the 1987 Cohen-Nunn 

Amendment to the DoD Reorganization Act, which caused the Department to add an eleventh 

MFP category—Special Operations Forces. 

Before one can identify its problems, one needs a brief description of PPBS to understand 

its intended, or theoretical, function. The purpose of PPBS is to produce a plan, a program, and a 

six-year budget for DoD, of which two years are “operable.” The entire process requires two 

years to complete (see Figure 1). 

Figure 1. The “Theory” of PPBS 40

The planning component of PPBS theoretically rests on the National Security Strategy 

and occurs from January to September of the first year. It incorporates several major processes. 

These include: the Joint Strategy Review (JSR), which the Chairman and Joint Staff control; and 

the Defense Planning Guidance (DPG), which OSD controls.41 While the Quadrennial Defense 

 

40 Courtesy of M. Thomas Davis, Northrop Grumman Corporation, 2000. 

41 The JSR is used to assess the strategic environment, to make inputs into the Joint Strategic Capabilities 

Plan, and to lay the basis for the National Military Strategy written by the Chairman and approved by the 

Secretary of Defense. Joint planning is conducted biennially, and the National Military Strategy is updated 

as needed, usually every two to four years. The OSD-controlled DPG is produced biennially but updated 

annually. The DPG issues SecDef/OSD guidance to the military departments for development of the 

Service’s Program Objective Memorandums (POMs) (their program/budget plans). A Chairman’s input to 

the DPG is also made in the form of the Chairman’s Program Recommendations (CPR). The DPG includes: 

major planning issues and decisions; strategy and policy; the Secretary’s program planning objectives; the 

Defense Planning Estimate; and the Illustrative Planning Scenarios. The DPG is the major link between the 

planning and programming phases of PPBS. The DPG is controlled and led by the Undersecretary of 

Defense for Policy (USD(P)), but OSD (PA&E), under the Defense Comptroller (USD(C)), oversees the 

programming guidance in the DPG. 

YEAR 1 YEAR 2

The “Theory” of PPBS

PLANNING PROGRAMMING BUDGETING

BES = Budget Estimate Submit JSR = Joint Strategy Review

CPA = Chairman’s Program Assessment NMS = National Military Strategy

CPR = Chairman’s Program Recommendation NSS = National Security Strategy

DPG = Defense Planning Guidance PBD = Program Budget Decision

FYDP = Future Years Defense Program PDM = Program Decision Memorandum

POM = Program Objective Memorandum

 I I I I I I I I I I I I I I I I I I I I I I I I I

J F M A M J J A S O N D J F M A M J J A S O N D J

CPR

NMS

JSR

NSS

D

P

G

Army

POM

Navy

POM

AF

POM

Def

POM

OSD

Review

F

Y

D

P

P

D

M

Def

Bud

A

BES

N

BES

AF

BES

DA

BES

O

S

D

P

B

D

CPA
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 29

Review (QDR) is technically not a part of the PPBS process, it is part of the planning process, 

and thus for all intents and purposes is a part of PPBS 

The programming phase of PPBS is supposed to follow the issuance of the DPG and 

theoretically occurs from October of year one through July of year two. The programming phase 

primarily focuses on an analysis of the Service Program Objective Memorandum or “POMs,” 

which the Services construct around the eleven Major Force Programs.42 OSD’s Program 

Analysis and Evaluation (PA&E) directorate evaluates the Service POMs through the “Issue 

Cycle” or “Program Review” from April through June of year two, to insure they comply with the 

DPG. The Joint Staff, through the Joint Warfighting Capabilities Assessment (JWCA) process, 

also evaluates the Service’s composite POMs by a different set of categories to assess their 

impact on joint warfighting.43 The JWCA and several other inputs then serve to produce the 

Chairman’s Program Assessment (CPA) of the POMs, which his staff also submits during the 

“Issue Cycle.” The Services respond to the PA&E and the Chairman’s issues, which the Defense 

Resource Board (DRB) resolves. The programming phase then culminates with the release of a 

Program Decision Memorandum (PDM). 

The budgeting phase of PPBS theoretically begins in July of year two as the POMs and 

PDM are repackaged into Budget Estimate Submissions (BESs) for the Defense Comptroller. The 

BES essentially “restacks” the POMs from the eleven Major Force Program categories into the 

accounting and funding elements used by the Congress. The Comptroller and OMB jointly review 

the BES in a series of hearings. The primary focus of the hearings is to make final adjustments 

based on current economic assumptions to insure the BES complies with the original budget 

guidance issued by OMB. Adjudications occur in a series of Program Budget Decisions (PBDs). 

The budgeting phase culminates with submission of the defense budget to OMB in December, 

and its subsequent release to the Congress in February of year two. 

n reality, PPBS is overlapping, congruent, and compressed in execution. The annual 

budget appropriated by the Congress drives an “abbreviated” PPBS, a “DPG update,” 

and the creation of “mini-POMs” every year to update the two-year budget. Because of such 

“abbreviated” PPBS cycles, two PPBS phases are commonly running in the Pentagon at any 

given time, with their intended objectives becoming very indistinct. A process intended to be 

sequential, with each phase adding increased detail to the one before, becomes a series of 

simultaneous operations that are largely repetitive. For example, the planning during “year one” 

occurs with regard to the budget after next, while simultaneously, the budgeting during “year 

two” is occurring on the next year’s budget (see Figure 2). 

Numerous other anomalies exist, and “work arounds” must occur to compensate for 

PPBS problems. For example, because the DPG is rarely delivered on time, Services construct 

their POMs based on circulated early “drafts” of the DPG. The DPG itself often lacks specificity 

or priority. Similarly, the Chairman’s Program Recommendations (CPR) often occurs too late to 

affect Service POM construction, and it also focuses on too many issues and minor details. Not 

 

42 The MFP categories have been consistent since 1961, except for the addition of MPF 11. They are: 1) 

Strategic Forces, 2) General Purpose Forces, 3) Intelligence & Communications, 4) Airlift & Sealift, 5) 

National Guard & Reserve Forces, 6) Research & Development, 7) Central Supply & Maintenance, 8) 

Training, Medical, & Other, 9) Administration, 10) Support of Other Nations, and 11) Special Operations. 

OSD is conducting an internal study to review the eleven MFPs. See Table 1. 

43 The newly proposed JWCA categories are: 1) Strategic Deterrence, 2) Dominant Maneuver, 3) Precision 

Engagement, 4) Focused Logistics, 5) Full Dimensional Protection, 6) Intelligence, Surveillance & 

Reconnaissance, 7) Communications & Computers, and 8) Information Superiority. See Table 2. 

I
U.S. Commission on National Security/21st Century 

30 Creating Defense Excellence 

surprisingly, the planning process moves as slowly today, as it did during the Cold War when 

PPBS focused on glacial changes in response to the 

Soviet threat. It normally required Presidential 

involvement or congressional dictates to induce DoD to 

examine major strategic alternatives or review roles and 

missions. In the absence of similar, senior-level 

involvement, the PPBS process alone is incapable of 

addressing the direction of future force modernization 

and strategy, such as aviation modernization needs 

across the services, space architectures, or different 

power projection alternatives. 

During the programming review phase, the eleven Major Force Programs—originally 

introduced as OSD vehicles to analyze programs horizontally across the defense budget—have 

little influence on broad capability or mission outcomes. Objectives are not specified in the DPG 

for the MFPs, so how can progress be measured or analyzed? Thus, issues typically originate 

from modernization problems recognized and raised by the Defense Acquisition Board and 

injected by the Defense Planning Advisory Group—an entity composed primarily of USD(P), 

USD(AT&L), and PA&E representatives. The previously mentioned problems of overlap and 

duplication exist between OSD’s “Issue Cycle” review and the JWCA assessment. 

Figure 2. The “Current Reality” of PPBS 44

The Pentagon expends a huge amount of effort during the “Issue Cycle.” Remarkably, 

however, total changes to Service programs commonly amount to as little as one percent of the 

total resources, reflecting a focus on minor issues of marginal value. This implies the Service and 

 

44 Courtesy of M. Thomas Davis, Northrop Grumman Corporation, 2000. 

In the absence of seniorlevel involvement, the 

PPBS process alone is 

incapable of addressing 

the direction of future 

force modernization. 

CPR CPA

Army

POM

Navy

POM

AF

POM

Def

POM

DPG

YEAR 1 YEAR 2

 The “Current Reality” of PPBS

 PLANNING PROGRAMMING BUDGETING

 I I I I I I I I I I I I I I I I I I I I I I I I I

J F M A M J J A S O N D J F M A M J J A S O N D J

NMS CPR

OSD

Review

A

BES

N

BES

AF

BES

DA

BES

O

S

D

P

B

D

F

Y

D

P

P

D

M

CPA

Planning

Programming

Budgeting

QDR

NSS

Navy

POM

AF

POM

Def

POM

Army

POM

N

BES

AF

BES

DA

BES

A

BES

OSD

Review DPG Def

Bud

Def

Bud

Budgeting
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 31

Defense Agency budgets were over 99 percent “correct” 

before OSD or the Joint Staff ever saw them.45 In 

essence, the OSD and Joint review process moves 

“chump change” around. So much apparent “harmony” 

clearly reflects political and bureaucratic entrenchment, 

and an imbalance in the political weight of organizations 

involved in the review process. It is also evidence that 

the process is not fulfilling its intended function—

identifying inefficiencies, tradeoffs, and alternatives. 

The program review often starts too early—sometimes even before Services release their 

POMs—and is prolonged into the budgeting phase, because senior defense officials delay 

decisions and release a series of PDMs often extending into the budget review and the publication 

of the first PBDs. This delay in completing the program review occurs for two reasons: to identify 

unexecutable programs, and to get a sense of Congressional direction on key programs by waiting 

for the Congressional bill mark-ups on the previous year’s budget. Even though the number of 

delayed significant decisions is often “small” the total defense program remains in “flux” because 

of top line budget caps.46

This, in turn, results in hurried and inaccurate adjustments to budgets and the Future 

Years Defense Program (FYDP). The process also frequently disrupts long-term modernization 

plans during annual budget cycles, while minor details receive inordinate attention. Decision 

delays also affect the budgeting cycle as programmers and budgeters reconcile and recompile 

programs. Because the defense budget is so large, OMB must become involved much earlier and 

work informally with the Services and OSD on the POMs. Thus OMB is aware of POM content 

and implications of changes resulting from the PDMs. This, and computerization of the PPBS 

process, are major factors that allow the budget process to be executed in a compressed period of 

time. 

2. Adjusting the PPBS Cycle

everal studies have proposed “fixes” to the PPBS process by forcing it back into its 

original phases and timelines.47 While such proposals solve the problem from the 

individual perspective of planners, programmers, or budgeters, they may not be necessary or even 

desirable for all the PPBS phases. 

It is more important that PPBS connect to and flow from a national strategy and a 

strategic QDR process. The PPBS process must also orient in ways to conform to political reality 

and achieve better coordination between the civilian and military staffs. Certainly, portions of the 

DoD budget will remain annual in nature even if the Commission’s defense acquisition proposals 

are adopted (see below). Thus, it is unrealistic to attempt to “force fit” the final budget decision 

 

45 BENS Tail-to-Tooth Commission, “Framing the Problem of PPBS,” January 2000, p. 21. Available at: 

http://www.bens.aa.psiweb.com/pubs/srPPBS.html. We recognize of course, that a significant portion of 

the defense budget being “locked in” as non-discretionary funding influences this statistic. 

46 M. Thomas Davis, Managing Defense After the Cold War, Center for Strategic and Budgetary 

Assessments, June 1997, pp. 23-25. The number of Congressional “changes” in the defense mark ups have 

averaged over 1,600 in recent years across a total of 5,000 programs. However, the number of significant 

changes normally impacts about 4 to 5 percent of programs. 

47 See, Ibid. and the two BENS studies on PPBS: “Framing the Problem of PPBS,” January 2000, and 

“Changing PPBS,” December 2000. 

S

This implies the Service 

and Defense Agency 

budgets were over 99 

percent "correct" before 

OSD or the Joint Staff 

ever saw them. 
U.S. Commission on National Security/21st Century 

32 Creating Defense Excellence 

process in the executive branch into a straight jacket that ignores the resource decision process 

occurring in the legislative branch. The impact between annual budgets is simply too great and 

executive decision-makers have consistently shown they are unwilling to make potentially 

premature decisions on upcoming budgets that Congressional mark-ups on programs in the 

previous year’s budget could render moot. 

Moreover, it is often unnecessary to force such firm, early decisions, as long as they are 

preceded by sound strategic guidance and planning. When Secretary McNamara originally 

designed the PPBS process in the 1960s, two factors existed. First, the Congress rarely delved 

into programmatic details, which resulted in less reprogramming and rescheduling within DoD’s 

annual budgets. And second, the distinct four to five month “budgeting phase” was a real 

requirement driven by the need to translate DoD’s 

program estimates into the Congressionally mandated 

budgeting elements. It was a tedious, manual process. 

Modern computers now make it possible to compress the 

programming and budgeting phases, allowing DoD to 

take account of Congressional action before a new 

budget is fully formulated. But clearly, major decisions 

need to be faced and addressed well before OMB 

publishes tabular data for submission to the Congress. If the Commission’s recommendations for 

a two-year modernization budget and increased use of multi-year procurement were to become a 

reality, the problem would be alleviated even more. 

The PPBS calendar should be revamped, but in the following way. OSD would issue 

policy and planning guidance (the DPG) biennially, prior to when the Services start building their 

initial programs and budgets. The Joint Staff and OSD would develop the most critical issues for 

review by the Secretary in the April to August time frame. While many issues could be resolved, 

the process would postpone some final decisions until after the Congress had done its markup of 

the previous year’s budget, so as to integrate their decisions into the upcoming budget. 

Presidential approval would occur by the end of the year. Thus, planning needs to be done less 

frequently and in greater detail, and a budget has to be turned in by the first week of February. 

However the dates between planning and budget submission do not need to be too rigid, and not 

all budget decisions need to be sequential.

3. PPBS Lacks “Top-Down” Guidance and is “Bottom-Up” Driven 

 

heoretically, PPBS is top-down driven, from the National Security Strategy (NSS) to 

both the National Military Strategy (NMS) and the DPG. The Goldwater-Nichols Act 

requires an annual NSS, which supposedly depicts 

the President’s broad national security directions 

for the United States. Required by law each 

January, the document is habitually late, and it 

never prioritizes its objectives and goals.48 By this 

Commission’s definition, the NSS is not a 

“strategy” document at all, but a ritual “policy” 

wish list that does not relate ends to means. 

 

48 William Clinton, “A National Security Strategy for a New Century,” The White House, December 1999. 

For example the publishing dates have been: 1993-January, 1994-July, 1995-February, 1996-February, 

1997-May, 1998-October, 1999-December (the 1999 NSS was actually released in January 2000 but was 

backdated to December 1999). 

 T

Clearly, major decisions 

need to be faced and 

addressed well before 

OMB publishes tabular 

data.

The NSS is not a “strategy” 

document at all, but a ritual 

“policy” wish list that does 

not relate ends to means. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 33

Astonishingly, the NSS remains uncoordinated, even in draft form, with the key keepers of 

means—namely, the Congress. 

Outwardly the supposed “top-to-bottom” approach looks sound. For example, the May 

1997 version of the NSS contained the first reference to a “Shape, Respond, Prepare Now” 

strategic approach. As expected, the May 1997 Quadrennial Defense Review (QDR) and the 

October 1997 National Military Strategy mirrored the “Shape, Respond, Prepare Now” approach 

of the 1997 NSS. “Shape, Respond, Prepare Now,” along with the Two Major Theater War 

(2MTW) requirement, has become pivotal in recent strategic planning—strengthened in 

subsequent versions of the NSS and the NMS.49 

But appearances can deceive. The “Shape, Respond, Prepare Now” strategy was actually 

developed in DoD in the December 1996 QDR work up, and then OSD fed it into draft versions 

of the 1997 NSS.50 This provided political top cover to the QDR and insured the appearance of a 

linkage between the National Security Strategy on one hand and the National Military Strategy 

and QDR on the other. What it really demonstrates is how “bottom-up” the strategy process has 

become. The 1997 QDR failed to address adequately the resource constraints associated with 

modernization and largely justified legacy force structures.51 This “bottom-to-top” linkage has 

since become even tighter as the Defense Planning 

Guidance (DPG) is now restructured around the 

“Shape, Prepare, Respond Now” approach.52 In 

theory, every Pentagon program is linked to and 

“justified” by the NSS. In practice, DoD has created 

an interlocking, essentially self-referential planning 

process that does little more than protect existing 

force structures. 

4. Involving Senior Defense Leadership in Strategic Planning

umerous studies have highlighted the need to improve strategy and planning in 

PPBS and lamented the dominance of budgeting. One of the most debilitating effects 

of the process is that senior leaders devote a disproportionate weight of effort to budgeting versus 

strategic planning. Moreover, planning often neglects to acknowledge resource constraints and 

fails to balance readiness and modernization requirements. The DPG does not articulate a clear 

vision of the future and rarely reflects relative priorities. Rather than providing broad guidance 

with measurable objectives, it often delves into mundane program details. 

The PPBS process fails to provide the Secretary with the means to guide defense decision 

processes strategically and has contributed to the Department’s tendency to replicate legacy force 

structure. In the Commission’s view, planning improvements must start with the National 

 

49 John M. Shalikashvili, “National Military Strategy,” 26 January 1999, at http://www.dtic.mil/jcs/nms/. 

Prior to this, the NMS had been updated in February 1995 and October 1997. 50 See, GAO, “Quadrennial Defense Review, Opportunities to Improve the Next Review,” GAO/NSIAD98-155, June 1998, and James Thomason, Paul Richanbach, Sharon Fiore, and Deborah Christie, 

“Quadrennial Review Process: Lessons Learned from the 1997 Review and Options for the Future,” IDA 

Paper P-3402, August 1998. 51 William Cohen, “Report of the Quadrennial Defense Review,” May 1997 at 

http://www.defenselink.mil/pubs/qdr. 52 Department of Defense, “Defense Planning Guidance, Update for Fiscal Years 2001-2005,” April 1999, 

SECRET, from Unclassified “Contents” page, p. v. 

N

DoD has created an interlocking, essentially selfreferential planning process 

that does little more than 

protect existing force 

structures. 
U.S. Commission on National Security/21st Century 

34 Creating Defense Excellence 

Security Strategy and our recommendation to create a national security planning and budgeting 

process with guidance from the President. This must continue through DoD’s planning 

documents—the National Military Strategy and the Defense Planning Guidance. All strategic 

planning must rest on sound strategic objectives, and the DPG, which remains classified and 

rarely released outside the Pentagon, should reflect relative priorities so that programmers and 

budgeters know what is and is not important. This requires senior defense officials to work with 

the Defense Planning Advisory Group, and become involved up front in the planning process—

issuing better guidance at the beginning, rather than spending the bulk of their effort working the 

budget after the fact. 

In the main Phase III report, the Commission also proposed a major change aimed at 

getting Secretary Rumsfeld and his staff involved directly in the strategic planning process. We 

recommended that the Congress and the Secretary move the QDR to the second year of an 

administration, and use the QDR as a foundation for the PPBS process. 

The current QDR timing, coupled to the 

political appointment process, simply does not 

allow an incoming Administration to develop 

guidance that can usefully influence the QDR. If 

not moved, the QDR will become captive to the 

Joint Staff and the previous Administration, 

instead of a tool to examine basic issues by 

Secretary Rumsfeld and key appointees. As 

currently structured the DoD civilian and military 

bureaucracy has ascertained that they can best 

preserve the status quo by not having the QDR strongly tied to key decision-makers. 

Concurrently, decision-makers have figured out that they have no real stake in the QDR, and as a 

result largely ignore it within the PPBS decision process. The 1997 QDR essentially evaded the 

“ends” to “means” mismatch by assuming resource savings from a BRAC process that was “dead 

in the water” politically. Thus the QDR, as currently structured, is basically useless and gives the 

defense planning system a documented plan to parse resources along traditional lines versus a 

plan to transform and employ our strengths. 

As long as the Department has the current QDR approach to fall back on, it will not do 

the heavy lifting required to transform our military capabilities. The current “Rumsfeld Strategic 

Review” will surely impact the QDR. In fact it could either severely truncate the QDR or even 

substitute for it in some ways. Criticism of the 1997 QDR led the Department to establish a 2001 

QDR Working Group under the aegis of the Institute for National Strategic Studies at National 

Defense University. The purpose of this group was to develop methodologies, assumptions, and 

recommendation to “jump start” the 2001 QDR.53 The QDR Working Group was also created to 

help overcome the obstacle of an incoming Administration having to provide a final QDR report 

to Congress by September 2001. 

his Commission recognizes that delaying the QDR by a few months would not 

appreciably correct the problem, because its results would occur too late to mesh with 

the PPBS program review process and subsequent budget. The best way to make the next QDR 

relevant to the incoming administration would be to convene the review in October of 2001, after 

 

53 See “Report of the National Defense University Quadrennial Defense Review 2001 Working Group,” 

Institute for National Strategic Studies, November 2000, and Michele A. Flournoy, ed. QDR 2001: 

Strategy-Driven Chouces for America’s Security, (Wash D.C.: NDU Press, 2001). 

T

The current timing and 

political appointment process 

simply does not allow an 

incoming Administration to 

develop guidance that can 

usefully influence the QDR. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 35

the majority of political appointees are in place. The QDR would then aim at a completion date of 

May 2002 in time to influence the “second” developed budget.54 If the QDR remains in the first 

year, the QDR analysis or “results” will most likely be altered to coincide with and collaborate 

the amended FY2002 budget. In this case the budget will clearly drive the QDR. Moving the 

QDR to the second year of an Administration, means the first budget that is developed would not 

be informed by the QDR, and it would actually impact the “second” budget of an Administration. 

The objective would be to complete the QDR in time to inform subsequent PPBS cycles. The 

Commission recognizes the disadvantage of delaying the QDR, but believes the delay is the lesser 

of two evils, if the QDR is to become a useful tool for defense planning. 

The most critical step to turn this situation around is for the Secretary of Defense to 

produce defense policy and planning guidance that defines specific goals and establishes 

relative priorities. This Secretarial guidance would provide the basis for defining the nation’s 

National Military Strategy, conducting the Quadrennial Defense Review (QDR), and writing the 

Defense Planning Guidance. His initial guidance must conform to the President’s national 

security planning and budget guidance issued in the February-to-March time frame of the 

incoming Administration. The current “Rumsfeld Strategic Review” will obviously influence 

QDR guidance. 

The Commission proposes another change to improve the QDR process. Those 

conducting the review should aim at defining defense modernization requirements for two 

distinct planning horizons: near-term (one to three years) and long-term (four to fifteen years).

The CINCs should have primary influence on readiness issues in the near-term execution horizon. 

The Services themselves should then focus on modernization, personnel, and infrastructure 

throughout the long-term planning horizon. The Joint Staff should focus on joint issues and force 

interoperability planning. The OSD staff would exercise broad oversight and ensure that QDR 

planning followed the President’s and Secretary’s strategic guidance as well as rest on realistic 

political and resource assumptions. The planning process 

must reflect the various institutional interests and expertise 

of the major players in the Department, but it must also 

balance near- and far-term requirements. The Department 

need not repeat strategic planning every year. If a strategic 

plan must change each year, it is probably not crafted 

correctly. 

If the QDR occurs every four years, the NSSG believes the DPG should go from an 

annually updated document to a truly biennial process. This alone would cut current planning 

efforts in the Pentagon considerably and allow senior leaders to develop prioritized, objective 

guidance for the DPG. The biennial DPG should reflect decisions from the President and the 

Secretary as mirrored and developed in the QDR. The program review phase should measure 

progress in achieving DPG objectives, with a particular emphasis on innovation, modernization, 

and promising transformation alternatives. At the same time, such an approach would generate 

senior DoD involvement prior to the budget process. 

 

54 To be clear, we define an Administration’s “first” defense budget as the first budget it develops, not as 

the first budget it executes. While the Bush Administration will attempt to make some changes to the 

Clinton FY2002 Budget developed last year, and will work with the Congress on many changes, it 

primarily executes the budget submitted by DoD from the previous Administration. 

If a strategic plan must 

change each year, it is 

probably not crafted 

correctly. 
U.S. Commission on National Security/21st Century 

36 Creating Defense Excellence 

5. Developing and Elevating Alternatives via the PPBS

n the NSSG’s view, the greatest strategic problem with the PPBS process is that it fails 

to develop and elevate realistic and important alternatives over the direction of future 

force modernization and strategy to senior decision-makers. The “Issue Cycle” focuses on minor 

programmatic details rather than significant alternatives. Despite the end of the Cold War, the 

PPBS process is not using the Major Force Program categories for analysis of issues, nor has it 

revised the MFPs as to their applicability—although OSD is in the process of “studying” such a 

revision.55 Thus there is little horizontal visibility to identify programming compliance with 

future requirements. PA&E, while responsible for the issue cycle, no longer serves its intended 

function of providing strategic horizontal visibility across defense programs. 

Despite all efforts to improve “Jointness,” despite all the analyses, despite Congressional 

prodding, and despite all the efforts of PPBS, DoD rarely focuses on developing serious 

alternatives that could alter force structures to function in future national security environments. 

Alternatives, for example, over future force modernization required by aviation across the 

services, or power projection alternatives, receive endless discussion, but never get injected into 

the PPBS process for decision. Despite the end of the Cold War and the emergence of a newer, 

less certain strategic environment, the percentage of Total Obligation Authority (TOA) allotted to 

the Services has not appreciably changed over the past ten years.56 Force structure changes are 

minor, programs remain essentially the same, and the modernization bow wave pushes farther 

into the future. The current bureaucratic process grinds stark alternatives into homogenous mush. 

Clearly, the Secretary of Defense must reform OSD first, and then direct changes in the 

PPBS process. OSD must take a central role in running a reformed PPBS process. A major focus 

in the PPBS should be on generating alternatives for 

senior decision-makers. Attempts to alter the status quo 

have been most frequently made through the plans and 

policy route. The more effective attack axis, however, 

is through the ultimate OSD weapon, the resource 

allocation tool—by leveraging the Golden Rule... “He 

who controls the gold sets the rules.” If OSD were truly in the resource allocation role and 

performed this task in a visionary up front manner that was linked to its strategic direction 

responsibility, the budgeting entities would then be obliged to conform to the established 

direction. A viable method to accomplish this would be the introduction of competition for the 

allocation of Total Obligational Authority (TOA) among the Services by OSD during the QDR. 

Thus, for the Department to develop true strategic alternatives, it will need to focus on resources. 

We recommend that the Secretary of Defense introduce a new process that would require the 

Services to compete for the allocation of some resources within the overall defense budget. 

A structured process of competition for resources, moored within the QDR process, and 

focused on the allocation of TOA, can change this. One possible way to accomplish such a 

competition would be for OSD to retain 5 to 10 percent of the TOA and then reallocate that 

percentage during the QDR to promising systems and initiatives—be they those of the Services, 

DARPA, or Joint programs.57 This could be accomplished when OSD PA&E produces the Fiscal 

 

55 The eleven MFP categories are listed below in Table 1, while the JWCA categories are listed in Table 2. 

56 Those percentages are: Army 24 percent, Navy 32 percent, Air Force 30 percent, and Defense Agencies 

14 percent. 

57 The Commission assumes that such systems and initiatives should meet clearly defined joint 

interoperable standards. 

I

A major focus in PPBS 

should be on generating 

alternatives for senior 

decision-makers. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 37

Guidance document in mid-March of the QDR year.58 Secretary Rumsfeld and his OSD staff 

must accompany their TOA holdback with an effort to identify high priority programs that fill 

key strategic requirements. This is necessary to insure funding for strategic lift and space 

programs, as well as joint interoperability programs, such as C4ISR. 59 In this QDR process, the 

Services and Defense Agencies would naturally have to identify their highest and lowest priority 

programs. 60 This would give the Secretary a vehicle to kill low priority programs and begin the 

process of reallocating funds to more promising areas during subsequent PPBS cycles. 61 The 

Defense Planning Guidance would reflect the Secretary’s QDR decisions, while future “Issue 

Cycles” within the PPBS would measure progress toward achieving these decisions. 

or any TOA reallocation process to be viable, two things must happen. First, 

Secretary Rumsfeld must rely on his OSD staff—not only on the Service and Joint 

Staffs. Second, the OSD staff will need to coordinate the analysis that informs the discussion of 

the alternatives. The internal reforms of OSD will prove key to the accomplishment of these 

tasks. 

On the first point, some would argue against TOA competition in the QDR on the 

grounds that it would increase “interservice rivalry.” The NSSG rejects this view. The passage of 

the Goldwater-Nichols Defense Reorganization Act of 1986 restructured power within the Joint 

Chiefs and deliberately tried to emphasize “jointness” 

by muting interservice rivalry. Unfortunately, some 

have transformed this jointness into to de facto

political correctness and reduced not only rivalry, but 

constructive competition as well.62 It is interesting, 

that American culture holds competition to be a good 

thing in all aspects of human endeavor, except when 

it occurs between the military Services. There it is 

derisively viewed as parochialism. This model of deemphasizing competition does not serve any 

constructive purpose. 

The Services are essential to the American way of war. The nation needs them and cannot 

forego them even if it wanted to. It would go beyond bad management to bad judgement. 

Moreover, the Services cannot be eliminated or transformed into some sort of non-competitive, 

functional entities. They are honored institutions with large constituencies that would go to the 

barricades to preserve them. Who would want to expend the enormous political capital necessary 

to even start that process? The Services, as they now exist, have the history, institutional memory, 

and expertise for what it takes to fight in a given specialized environment—ground, sea, air, or 

littoral. While the Services tend to resist change, they contain the repository of knowledge 

necessary to evolve the U.S. military in a fashion most likely to maintain American military 

 

58 PA&E’s Fiscal Guidance (FG) precedes OMB’s release of “budget preparation guidance” in June. The 

FG is an internal DoD document not sanctioned by OMB, although OMB is aware of its contents. The FG 

is conservative and usually assumes a zero percent growth. It starts the bottom-up POM building process. 

59 C4ISR is a DoD acronym meaning “Command, Control, Communications, Computers, Intelligence, 

Surveillance, and Reconnaissance.” 

60 Note the Services and Defense Agencies must identify “programs” not “funds.” Otherwise they will 

stretch programmed procurement to free budget year “funds,” but increasing future unit costs. 

61 David Chu, “Sustaining Innovation in the Military,” OSD Net Assessment Summer Study, 1996. 

62 This is not a statement against “jointness.” It is an observation, however, that degrees of competition 

between the Services still exist in other forms, and can be constructive if they do not disrupt the necessary 

synergies required to conduct joint operations. 

F

American culture holds 

competition to be a good 

thing in all aspects of 

human endeavor, except 

when it occurs between the 

military Services. 
U.S. Commission on National Security/21st Century 

38 Creating Defense Excellence 

superiority. The trick is not to eliminate or suppress that competitive spirit, but to harness it to 

DoD’s strategic planning process. 

How can one stimulate competition and innovation without wasting energy and resources 

on inter-Service battles? First strong civilian leadership must begin with a sense of what the 

nation actually needs in the emerging security environment. Second, civilian leaders must realize 

that competition implies making hard resource decisions that 

create winners and losers. They must accept that the TOA 

fraction historically provided to each Service might need to 

change.63 Third, the civilian leadership, with a firm idea of 

what capabilities it feels the United States needs, could 

establish a competitive framework to select those systems 

that best produce the requisite capabilities. Lastly, the 

department would withhold a certain fraction of the annual defense budget, as noted above, to 

award to the Service(s) providing the most plausible and supportable options, based on good 

judgement and analysis. Competition between the Services is good to the point where the QDR 

makes basic decisions. Then, the Services should execute policy and run programs. 

The second prerequisite for a viable QDR rests upon developing a methodology and 

improved analysis to conduct the TOA competition. The NDU QDR 2001 Working Group 

provides some useful insight for a strategy-driven methodology, but unfortunately they proposed 

no competition and the assumptions imbedded within their framework severely limited the 

resulting alternatives.64 Conducting TOA competition in the QDR is no easy task. Undoubtedly 

the Services will object to any method, structure, rule, or analysis mechanism that they perceive 

as disadvantageous, and likewise the Services will advocate analysis vehicles that provide them a 

competitive edge. The solution is to develop a methodology based on “output” oriented objectives 

tied to mission areas. This in turn requires revising the Major Force Program categories, and 

developing systems that measure input/output productivity to conduct tradeoff analysis. (See 

below) 

If the QDR performed a thorough analysis and the Services developed major alternatives 

to meet mission outputs requirements, different TOA shares would presumably flow to different 

Services and agencies. TOA distribution would then reflect decisions that mirrored Service 

success or failure in “competing.” Currently there is no 

TOA change, because OSD has no technique for 

redistribution, no basis to do so, and no mechanism for 

Service competition on major issues. In the NSSG’s 

view, TOA competition should not be an annual 

process. That would prove much too disruptive to 

program stability and could invite too much 

interservice competition. On the other hand it does lend 

itself to a quadrennial process that provides the 

incentive and the cover for the Services to compete. In 

the end, OSD and Secretary Rumsfeld need to be the final decision authority.65 

 

63 They would do well to examine President Eisenhower’s methods of defense reform in the 1950’s. See 

Dwight D. Eisenhower, The White House Years: Mandate for Change, 1953-1956 (New York: Doubleday 

& Company, 1963), pp. 445-58. 

64 All four “Defense Strategy Alternatives” were based on maintaining the 2MTW construct—some with 

more risk. See Flournoy, QDR 2001, pp. 353-62. 65 Davis, Managing Defense After the Cold War, pp. 33-40 

Competition implies 

making hard resource 

decision that create 

winners and losers. 

Currently there is no 

TOA change, because 

OSD has no technique for 

redistribution, no basis to 

do so, and no mechanism 

for Service competition 

on major issues. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 39

6. Output Focus with Joint and CINC Funding

oday, the Department’s PPBS process and fiscal functions are at best a poorly 

structured ledger entry and journal-oriented accounting system. It knows the cost of 

countless disconnected and unrelated pieces (program elements) but not the value of the various 

purposes of the enterprise. This state of affairs results from the Department’s focus on “inputs” 

versus “outputs.” Then Secretary of Defense Robert McNamara took a first cut at the problem in 

1961 by setting up the basic PPBS process with its various program elements, but the Department 

stopped there. This archaic, industrial-age system has persisted, still mired in the 1960s. For 

example, the Department can point to any number of program element codes associated with 

tactical systems, but it cannot evaluate the price of tactical operations—it does not think that way, 

nor does is it set up and aggregate program accounts in that fashion. Nor does the Department 

possess the means to measure progress toward achieving any objectives. The current Defense 

Planning Guidance does not specify objectives or priorities, nor do the current Major Force 

Program categories in the PPBS process lend themselves to analysis by useful mission area. With 

no missions or objectives specified, the Department cannot measure meaningful “outputs.” 

Several years ago, a Defense Science Board (DSB) study suggested that the Department 

set up an “input-output” style resource table. Such a table would have the various DoD (military 

Service) organizations arrayed along the ordinate, and the various output organizations (CINCs) 

along the abscissa, with the right vertical column totaling to the overall DoD budget at the 

bottom. The DSB’s notion was to construct better methods to grasp the true costs of task 

execution, with further potential drill-downs contemplated to peel away the layers and improve 

understanding. When this idea was carried forward, the Services and the Joint Staff uniformly 

recoiled from such a relatively small change. Admittedly, the effort would have been very 

difficult, but that was certainly not justification for 

rejecting the proposal. In many ways, the Services do not 

want to know the answer, because such an answer would 

eventually pull together the true cost of providing 

particular functional outputs to the field. Once known, 

the door would be open to find newer, cheaper, and 

better ways to accomplish military tasks. As long as costs 

remain input-collected and functional costs are obscured, 

military judgment remains the sole entering argument—

further assistance neither required nor desired. 

This is a paradigm on its head. Every business wants to know what it costs to accomplish 

a task, produce a product, or provide a service—but DoD deliberately chooses not to know. 

Despite the institutional resistance, the Department needs to work diligently to change this 

situation. DoD needs to better understand what it costs to achieve desired outcomes effectively. 

To do this, it must determine if the envisioned military capability-related “outputs” justify the 

various attributed costs of the “input” functions. Such a tool would provide senior leaders the 

needed visibility over investments, and an understanding of current resource allocation 

effectiveness. It would create a useful mechanism to compete and adjust resource allocations in 

order to achieve improved outcomes. 

As part of this outcome oriented system, the NSSG proposes that the Joint Staff and 

CINCs be provided with the authority, capability, resources, and means to assure successful 

mission execution of their areas of responsibility. This is an intensely controversial issue among 

the Services—empowering the “output” function by providing them direct access to resources. In 

T

As long as costs remain 

input-collected and 

functional costs are 

obscured, military 

judgment remains the 

sole entering argument.
U.S. Commission on National Security/21st Century 

40 Creating Defense Excellence 

DoD, the current approach provides money and resources only to the “input” functions, while the 

business world does just the opposite. In the latter case, the function that produces the product 

and/or service—the purpose of the enterprise—drives the various corporate inputs to hew to its 

needs. If DoD were to adopt such a system, the Services would still remain the stewards of force 

structure and most of the resources, but not all. The Services take the long view of requirements 

and force modernization because they must support force structures over their full life cycles. As 

currently structured in DoD however, only the Services determine what the executor will have—

in organization, in training, and in equipment—and OSD largely looks on as a spectator rather 

than a referee. At the same time, the NSSG does not suggest revolution but rather a series of 

sensible modifications to the current policies and processes. Stated simply, fund output entities to 

execute some of the functions for which they are directly accountable. 

In the case of the Joint Staff, the budget/funding list is short, mainly: the funding of the 

staff and those output functions assigned, such as standardization, interoperability, joint 

education, and joint testing. Regarding standardization and interoperability, this function must 

start at the very beginning. To make this happen, a directorate would be tasked to vet all major 

military system requirements, developments and procurements—especially all C4ISR 

programs—above a certain financial threshold of approximately $100 million. This would include 

Joint Staff establishment of joint pass/fail critical performance parameters related to 

standardization and interoperability of weapons systems and support systems. Such an effort 

overseeing service acquisition proposals from initial inception to retirement would demand a full 

time position. This new Joint Staff directorate should be created from existing resources and 

report to the JROC,66 which would be newly empowered and accountable to validate the proposal 

and either sign for the Chairman or Joint Chiefs or forward it to the Joint Chiefs for ultimate 

confirmation. Placing the control of standardization and interoperability in the hands of the 

Chairman and the Joint Staff would over time enormously improve warfighting capabilities. 

The counter-argument from the Joint Staff will be that they already perform this function 

within the J-8 and the JROC. This is not so, however. While 

there is a great deal of activity in the JROC, the net effect of 

the JROC has been to change nothing. By the time a Service 

program gets to the JROC, it is far too late to make 

substantive change and the JROC is largely a rubber stamp 

exercise. As a result, requirements are not changed, 

standardization/interoperability pass/fail criteria are not 

inserted, and programs are not altered or terminated. 

Programmatic matters are still Service responsibilities and the JROC members, who are Service 

officers, do not gore each other’s oxen.67

Another issue is resourcing CINCs—financing them with resources to execute their 

responsibilities. Currently, CINCs have insufficient resource authority to carry out their uniquely 

assigned tasks, primarily the command and control of joint forces through the strategic and theater 

level, and the preparation of those forces for potential employment through the design, planning, 

 

66 To reform the process of identifying military requirements, the Joint Requirements Oversight Council 

(JROC) was chartered with responsibility to analyze for potential joint needs across Service boundaries and 

emerging mission areas. See, “Charter of the Joint Requirements Oversight Council,” Chairman of the Joint 

Chiefs of Staff Instruction (CJCSI) 5123.01, 2 May 1997. The 1997 charter is currently undergoing 

revision. 

67 M. Thomas Davis, “The JROC: Doing What? Going Where?” National Security Studies Quarterly, 

Summer, 1998. 

While there is a great 

deal of activity in the 

JROC, the net effect 

of the JROC has been 

to change nothing. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 41

control and execution of joint exercises. Of particular importance here is CINC exercise funding. 

Under DoD’s present system, the CINCs do not fund joint exercises, except for airlift/sealift and 

port handling/inland transportation (which are really “chits” issued from the executing agency, 

the US Transportation Command). CINCs organize the exercise but the Services supply the 

forces and pay the bills. Unfortunately, under this arrangement, the CINC must exercise the art of 

the possible—what the Services will agree to do in a joint exercise—rather than the CINC 

designing, controlling, and exercising his own plan. 

If the CINCs were provided full exercise funds, the paradigm undergoes radical revision. 

Then the CINC would not only be accountable for joint exercising, but he would be expected to 

exercise the most worrisome parts of his theater contingency plans and war plans. This inserts 

vitally needed responsibility and accountability into the CINC planning, joint exercise and joint 

execution process. Moreover, such an approach would provide a unique tool for the CINC to 

identify shortcomings based on actual field-gathered data. Once the CINCs were offered full 

funding for joint exercises, the Services would have to get in line to play. Every fully-funded 

CINC exercise would not only be joint oriented and joint commanded, but would also offer free 

training for Service forces. The Services would participate to recapture the training.68

 7. Revising Programming and Analysis Mechanisms for the PPBS Process

he Commission also believes that the Department needs to reorient the programming 

process—and analysis capabilities of PPBS—on future requirements, or DoD will 

not produce the kind of transformation needed. We therefore recommend that DoD revise the 

Major Force Programs used in the Defense Program Review to focus on a different mix of 

military capabilities. The eleven MFPs should be expanded into thirteen different programs 

divided into three major categories: “Combat Force” programs, “Combat Support” programs, 

and “Service Support” programs. 

The first major category would provide better horizontal visibility over the intended 

destination of future force capabilities, while the last category should provide detailed visibility 

over DoD’s infrastructure to assist in outsourcing 

and privatization. The current Major Force Program 

#2, General Purpose Forces, is simply too large and 

reinforces the DoD argument over the “fungibility” 

of conventional forces. It prevents the development 

of categories of missions that could transform the 

PPBS process into measuring output-focused 

results. Moreover, it prolongs the needed shift away 

from the current “Two Major Theater War” 

(2MTW) force sizing metric. 

The current vehicles used to address issues during the program review—OSD’s “Major 

Force Programs” (see Table 1) and the Joint Staff’s “Joint Warfighting Capabilities Assessment” 

(see Table 2)—need revision to reflect future requirements better. 

Each MFP currently contains numerous Program Elements (PEs) associated with specific 

Service, OSD, Defense Agency, and joint programs. Approximately 5,000 PEs exist, with most 

belonging to the Services. However, most PEs are outdated and many are assigned to the wrong 

MFP. The result is that meaningful analyses across MFPs is difficult, if not misleading. 

 

68 Michael Donley, “It’s Time for DoD to Establish a Joint Budget,” DRAFT paper, May 1, 2001 

T

The Major Force Programs 

prevents the development of 

categories of missions that 

could transform the PPBS 

process into measuring 

output-focused results. 
U.S. Commission on National Security/21st Century 

42 Creating Defense Excellence 

Category Current Major Force Programs 

1 Strategic Forces 

2 General Purpose Forces 

3 Intelligence and Communication 

4 Airlift and Sealift 

5 National Guard and Reserve Forces 

6 Research and Development 

7 Central Supply and Maintenance 

8 Training, Medical, and Other 

9 Administration 

10 Support of Other Nations 

11 Special Operations 

Table 1. Current Major Force Programs 

The NSSG is aware the Joint Staff is in the process of changing the JWCA categories—

most likely to those depicted in Table 2 below.69 It appears that the original 1994 JWCA 

categories were specifically created because MFP 2 (General Purpose Forces) programs were in 

fact too broad to provide meaningful analyses on different warfighting capabilities. The new 

thrust appears to make the JWCA more congruent with the operational concepts specified in Joint 

Vision 2020. This may provide better consistency between the established Joint Vision and the 

Joint Staff’s involvement in PPBS program review. It is uncertain however, this revision will 

generate more insightful analyses or move the PPBS process in the direction of producing needed 

future capabilities proposed by the Commission. Developing specific outcomes and metrics for 

each JWCA category before system and program analysis would seem to be a basic necessary.

 

Category Joint Warfighting Capabilities Assessment 

1 Strategic Deterrence (J-5) 

2 Dominant Maneuver (J-8) 

3 Precision Engagement (J-8) 

4 Focused Logistics (J-4) 

5 Full Dimensional Protection (J-8) 

6 Intelligence, Surveillance and Reconnaissance (J-2) 

7 Communications and Computers (J-6) 

8 Information Superiority (J-3) 

Table 2. Joint Warfighting Capabilities Assessment 

 

69 The ten key JWCA categories prior to the revision were: 1) Strike, 2) Land & Littoral Warfare, 3) 

Strategic Mobility & Sustainability, 4) Sea, Air & Space Superiority, 5) Deterrence & Counter Proliferation 

of WMD, 6) Command & Control, 7) Information Warfare, 8) Intelligence, Surveillance & 

Reconnaissance, 9) Regional Engagement & Presence, and 10) Joint Readiness. Also note that some DoD 

documents refer to the “C” in JWCA as plural “Capabilities” while others use the singular “Capability.” 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 43

The NSSG proposes the revision of MFP categories, as shown below in Table 3. New 

categories should be created to include homeland security forces, theater conventional forces, 

rapidly deployable/intervention forces, and constabulary forces to reflect future needs. These 

categories should not remain static. Regular revisions would provide a sustaining mechanism to 

implement change within DoD. The Defense Planning Guidance (DPG) should address each 

proposed category, and provide detailed and measurable objectives. Such a “horizontal” review 

would help identify programming compliance with planning objectives. Additionally, the 

Program Elements (PEs) need thorough examination to align them correctly with the appropriate 

MFPs. 

Category Proposed Major Force Programs 

 Combat Force Programs

1 Strategic Offense and Defense Forces 

2 Homeland Security Forces 

3 Theater Conventional Forces 

4 Rapid Expeditionary/Intervention Forces 

5 Humanitarian Relief and Constabulary Forces 

 Combat Support Programs 

6 Strategic Mobility 

7 Space and C4ISR 

8 Medical Programs 

 Service Support Programs 

9 Research and Development 

10 Acquisition Programs 

11 Central Logistics and Sustainment 

12 Administration, Personnel, and Training 

13 International Activities 

Table 3. Proposed Major Force Programs 

The summer “Issue Cycle” or program review needs a basic restructuring as well. The 

Department needs to deconflict OSD’s Major Force Programs and the Joint Staff’s JWCA 

process. The reviews should nominally be on similar “sheets of music” rather than using 

exclusive informational data systems. That means both the MFP categories and the JWCA 

categories need some “harmonization,” so that comparisons and analyses are meaningful.70 Both 

processes need to focus on major issues, and there is clearly not enough time for a summer 

program review cycle that examines issues generated by MFP analysis followed by one generated 

by JWCA analysis. Thus, “harmonization” between the two would lend itself to a single program 

review before the DRB. The JWCA process needs simplification, with recognition that it is 

providing a short to mid-term perspective. Ideally, it should focus only on “Combat Force” and 

“Combat Support” programs. The summer review should not begin until after the publication of 

Service POMs. The Chairman’s Program Review must be timely, and should reflect data more in 

common with that of OSD. 

 

70 The NSSG recognizes that different viewpoints can often shed new insight on an issue, however, current 

comparisons between MFP and JWCA categories is analogous to the proverbial comparison of apples to 

oranges. 
U.S. Commission on National Security/21st Century 

44 Creating Defense Excellence 

astly, the Department of Defense needs to improve its analytic capabilities. This can 

occur in four ways. First, as proposed above in the Structural Reform section of this 

Addendum, the Department can restructure the Program Analysis and Evaluation (PA&E) 

directorate to conform with the proposed MFP categories. It can also improve the in-house 

analysis capability of the Under Secretary of Defense for Policy (USD(P)) by enhancing the 

capability of OSD Net Assessment to fulfill USD(P)’s needs to analyze strategic resource 

allocation tradeoffs. 

As to OSD (PA&E), neither it nor USD(P) are establishing strategic goals or objectives 

for the MFPs, nor is the PA&E organization oriented on the MFP programs. Ownership of 

specific MFPs is clearly lacking, and despite almost 150 PA&E analysts and numerous 

supporting contractors the MFPs are essentially bureaucratic orphans.71 The MFP categories do 

not play in the examination of broad defense programs, rather they serve as “racks” where the 

various input-derived program elements are “stacked.” Thus, the PA&E organization, and the 

analysis process itself, within the annual defense program review, reverts to focusing upon 

program minutia within individual Program Elements. Figure 3 shows the current alignment of 

PA&E’s four major divisions that contribute to this problem. 

Figure 3. Current OSD(PA&E) Organization 

 

Figure 4 below, reflects a proposed reorganization of PA&E that assigns responsibility 

for the NSSG’s proposed MFPs. This would retain important expertise to support analysis of 

system costs (e.g the Cost Analysis Improvement Groups), and simultaneously provide better 

oversight of the PPBS process. It would facilitate needed visibility over the Combat Force 

 

71 See, the two BENS studies on PPBS by M. Thomas Davis: “Framing the Problem of PPBS,” January 

2000, and “Changing PPBS,” December 2000. 

L

Current OSD(PA&E) Organization

Director

General

Purpose 

Programs

Resource

Analysis

Theater

Assessments

& Planning

Strategic

& Space

Programs

ISR

Strategic &

Information

Strategic Def.

& Space

Force

Planning

Land

Forces

Naval 

Forces

Tactical Air

Forces

Regional Asses

& Modeling

Projection

Forces

Planning &

Analytic Supt

Force &Infrastructure Costs

Operations Analysis

&Procurement

Weapon Systems

Costs & Analysis

Economic & Manpower Analysis

Programming &

Fiscal Economics
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 45

Programs and Combat Support Programs, and especially over the Service Support Programs, 

which is a clear requirement, if DoD infrastructure analyses and restructuring is to occur. The 

Combat Force Programs, Deputy Directorate may still require the capability to conduct “Land,” 

“Naval,” and “Air” analyses within and across some of the five Divisions. This would provide the 

analytic structure to help move the entire PPBS process toward the ability to implement the 

second analysis reform—measuring functional outputs associated with certain missions or 

capabilities. 

Figure 4. Proposed OSD(PA&E) Structure 72

Second, the Department must establish specific “metrics” focused on measuring outputs 

or objectives throughout the PPBS process. Meaningful analysis that allows the establishment of 

real priorities and that identifies trade offs—the basis of any decision-making process—must 

begin with objectives, tasks, standards, and measures of effectiveness within mission categories. 

It should start with the DPG, must exist within the MFPs, and should be the focus of the QDR 

and the program review. The NSSG is well aware of the difficulty of developing and applying 

performance measures to the Pentagon’s various activities. Nonetheless it must occur or analysis

becomes a ritual that masks serious inquiry and uninformed decision-making across defense 

programs. The Services resist and argue against such standards and measures from doctrinal 

perspectives and widely different assumptions. While some Service viewpoints remain valid, the 

underlying rationale is often to protect force structures and missions. By preventing the 

development of common DoD “metrics” focused on mission capabilities, the Department cannot 

analyze, much less make, substantive force trade offs—either within or between Services—that 

result in better outputs. The task is big, but it is crucial for an effective QDR and PPBS process. 

 

72 Some structures were suggested by M. Thomas Davis, Northrop Grumman Corporation, 2000. 

Director

Combat

Force 

Programs

Service

Support

Programs

Combat

Support

Programs

Program

Coordination

& Review

POM

Preparation

Program Process

 & Coordination

Data Formulation

& Management

Strategic

Mobility

Space &

C4ISR

Medical

Programs

Research &

Development

Acquisition

Programs

Logistics &

Sustainment

Admin, Personnel

& Training

International

Activities

Proposed OSD(PA&E) Structure

Weapon System

Cost Analysis

Strategic Offense

& Defense Forces

Homeland Security

Forces

Theater Conventional Forces

Expeditionary/

Intervention Forces

HR & Constabulary

Forces
U.S. Commission on National Security/21st Century 

46 Creating Defense Excellence 

Third, the Department’s modeling and wargaming tools used to assess capabilities and 

to size forces are dated and inadequate. The Chairman’s letter in the 1997 QDR clearly stated 

that the “assessment process has highlighted the need for better analytical models that will allow 

us to accurately and rapidly conduct future force requirements analysis. These analytical tools do 

not capture the interaction of key variables in force-on-force assessments across the spectrum of 

military operations, from smaller-scale contingencies through major theater war.” 73 This problem 

was reemphasized in the National Defense University-sponsored QDR 2001 Working Group 

report that stated, “There is a paucity of sophisticated force performance models that accurately 

reflect how the U.S. military actually operates. Nor are there fully developed models to capture 

the full range of peacetime demands and evaluate force sustainability over time.” 74 

Existing models are vestiges of the Cold War and have critical deficiencies that require 

many assumptions and the constant injection of subjective judgement.75 The result is that there 

are few means to validate, assess, or test new ideas and 

technical concepts. Allied and enemy capabilities are 

difficult to capture, and current combat models nearly 

always focus on attrition rather than effects. The last 

unit left alive “wins.” Attrition models are inherently 

incapable of modeling highly networked environments. 

They erroneously separate the reconnaissance, 

targeting, strike, and assessment process, rather than 

showing it as a constant execution cycle. Networks use 

precision and speed rather than mass to achieve effects 

and can possess corresponding critical failure nodes—

all poorly portrayed by DoD’s current theater modeling and force sizing tools. Moreover, real 

military forces adapt and learn as they fight, but attrition models have no capacity to portray 

adaptation or emergent behavior. Models based upon genetic algorithms and complexity theory 

better portray networked adaptive environments and the Department must pursue such 

approaches.76

Fourth, beyond metrics, wargaming, and modeling DoD needs to use its analysis dollars 

more wisely. The Department spends hundreds of million of dollars annually for various studies 

analyzing issues directly related to the PPBS process.77 Different Pentagon staffs and agencies 

conduct many studies internally, and contract innumerable studies externally with independent 

consulting firms and Federally Funded Research and Development Centers (FFRDCs). Many of 

these studies are worthwhile, performing original research and analysis that sheds insight upon 

significant problems. Many of these studies, however, are clearly reverse-engineered to provide 

analytical “top cover” to already agreed upon positions. Unsurprisingly, the conclusions 

stemming from such “independent” analysis inevitably reflect the original institutional positions 

held by the contracting organizations before the initiation of such studies. 

 

73 John M. Shalikashvili, in “Report of the Quadrennial Defense Review,” May 1997, Section X. 

74 “Report of the NDU QDR 2001 Working Group,” p. 32. 

75 These include TACWAR, JWARS, and JICM. 

76 Some new directions in modeling do exist but need to be expanded to the theater level. For example see 

the classified efforts at the Joint Warfare Analysis Center, and the unclassified work by Andrew Ilachinski, 

“EINSTein: An Artificial-Life Laboratory for Exploring Self-Organized, Emergent Behavior in Land 

Combat,” Center for Naval Analyses, CRM D0002239.A1, September 2000. 

77 DoD expended 194,749 contractor “man years” on R&D, T&E, and “Special Studies and Analysis” in 

FY2000. See “Use of Employees of Non-Federal Entities to Provide Services to Department of Defense,” 

Department of Defense, 12 March 2001, p. 3.

Existing models are 

vestiges of the Cold War 

and have critical 

deficiencies that require 

many assumptions and 

the constant injection of 

subjective judgement. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 47

While the Department’s internal analytic capability is important and must be improved, 

DoD still needs to balance it with good external analysis. In-house studies can also get “captured” 

and drive the Department to reinventing Napoleon’s Army over and over, because they frequently 

provide only a one-dimensional view of issues. The key is to blend both capabilities, and 

managers must insure that analysis requirements add value to problem resolution. 

No overarching analytic “theme” has arisen to replace the Cold War emphasis, thus lack 

of focus and direction pervades analysis within DoD. The Department, and the defense analysis 

“industry” that supports it, needs an infusion of analysts trained in new modeling methods. The 

overall effect of studies and analysis within the 

Department is that it seldom advances institutional 

knowledge on problems, and rarely surfaces 

critical alternatives, because senior leaders remain 

swamped with competing studies that focus on 

marginal details. Excessively studying a problem 

does not necessarily lead to better decisions; it 

often provides excuses to delay difficult ones. 

Much needs to be done to reduce the PPBS 

“studies and analysis overhead” and improve the 

usefulness of analysis for decision-making. 

ecretary Rumsfeld and the President deserve a QDR/PPBS process that contributes to 

defense management, and develops and elevates viable alternatives for decision. The 

current system of modifying and replacing legacy platforms, while delaying long-term 

requirements dictated by a changing strategic environment, endangers the security of the United 

States. Reorganizing and streamlining DoD’s PPBS process could elevate strategic choices and 

decisions to the Secretary. However, the eagerness with which any Secretary will deal explicitly 

with both resource allocation and policy issues may depend on the political position and goals of 

the Administration. While rhetoric from the Hill often derides the Department’s inefficiency and 

lack of management, powerful incentives exist to preserve programs and jobs. Aside from the 

Pentagon’s bureaucracy, the most vigorous impediment to changing the status quo is often the 

Congress. The constituency for military reform is weak when it threatens local installations. 

Moreover, if the Administration is unwilling or unable to question Service proposals that have 

already garnered strong congressional support, structural and process changes alone within DoD 

will not achieve the desired results. 

S

The overall effect of studies 

and analysis within the 

Department is that it seldom 

advances institutional 

knowledge on problems, and 

rarely surfaces critical 

alternatives. 
U.S. Commission on National Security/21st Century 

48 Creating Defense Excellence 

B. Reforming the Defense Acquisition System

f the Department of Defense does not change the manner in which it buys weapons and 

services, the United States will enfeeble its national security and industrial base, while 

perpetuating a system of defense acquisition that is intolerably sub-optimal. 

 1. Role of Technology

key part of the future competitive edge of America’s military resides in maintaining 

the technological superiority of its forces. Technological superiority helps to offset 

disadvantages in numerical manpower, serves as an important deterrent, and helps reduce 

casualties among the nation’s combat forces when deterrence fails. 

The pace of current technological advancement is arguably more rapid than any other 

time in history. In the military sphere, recent decades have witnessed the advent of precision 

guided missiles, the ability to see at night, precision navigation, surveillance from space, 

light-weight mobile telecommunications, stealth, massive information processing and other 

similarly important developments. Such capabilities were a significant factor in the disparate 

casualty rates encountered by the opposing combatants in the Gulf War and other recent combat 

operations. 

Underpinning much of this technological leadership is America’s private sector—the 

nation’s industrial base. But a number of recent developments have fundamentally changed the 

character of that segment of the industrial base traditionally referred to as the defense industrial 

base. The first of these developments has been the 

explosion in commercial technologies, such as 

information management, telecommunications, 

biotechnology, and nanotechnology. During the 

Cold War many or even most advances in state-ofthe-art technology stemmed from defense research 

and development. Today, in contrast, the leading 

edge of technological progress resides largely in 

academia, in research centers, and in commercial 

firms—and many of the latter prefer not to do 

business with the U.S. government due to the 

burdensome nature of such dealings. 

A second factor concerns the so-called defense procurement holiday, which is now into 

its second decade and which in its initial years was made possible by the demise of the Soviet 

threat. Confronting declining defense procurement budgets and the need to reduce overhead costs 

associated with the large Cold War industrial structure, America’s defense companies, 

encouraged by the Pentagon, downsized and consolidated. One outcome has been that the number 

of competitors capable of providing any given category of military equipment has declined 

markedly. Today, it is unclear whether current procurement levels can sustain more than one, or 

at most two, viable competitors for many types of weapons systems, given present and forecast 

procurement budgets and the rising unit-cost of military equipment. In some instances, it will be 

difficult to sustain even a single supplier. Such a state of affairs is obviously deleterious to the 

notion of a vibrant, highly competitive collection of defense suppliers. 

I

A

The leading edge of 

technological progress 

resides largely in academia, 

in research centers, and in 

commercial firms—and 

many of the latter prefer not

to do business with the U.S. 

government. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 49

 2. The Defense Industrial Base

n equipping its military forces over the years, the United States has chosen to depend to 

a large degree on the private sector, as opposed to maintaining an extensive 

government arsenal system. Unfortunately, present day defense procurement from the private 

sector cannot continue in the manner of traditional free-enterprise processes. There are many 

reasons for this state, the primary one being that the sole customer for military equipment made in 

the United States, in addition to being the most powerful buyer in the world, is monopsonistic as 

well as the gate-keeper for foreign sales. Second, for some specific items of equipment already in 

production, there is only one realistic source from which the Department of Defense can purchase 

additional units. Thus, at times there are monopolies within the defense system. 

The necessity of providing intense oversight and scrutiny to assure public propriety and 

the need to afford competition to all reasonably qualified suppliers further complicates the above 

circumstances. In addition, there are political and social purposes some seek to support via 

defense procurement, including the maintenance of jobs, facilities, support for small businesses 

and the like. Finally, the defense procurement stakes are very high indeed, since one is dealing 

not merely with the profitability of a handful of companies, but with the very lives of U.S. 

military personnel and conceivably even with national survival. The result of these and other 

considerations has led the government, in carrying out its defense procurement, to seek to 

establish surrogate forces to act in the stead of market forces, which automatically govern more 

conventional commerce throughout the free-enterprise system. These surrogate forces have to a 

large extent taken the form of laws, regulations, and intensive oversight—each in abundance. 

Operating within this environment is a small group of primarily defense-oriented 

companies, a larger number of basically commercial firms 

that have some involvement in defense procurement, and a 

growing number of particularly high-tech companies, 

which find it anathema to deal with the Department of 

Defense. Importantly, all of these companies, including the 

purely defense-oriented firms, must compete in the open 

marketplace for financial and human capital. Even defense 

suppliers must compete on an equal footing with such 

firms as Microsoft, General Motors, and Intel as well as the new phenomenon called “dot.coms,” 

if they hope to attract talented employees and maintain modern laboratories and factories. 

A substantial number of studies in recent years have pointed to the increasingly tenuous 

health of many of the nation’s most critical defense suppliers.78 That situation, if prolonged, 

could severely endanger America’s long-term military capabilities. As tempting as it is to adopt a 

strategy of standing back and relying on the marketplace to solve the problem, for the reasons 

cited above, such an approach would be ineffectual as well as irresponsible. The Department of 

Defense, as the monopsony customer of military equipment, can no more take a detached position 

 

78 John Harbison, Thomas Moorman Jr., Michael Jones, and Jikun Kim, “U.S. Defense Industry Under 

Siege—An Agenda for Change,” Booz-Allen & Hamilton Viewpoint, July 2000. “Preserving a Healthy and 

Competitive U.S. Defense Industry to Ensure our Future National Security,” Defense Science Board Task 

Force briefing to USCNS/21, June 2000. “U.S. Space Industrial Base Study,” DoD and NRO Co-sponsored 

Study by Booz-Allen & Hamilton. Briefed to USCNS/21, June 2000. “The National Crisis in the Defense 

Industry,” study briefed by The Scowcroft Group and DFI International to USCNS/21, June 2000. Tail-toTooth Commission, “Call to Action,” BENS, February 2001. 

I

A growing number of 

particularly high-tech 

companies find it 

anathema to deal with 

the Department. 
U.S. Commission on National Security/21st Century 

50 Creating Defense Excellence 

toward the health of the overall defense industrial base than it can divorce itself from 

responsibility for the viability of its Army, Navy, Air Force or Marine Corps. 

 3. Acquisition Reform Overview

he principal linkage between the Department of Defense and its suppliers is the 

defense acquisition process, considered for many years to be overly burdensome and 

fundamentally inefficient. Unless serious and sustained intervention in this system is 

forthcoming, the defense industrial sector’s ability to fulfill its role will be in jeopardy. As a 

consequence, the ability to field superior military forces in the 21st century will also be in 

jeopardy. 

This is not a problem that a massive 

infusion of money can solve; at its root are 

fundamental structural defects that, if not fixed, 

will only worsen over time, producing 

increasingly less useful output for ever-more 

dollars. This has at its core the Defense 

Department’s inability to match security ends to 

defense means. But equally important are the 

overall shortcomings of the defense acquisition 

process itself. In short, as then-Deputy Secretary 

of Defense David Packard noted in the 1960s, 

the acquisition system is broken and stands in 

need of repair. It is even in worse shape today, and without repair it will be difficult for the 

United States to meet its defense needs in the vitality of the private “new technology” commercial 

sector. 

This NSSG emphasizes the need to address acquisition reform in the following three 

areas: 

 

● INNOVATION AND EXPERIMENTATION—To maintain its edge in the use of new 

technology and concepts of operation, DoD must have a robust program of innovation 

and experimentation focused on unique warfighting requirements that the commercial 

world will not develop on its own. 

● PROGRAM STABILITY—The defense industry needs a stable budgetary environment if 

it is to raise adequate capital and maintain shareholder confidence, and that will be 

possible only when program stability becomes a principle of operation shared by DoD 

and the Congress. This practice will also maximize the nation’s return on its defense 

investment dollars. 

● BUSINESS PRACTICES—DoD will attract commercial suppliers, achieve the timely 

introduction of new technology, and generate cost savings only after it adopts a number 

of widely accepted modern business practices.

As noted, virtually all indications confirm that the U.S. defense industrial base faces 

severe financial, cash flow, and personnel recruiting and retention problems. A 50 percent 

reduction in DoD procurement budgets since 1987 has contributed to this circumstance, and the 

vibrancy of the commercial private sector has made personnel issues particularly acute. These 

troubles, however, are “symptoms” of the real problem rather than its cause. Specifically, they are 

T

This is not a problem that a 

massive infusion of money can 

solve; at its root are 

fundamental structural defects 

that, if not fixed, will only 

worsen over time, producing 

increasingly less useful output 

for ever-more dollars. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 51

symptoms of stultifying regulations, a dysfunctional budgetary process, and an acquisition 

process functioning largely under an obsolete industrial age paradigm.79 

Many capable businesses are unable to work profitably with DoD under the weight of the 

auditing, contracting, profitability, investment, and inspection constraints imposed by its 

regulations. Some of these problems are inherent in a system that is neither entirely public nor 

entirely private. That state of affairs makes the process of arming the U.S. military a world of 

inherent contradictions. For example, competition is essential within the defense sector to achieve 

both affordability and innovation. However, competition remains limited by the current 

disproportionately low modernization activity, which makes some competitions impractical. 

DoD is rightly held to a high level of public responsibility involving social and ethical 

standards, but this generates the sort of oversight that makes it impossible for procurement to be 

efficient and aggressive in achieving cost savings. It also affects DoD’s ability to function with 

the speed it needs to keep abreast of technological change. Weapons development cycles average 

nine years for the Department in a world where technology now changes every twelve to eighteen 

months in Silicon Valley—and the trend lines continue to diverge. 

Despite circumstances that make it impossible for the acquisition system to work as a true 

free market, market mechanisms can be made more effective. The government must reduce the 

impediments to competition and to DoD’s use of 

best business practices. This is much easier to say 

than to do, however, for one main reason: The 

defense industrial base, and the acquisition system 

driving it, resides within a larger political context 

where local politics play an important role. The 

separation of powers and Congress’ ultimate “power 

of the purse” have led over time to a situation in 

which Congressionally-mandated actions heavily 

impact procurement processes.80 Unneeded 

government facilities continue to operate at the expense of legitimate needs for funding in other 

areas. Moreover, while formal and legal customer/supplier relationships exist with DoD, strong 

informal political relationships concerning local jobs and programs often affect the decision 

process within the Congress and the Executive branch. 

Most DoD officials fully understand these problems—and others besides—and they are 

acting to solve them. Congress, too, has provided mechanisms to expedite procurement of 

commercial equipment. Dozens of studies support, and argue over, how to go about reform in 

 

79 The “health” of the defense industrial sector of the economy is seriously in doubt. As pointed out in the 

Booz-Allen & Hamilton and Defense Science Board studies, industry profitability has declined, and the 

industry’s interest coverage ratio has fallen. Debt ratings for most companies have fallen to almost junk 

bond levels. This means industry profits can rarely cover the cost of new loans. Despite recent 

improvements, the industry’s market capitalization is down 33 percent from $100 billion in January 1997 to 

$66.7 billion in 2000. The entire defense industry is valued at 14 percent of Microsoft, 17 percent of Intel, 

and 50 percent of America Online. “On February 23, 2000, you could buy the defense and space parts of 

Boeing, Lockheed Martin, Raytheon, General Dynamics, Hughes, TRW, Northrop Grumman, Loral and 

Litton all for $47 billion, which was less than the one day market value appreciation of Cisco ($50 billion) 

the day before.” See Harbison, Moorman, Jones, and Kim, “U.S. Defense Industry Under Siege,” p. 1. 

80 “The Road Ahead – Accelerating the Transformation of Department of Defense Acquisition and 

Logistics Process and Practices,” Office of the Under Secretary of Defense for Acquisition and 

Technology, June 2000. 

The defense industrial base, 

and the acquisition system 

driving it, resides within a 

larger political context 

where local politics play an 

important role. 
U.S. Commission on National Security/21st Century 

52 Creating Defense Excellence 

various areas. But so far the effort is not producing the scale of change necessary to right a 

system that has degenerated to the point of alarming concern. The Congress has applied 

piecemeal “fixes,” but it has proven highly resistant when it comes to its own organization for 

national security, which influences the entire acquisition process. In addition, the defense industry 

consolidation of the 1990s ended up producing more “specialization” and “segmentation” than 

“conversion” into a broader civil/military product mix. 

A national industrial base for defense is required rather than a specialized Defense 

Industrial Base. This would consist of a cluster of industries—a broad cross-section of 

commercial firms as well as the more traditional defense firms. To realize such an enterprise 

cluster, the defense acquisition process needs a more business-like footing.81 DoD must learn to 

leverage robust partnerships with the commercial economy in a more coherent fashion, and 

defense firms need to broaden their business base by moving into dual-use technologies. The 

United States can no longer afford or rely solely on a defense industry devoted exclusively to 

servicing DoD. Nor can it allow a situation in which critical new technological capacities remain 

beyond DoD’s reach. The Department must attract “new technology” sectors to work with 

government on business and professional grounds. In addition, the more traditional defense 

suppliers, which fill needs not addressed by the purely commercial sector, must receive incentives 

to invest in innovation and operate efficiently. Finally, the Department must acknowledge the 

increasingly globalized nature of the defense industrial economy. The United States should seek 

out selective international partnerships (generally for procurement as opposed to R&D), yet it 

should preserve its ability to pursue unilaterally those programs uniquely critical to the nation’s 

defense. 

In the Commission’s view, the statutory guidelines and the Federal Acquisition 

Regulations (FAR) system itself needs redesign—from scratch. We realize, however, that the 

government cannot accomplish changes to the acquisition system and the defense industrial base 

overnight. As acquisition reform proceeds, the Department must minimize the disruption to 

established programs or there will be nothing left to reform. Short-term solutions to acute 

problems, however, can help the Department move to a position from which long-term solutions 

can succeed. 

 4. Acquisition Reform Principles

o accomplish acquisition reform, the defense acquisition process, which is the 

principal linkage between the Defense Department and its suppliers, will need 

fundamental revision. To guide this reform, the Commission offered these overarching principles. 

● The nation needs to restore the balance of funding among modernization, 

readiness, and force structure. The procurement “holiday” affecting modernization 

has produced a highly unbalanced force for the future. 

● The government should encourage small, agile, high-tech companies to enter 

defense competitions, as they represent both a source of innovation and an inspiration 

to new efficiencies. 

● The Department’s overall modernization strategy should give priority to 

fundamental research; substantially increase prototyping; stress the evolutionary 

 

81 Ann R. Markusen and Sean S. Costigan, eds, Arming The Future: A Defense Industry for the 21st Century

(New York: Council on Foreign Relations, 1999). 

T
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 53

upgrading of platforms throughout their life; and keep commitments to long-term, 

stable production. 

● To the extent practicable, the acquisition system needs to be open to continuous 

competition, and open to new ideas from companies of all sizes. It should focus on 

“outputs,” i.e., measurable products, time, and cost, as opposed to “process.” 

● The weapons development process should rely on competition to solve performance 

problems and keep down costs, with commensurate rewards for those who succeed. 

● The acquisition system should use the market to decrease system costs and improve 

schedule and system performance. The current system of centralized planning, the 

inappropriate use of government agencies to perform commercial tasks, and the lack of 

managerial accountability stifles efficiency. 

● The government, not the private sector, should pay the costs that result from explicit 

government demands and requirements in the acquisition process. At the same time, 

companies deserve no proprietary entitlement to publicly-financed designs and 

technology.

5. Innovation and Experimentation

or decades, many commissions and studies have recognized innovation and 

experimentation as essential components of defense reform. This was reiterated in the 

1997 National Defense Panel report.82 Modest short-term efforts have been directed toward 

improving this area.83 These efforts have increased the focus on interoperable C4ISR systems, but 

have had limited impact on increasing the flow of innovation into the requirements process. The 

Services are often unwilling to trade off “requirements” and have been known to forego any

capability rather than match technology with requirements to launch a program. As a result, U.S. 

warfighters often receive equipment and technology that lags behind the state-of-the-art because 

of the acquisition cycle times involved with producing major systems. 

To insure greater innovation and experimentation, the Department needs to modify the 

Service near-monopoly on identifying and initiating requirements. Requirements should flow 

from many directions and sources: operational shortfalls, new threats, long-term strategy and 

policy, technological opportunities, and impending block obsolescence of current platforms. 

Unfortunately, the last mentioned requirement source often dominates decision-making because 

of the pressure to start programs as vehicles for the Services to obtain and sustain funding. The 

pressure to perpetuate remarkably similar force structures, roles, and missions—more of the 

same, just bigger, faster, and better—tends to squeeze out innovation. 

Some voice the complaint that the Services exercise a “stranglehold” over the 

requirements process, because only they are authorized to initiate Mission Need Statements 

(MNS), which ultimately get translated into programs. Allowing the initiation of MNSs from 

other actors who shoulder different responsibilities and are accountable for considering different 

planning horizons would open the entire process to more innovation and the airing of different 

 

82 Transforming Defense, National Security in the 21st Century, Report of the National Defense Panel, 

December 1997. 

83 For example, Service “Battle Labs” were created, and “Joint Experimentation” has been assigned to the 

Joint Forces Command. 

F 
U.S. Commission on National Security/21st Century 

54 Creating Defense Excellence 

alternatives. Such a change would allow OSD, DARPA and the Joint Staff to initiate Mission 

Need Statements. At present, CINCs can generate MNSs directly to the JROC, but remain limited 

in their capability to make such inputs due to staffing and Service acquiesce to fund such 

programs. It is imperative, however, to insist upon joint interoperability standards, and the 

maintenance of a top-down review process to insure that a potential flood of proposals meet the 

Department’s needs and are fiscally executable. The JROC and Defense Acquisition Board 

review process would still play, but both mechanisms need streamlining and real “teeth” to better 

screen proposals. 

The overwhelming focus of the DoD requirements process, and the acquisition system 

that flows from it, remains oriented on process rigors and large-scale production commitments, 

not on innovation and experimentation. The current 

acquisition system does not support timely introduction 

of new technologies, because “cycle times” are much too 

long.84 Some major defense systems do not even reach 

production before the parts they depend on from the 

commercial sector are obsolete and no longer available. 

Worse, while the commercial world is succeeding at 

further shortening cycle times, DoD is not—so the gap between commercial and government 

practice continues to widen.85 One ingredient of fixing this problem is to establish and employ a 

two-track acquisition system, one for major acquisitions and a second, “fast track” for a 

limited number of breakthrough systems, especially those in the area of command and control. 

 While such an approach seems to presuppose that one can derive “breakthrough” 

systems, the Commission assumes no such thing. C4ISR systems should primarily be “fast track.” 

In other instances, this approach would be controversial and require decision authority vested in 

Service acquisition officials. Flexibility is paramount and authority should exist to move 

programs either to or from “fast track” status depending on progress and performance. Major new 

weapons systems will always include several subsystems or components, and authority to qualify 

these for “fast track” status should rest with the system Program Manager—naturally subject to 

higher review. 

The current process is much too limiting. Except for a few highly sensitive classified 

programs, all current acquisition programs move through similar legal-bureaucratic hurdles in the 

acquisition process at rates largely dependent on program costs and funding availability.86

 

84 The average development cycle for all DoD systems is approximately 9 years. The average of some 

systems like helicopters and fighters is 20 years, the average for avionics systems is 11 years, and the 

average for communications systems is 10 years. 

85 The cycle time for producing an automobile used to be seven years, today it is two years, and the auto 

companies have a goal of eighteen months. For a commercial aircraft, it used to be eight to ten years, today 

it is five years, and the industry is working towards a two-and-a-half year cycle time. Commercial 

spacecraft use to take eight years, today it takes eighteen months and the goal is twelve months. Consumer 

electronics took two years in the past, now it takes six months or less. This illustrates how fast technology 

is not being introduced into DoD at present. 86 Acquisition Category (ACAT) I programs are defined as having RDT&E costs of $200 million in 

constant year (CY) 1980 dollars or as having total production expenditures over $1 billion in CY 1980 

dollars. ACAT II programs have RDT&E costs of $75 million or production cost of $300 million in CY 

1980 dollars. ACAT I is classified as a “Major Program” and ACAT II is classified as a “Major System.” 

ACAT I and II programs are subject to unique acquisition execution and reporting requirements imposed 

by Title 10 U.S.C. The Under Secretary of Defense for Acquisition, Technology, and Logistics (USD 

AT&L) is the acquisition decision authority for most ACAT I programs. Management of ACAT III and IV 

The current acquisition 

system does not support 

timely introduction of 

new technologies. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 55

Unfortunately, the costing levels are set low enough to encompass almost every major DoD 

program, including most C4ISR systems. Even the lower six-year cycle time of some programs is 

well outside the envelope of the commercial world’s 

eighteen-month development cycle for information 

systems. The current acquisition system is testing 

some “Pilot Programs,” which have so far proven 

insufficient to decrease cycle time enough for DoD to 

keep up with the information revolution.87 The 

Department is now falling approximately three 

generations behind in each major C4ISR system it 

produces. Assuming the Department cannot purchase 

off-the-shelf products to support unique military requirements, DoD’s technology is out of date 

with comparable civilian counterparts before such systems are ever produced. Increased use of 

off-the-shelf systems can ameliorate the problem somewhat, but such technology is also available 

to potential adversaries and the civilian sector cannot meet some DoD requirements, because of 

special needs for hardening, encryption, and environmental considerations. It is critical to amend 

the statutory requirements to allow the Department to purchase C4ISR systems on a faster track. 

The most fragile elements of the defense industrial base lie in its design teams and 

research teams. Prototyping can support the forces 

and avoids large infrastructure investments and costly 

production runs associated with moving “grand 

design” high-risk weapons systems through the 

acquisition process. Program “slips” and cost growths 

are in truth, highly predictable in the aggregate. 

Assuming the problem lies with poor estimates is too 

simple. Better estimating techniques are useful if one wants better estimates, but the real solution 

is not to require point cost estimates too early in the development process. Another solution is to 

recognize that uncertainty exists and risk must be better managed. 

Conversely, in the lower-cost pre-program environment, one should stretch further. One 

should also be prepared to fail on occasion. In today’s innovative business world of modern 

science and technology, those who succeed know that an environment where creative failure is 

impossible is also an environment where success is not possible. Indeed, the commercial world 

views occasional “failures” as providing very useful information and considers them an 

unavoidable part of an innovative environment. DoD’s failures, however, are often more 

expensive, because they occur in the later phases of development—even in the production stages 

of a project. Ultimately, it is better to have more expensive, but fully-funded experimentation 

processes that select ideas mature enough to warrant full-scale development. Increased use of 

experimental prototyping would help solve this problem, as well as help preserve important and 

highly perishable design teams. 

 

programs can be delegated by DoD or the Services to lower levels, and are executed under less complex 

statutory requirements. The average cycle time for ACAT I and II programs are 11 years and 6 years 

respectively. 87 Defense acquisition “Pilot Programs” were initially authorized by Section 809 of the Defense 

Authorization Act for FY1991 (Public Law 101-510; 10 U.S.C. 2430). They were amended and enhanced 

in Section 831 of the 1994 Defense Authorization Act and in the Federal Acquisition Streamlining Act of 

1994. They were renewed in the FY2001 Defense Authorization Act. 

The Department is now 

falling approximately three 

generations behind in each 

major C4ISR system it 

produces. 

The most fragile elements 

of the defense industrial 

base lie in its design teams 

and research teams. 
U.S. Commission on National Security/21st Century 

56 Creating Defense Excellence 

he Commission also believes that the Department should emphasize, incentivize, and 

fully compensate technological development. The United States must invest heavily 

in break-through research in laboratories, universities, corporations, and government facilities. 

DoD must eliminate the pressures where firms need to recover R&D costs and profits during the 

production phase. Prototyping at the front, allowing some to fail, and then developing, evolving, 

and producing the most promising prototypes, would shorten the development cycle and lower 

total program costs. In addition, it would help in creating and maintaining viable defense 

suppliers, even in an environment where there is little production. 

Therefore, DoD should return to the pattern of increased prototyping and the testing of 

selected weapons and support systems, specifically to foster innovation. The Department should 

implement this initiative immediately for programmed product improvement upgrades of legacy 

systems that meet future requirements. This should provide the learning vehicle for new systems. 

DoD should also combine prototyping with the introduction of incremental delivery schedules 

and an evolutionary upgrading of existing platforms that would focus on equipment modules, 

software improvements, and block changes. 

The NSSG endorses Advanced Concept Technology Demonstrations (ACTDs) and the 

use of an evolutionary approach in all but cases offering clear break-through capabilities. Today’s 

ACTD programs represent only a small fraction of DoD’s procurement budget and more often 

than not the Services have avoided ACTD programs, which often focus on short to mid-term 

needs. The Defense Advanced Research Projects Agency’s (DARPA) use of Advanced 

Technology Development (ATD) programs is also valuable, but DARPA’s ATDs are so far at the 

cutting edge of technology that only a few can be rolled into ACTDs or into production. 

Placing a greater emphasis on ACTDs and prototyping would allow requirements and 

capabilities to track more closely with the technological base and provide three key advantages. 

First, it would help reduce cycle time to deliver weapons systems to warfighters. Second, it would 

reduce risk in the production environment. Third, it would allow the injection of new technology 

into weapons systems at a rate more comparable to civilian practices. 

That said, the Department cannot depend entirely on speeding up its integration with the 

commercial sector. The nation needs to maintain a robust investment in selected research 

programs, particularly in long-term research. A 

Department research and development strategy forced 

to live entirely off of commercially available products 

is doomed to be inadequate because many military 

systems simply have no commercial counterparts. 

Unfortunately, large and complex DoD development 

projects suffer from distorted R&D cost competition. 

By nature, bids for R&D are highly uncertain, and in 

recent times companies have often tendered bids with 

the hope of securing funding wedges for profitable 

production phases. Industry is increasingly forced to divert Independent R&D (IR&D) to buy 

down “risk” in engineering and manufacturing development rather than using it to enhance the 

state-of-the-art. The Commission recommends that the laws prohibiting the use of Independent 

R&D (IR&D) funding for program support be more broadly interpreted and more strictly 

enforced by the Department. DoD is currently eating its research “seed corn.” In effect it is 

forcing industry to subsidize under-funded government acquisition programs. 

T

A Department research 

and development strategy 

forced to live entirely off of

commercially available 

products is doomed to be 

inadequate. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 57

Furthermore, the NSSG believes the Department should not artificially constrain its R&D 

budget by pegging it, even informally, to a percentage of the annual defense budget, as has been 

past practice. On balance, the NSSG also believes that to the extent that the United States draws 

down its forces, even for sensible reasons, it should increase its investment in military R&D 

against an uncertain future. Finally, the Department should appropriately divert some of that 

R&D to the unique demands of countering the terrorist threat both at home and abroad.

 6. Improving Program Stability

rogram turbulence and lack of budgetary stability is a primary cause of inefficiencies 

and cost overruns in DoD programs. This budgetary instability has several sources. 

One is the current reality of the resource allocation process itself within DoD, which 

unfortunately often takes all resources into account during budget reductions—including 

acquisition programs. This normally results in a known and deliberate underfunding of previously 

approved programs. Another problem is the acquisition system itself, which suffers from cost 

overruns and program extension. Lastly, the Congress often uses small “takes” from large 

programs to reallocate funds to other priorities without realizing or understanding the problems 

this creates in having to reprogram funds, write new contracts, and establish new schedules. 

The commercial world clearly recognizes 

program turbulence as an enemy of rapid 

development and production, as well as to the bottom 

line. Industry manages turbulence by providing funds 

to match schedules rather than scheduling to match 

funds. If DoD is to streamline its acquisition process, 

it must minimize budget perturbations by better 

discipline in the programming/budgeting decision 

process. Part of this must come by making the start up of new projects very demanding, and the 

fundamental revision of established programs even more demanding. However well DoD does in 

this respect, the NSSG knows that modernization accounts will remain among the most 

unpredictable within the DoD ambit. That is because, more than any other program category 

within the Department, the modernization process itself is, and will remain, inherently 

experimental and uncertain. 

We realize that many Commissions and even more studies over the past several years 

have recommended two-year budgeting to limit program instability. We also know that Congress 

has doggedly refused to take these proposals seriously. Therefore, rather than propose two-year 

budgeting across the entire Department, the Commission recommends two areas where two-year 

budgeting would make the most sense, stand to do the most good, and dovetails well with the 

Commission’s PPBS recommendations. The Commission recommends that the Congress 

implement two-year defense budgeting solely for the modernization element of the DoD budget 

(R&D/procurement) because of its long-term character, and expand the use of multi-year 

procurement. 

As things stand today, the Services create Program Objective Memorandums (POMs) 

based on early budget estimates. A corporate structure, in which lower committees and councils 

make modifications, review and build each POM. Service “Resource Boards” then approve or 

reject the POM at senior levels. Changes are injected frequently as the POM is built for two 

reasons: cost overruns impact programs from below while budget changes come from above. The 

general result is the constant need to produce funding “offsets” by killing minor programs, or by 

stretching or cutting the size of major procurement programs. Decisions to actually kill programs 

P 

The commercial world 

clearly recognizes program 

turbulence as an enemy of 

rapid development and 

production. 
U.S. Commission on National Security/21st Century 

58 Creating Defense Excellence 

are rare. Instead, the Services stretch major programs and push modernization “bow waves” into 

the future. 

The Defense Resources Board (DRB) then reviews and approves the completed POMs. 

These budget decisions reverberate back upon subsequent acquisition programs, often impacting 

thousands of in-being contracts and schedules on a single program. If the Department is to 

minimize program turbulence, acquisition personnel must have a greater role in providing 

program impact information. Moreover, senior decision-makers must also exercise greater 

leadership and discipline in maintaining a steadier helm with regard to program budget changes. 

Modernization objectives and strategy have to be top-down in nature. Technology 

investment decisions should occur at the corporate level (with cross-Service input). The Services 

should then execute product development. Shortening production cycles is a prerequisite to 

increasing budgetary stability. It would provide Congress the assurance that the Department can 

execute a two-year budget for modernization and R&D accounts, and pursue multi-year funding. 

The authority for two-year budgeting for modernization and R&D funding elements 

resides solely with the Congress. Multi-year procurement is slightly different. Usually proposed 

by the Department to the Congress, it is a procurement appropriation in one year that commits the 

government to purchase yearly numbers of in-production systems in non-budget years—

sometimes out to five years—even though total contract funds are not available at the time of 

contract award.88 Although multi-year contracts solve many program stability problems, they are 

still subject to funding availability in subsequent years, but there is no guarantee that the 

Congress will appropriate funds other than severe penalty clauses. Multi-year procurement, 

however, allows prime contractors to establish long-term contracts with suppliers to achieve 

savings through quantity purchases. But the government should only enter into multiyear 

procurement when it has a high confidence in the technological readiness level of a program and 

it possesses stable configurations. 

Article I, Section 8 of the Constitution clearly permits two-year appropriations, and the 

Department routinely goes through the process of producing two-year budgets in the hope 

Congress will pass them. It has not happened for a number of reasons. One, as suggested above, 

is that Congress has little confidence that DoD 

is capable of executing such a budget, given the 

high degree of program instability, the lack of 

accountability, and cost growths in the past 

acquisition of weapons systems. Another 

reason is that appropriating funds on a yearly 

basis provides a vehicle that permits the 

Congress to micro-manage Executive Branch 

programs and influence policy decisions. 

Nonetheless, if modernization and R&D accounts had two-year budgeting, and if the 

Department were to implement multi-year procurement, program stability would markedly 

increase and budgetary savings would register in the billions of dollars. For this to happen, 

however, DoD needs to adopt other broad reforms. Secretary Rumsfeld must take a personal 

interest in acquisition reform and impose discipline in the decision-making process. It is 

sometimes better to eliminate some programs early than to absorb the costs of extending 

programs and procuring limited numbers of weapons at high per unit costs. Congress should let 

 

88 See Title 10 U.S.C., Section 2306b(1), and Title 41 U.S.C., Section 254c(d). 

Appropriating funds on a 

yearly basis provides a vehicle 

that permits the Congress to 

micro-manage Executive 

Branch programs and influence 

policy decisions. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 59

such decisions stand and strongly support DoD budgeting and procurement reforms. Ultimately, 

the Congress should be called to account and asked to justify why its obsolete model of annual 

appropriations justifies the decreased levels of procurement. 

mmature technologies and concepts lead to major waste in resources, especially when 

introduced into engineering development activities. Constant modifications drive costs 

upward significantly and extend program cycle times, while undue development/production 

concurrency increases risk. The procurement system must discover weaknesses or the need for 

modification as early as possible. Production and development require concept and technology 

stability, if timelines are to be trimmed and total costs minimized. 

The Commission recommends that the Defense Department allocate resources for 

weapons development programs by phase rather than in annual increments.89 The NSSG 

suggests, in particular, that the time for engineering development for most programs should rarely 

exceed four to six years for major platforms, and shorter times for other programs and “fast-track 

systems.” 90 It is also important that DoD provide incentives to maintain integrity in the process. 

Simply stated, industry can never correctly measure program manufacturing development or 

production estimates without proper incentives during the early R&D stages of a program. Costs 

escalate significantly in the early stages and such 

errors can be very expensive. Once production 

begins, costs generally stabilize because of 

automated manufacturing techniques, and the 

relatively repetitious nature of production. 

Hence, it is important to introduce appropriate 

production engineering expertise early in 

engineering development along with proper 

oversight to prevent “requirements creep.” 91 

As a program moves through the acquisition process it becomes easier to measure costs. 

The Commission endorses DoD’s recent implementation of the Defense Science Board’s 

recommendation to increase R&D funding. Nevertheless, there is further need for more 

movement in this direction. Fully resourcing programs during each phase—and especially the 

early phases—will decrease program turbulence and provide a basis for more reliable budget and 

schedule forecasting. Such a basis for resourcing will also allow better program management. 

This full resourcing should also include the provision of financial reserves to resolve 

unanticipated problems. The “Program Stability Wedge” initiated by USD (AT&L) is a step in 

the right direction, however, these resources should be under the control of Service acquisition 

officials, and not held at the Under Secretary level.92

 

89 This can be facilitated by use of two-year budgeting and multi-year contracting for the balance of the 

program phases, subject to DoD’s satisfaction with the program’s progress. 

90 As noted, some current and past programs have had development cycles approaching twenty years. 

91 Historically, estimates are always significantly wrong. Weapons system development programs typically 

have cost overruns of 20 to 40 percent, and overrun initial schedule estimates by 24 percent. See “Best 

Practices: Successful Application to Weapon Acquisitions Requires Changes in DoD’s Environment,” 

United States General Accounting Office report to the Subcommittee on Acquisition and Technology, 

Committee on Armed Services, GAO/NSIAD-98-56, February 1998, p. 16. 

92 The Program Stability Wedge was established to limit disruption in acquisition programs brought about 

by unexpected cost increases in a particular program. It attempts to limit the demand to migrate funds from 

healthy programs thereby affecting overall modernization plans. The stability wedge is a percentage of each 

Service’s R&D and procurement plans in the “out years” that is set aside by each Service in a fund to 

address unexpected problems in a program in the current year. USD (AT&L) works with the Services to 

I

It is important to introduce 

appropriate production 

engineering expertise early in 

engineering development 

along with proper oversight to 

prevent “requirements creep.”
U.S. Commission on National Security/21st Century 

60 Creating Defense Excellence 

 7. Improving Business Practices

his Commission views robust experimentation for the exploration of innovative 

technologies as essential, but it also recognizes the need for an effective screening 

process for the selection of mature, affordable technologies. DoD currently uses a complex fourphase acquisition schedule, where risks associated with the development of technology, design 

development, and manufacturing development are often spread across two and sometimes three 

phases of an acquisition program.93 (See Figure 5) 

Figure 5. Current “Four-Phase” Acquisition System 

Leading commercial companies employ a three-phase acquisition schedule, one that 

clearly separates technology development, product development, and production. (See Figure 6) 

This allows them to evaluate the maturity of a technology realistically before they initiate product 

development. We therefore recommend that DoD institutionalize a three-phase acquisition 

process composed of technology development, product development, and production. Such a 

three-phase system would focus on maturing technologies prior to production decisions and 

would identify problems earlier in a program to minimize risk and costs.94 The Commission 

 

help them determine how large their stability wedges should be, and must review and approve Service 

requests to draw from the stability wedge. 

93 The four-phase acquisition system was recently (October and November 2000) modified by the DoD into 

a three phase system. The process, however, is still in transition and most programs still function under old 

guidelines. See new DoD 5000 series directives and instructions available at http://www.acq.osd.mil/ara. 94 “Defense Acquisition: Employing Best Practices Can Shape Better Weapon System Decisions,” 

Testimony before the Subcommittee on Readiness and Management Support, Committee on Armed 

Services, U.S. Senate, General Accounting Office report GAO/T-NSIAD-00-137, April 26, 2000. 

T

Demilitarization

& Disposal

Determination

of Mission

Needs

MS 0 MS I MS II MS III

Approval to

Conduct Concept

Studies

Approval to

Begin a New

Acquisition

Program

Approval to

Enter Engineering

& Manufacturing

Development

Production or

Fielding/

Deployment

Approval

Phase 0

Concept

Exploration

(CE)

Phase I

Program

Definition &

Risk Reduction

(PDDR)

Phase II

Engineering &

Manufacturing

Development

(EMD)

Phase III

Production,

Fielding/

Deployment, &

Operational 

Support

Acquisition System Overview Acquisition System Overview
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 61

endorses DoD’s recent adoption of a three-phase acquisition system. As we have emphasized 

above, the Department must minimize program turbulence at the product development and 

production phases. To do this within a three-phase system, however, DoD must also adopt a 

“knowledge-based” evaluation and testing procedure to establish technology maturity, and to 

evaluate risks, costs and operational limitations.

95 Testing needs to become the key part of the 

engineering development process as well as the verification of operational readiness. 

Figure 6. “Three-Phase” Acquisition System 

Why is this necessary? As things now stand, DoD suffers program schedule and cost 

overruns, because it fails to allow technologies to mature sufficiently before placing them in 

production. Private sector industries have tested and verified fundamentally new technologies 

before they commit to full-scale development or production. 

Moreover, the regulations and competition for defense funding requires the making of 

detailed projections at an early time on the basis of clearly insufficient information. Cost 

estimates are “forced” to coincide with projections of available funding. The competition for 

funding continues throughout program development, where success is identified less with 

technical achievement than with the ability to secure the next funding installment. Thus, there is 

little or reduced incentive to discover and reveal potential problems, and testing procedures 

during development essentially produce “report cards.” The lack of knowledge also makes it 

difficult for program managers to identify and dampen unreasonable expectations. Worst of all, 

testing procedures, short management tenures, and career pressures all combine to discourage 

 

95 “Defense Acquisition: Employing Best Commercial Practices Can Improve Program Outcomes,” 

Testimony before the Subcommittee on Readiness and Management Support, Committee on Armed 

Services, U.S. Senate, General Accounting Office report GAO/T-NSIAD-99-116, March 17, 1999. 

Program Launch

(Technologies match

 requirements)

Design

performs as

expected

Product and

processes

matched

Production can

meet cost,

schedule, and

quality targets

Technology Development

Product Development

(5 years)

Production

Concept Technology

System

Demonstration Low Rate Full Rate

System

Integration

Recommended Acquisition System Recommended Acquisition System
U.S. Commission on National Security/21st Century 

62 Creating Defense Excellence 

program managers from attaining knowledge, demonstrating technological maturity, or assuring 

the viability of key manufacturing processes. 

Clearly, the Department should not launch or allow programs to move on to subsequent 

milestones unless program managers can prove that technological maturity and program timelines 

can be met. The DoD must bring its acquisition system in line with best commercial practices, 

which embody incentives to encourage realism, candor, intelligent risk-taking, and meeting 

product expectations. The Commission recommends that program reviews focus on the need, 

merit, and maturity of the program, and not be used to reopen past debates about the wisdom of 

the original program approval. 

Once the program has received approval, program managers should be given broad 

authority to manage their programs. They must possess the power and encouragement to make 

tough decisions, and DoD’s testing practices should also change to support such tough decisions. 

Under the current system, testing occurs late and normally combines tests of subcomponents with 

total-system testing. This situation stems from the current orientation of using tests as “report 

cards” near the end of acquisition phases to secure funding for the next major milestone. 

Commercial production, on the other hand, tests early, tests hard, and tests often to identify 

problems and generate “knowledge” to feed back into program development. 

Commercial testing is also more systematic. Companies thoroughly test subcomponents 

before combining into components, and thoroughly test components before combining them into 

subsystems and so forth. DoD testing should increase the use of computer simulation more than is 

currently the practice. To move in this direction, the Department must strengthen the testing 

mechanisms available to program managers, and exercise those testing mechanisms early during 

each phase of the acquisition cycle. OSD testing should also focus on overall system performance 

within the anticipated combat environments, not just on combat survivability. 

DoD’s acquisition process could also make more cooperative use of depots—whether the 

depot is government run, outsourced, or privatized—in the form of an acquisition cradle-to-grave 

teaming. For example, initial support for a weapon should come from the contractor, and should 

remain in place as long as the system is in production. This would allow access to current 

production lines and suppliers to help support the system. Half-way through the production run, 

the Department could start moving support (40/60 split) to a depot, and then compete depot 

against contractor for the largest share. As a weapon goes out of production, all the support work 

would then migrate to the depot. 

he accumulation of laws and regulations that Congress has established to protect 

against fraud, waste, and abuse has created a nightmarish system of bureaucratic 

requirements and acquisition oversight whose net affect creates the very waste Congress intended 

it to prevent. A system based on institutional distrust 

expends vast amounts of energy on regulation and not 

enough on the purpose for which it exists. Other laws, 

such as the False Claims Act, have the effect of 

criminalizing accounting “estimates,” which by their 

nature are inexact. The current statute has a low 

burden of proof and no requirement to prove intent to 

defraud. In fact, fraudulent conduct is distinguishable 

from honest mistakes, however this act is often 

inappropriately used in contract disputes to impose 

severe penalties. The False Claims Act adds regulations that deter commercial firms from 

 T

A system based on 

institutional distrust 

expends vast amounts of 

energy on regulation and 

not enough on the purpose 

for which it exists. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 63

entering the government sector.96 In a business world where speed and adaptability is critical for 

survival, a more sensible system of defense acquisition regulations is of the essence. 

Equipping America’s military forces will depend on improved relations between DoD 

and the commercial sector, as well as the current defense industrial firms. To reap the full benefit 

of new information technologies, DoD and the government must adopt the major tenets of the 

“Revolution in Business Affairs.” The successes of the private sector in reducing costs, 

improving product development cycles, and rapidly adopting technology is predicated on a broad 

range of new business concepts. Clinging to outdated business models has ensured the downfall 

of many large companies, and DoD, with its outdated Cold War model, suffers many of their 

malaise.97 

To accomplish significant reforms, the NSSG urges the need to separate technology 

development from product development and change the product development cycle so that the 

process generates flexibility in requirements, full funding, and varied acquisition tracks earlier in 

the cycle, when product uncertainty is highest. Likewise, the Department should tighten 

requirements, funding, and contract types to reinforce expectations that as a product moves to the 

more expensive stages of the cycle, it will perform as expected and achieve delivery on time and 

within costs. 

In short, the Federal Acquisition Regulations must allow DoD acquisition to operate 

within a new business model. They must not weigh down contractors with over-burdensome 

paperwork and regulations that impede agility and flexibility. If the Department is to attract 

leading edge companies to do business with DoD, the Federal Acquisition Regulations must 

better reflect business practices found in the private sector. 

Better cash flow and appropriate profit motivation are basic 

requirements to making the defense industrial sector 

innovative and efficient. The defense industrial sector faces 

the same demands that Wall Street places on all companies. 

With current regulations and levels of procurement activity, 

defense industrial base companies cannot remain viable. 

Indeed, the “regulation cost” in DoD and the defense 

industry is approximately 40 percent of the acquisition budget, while the management and control 

burden in private industry ranges from 5 to 15 percent—and is falling.

98

DoD’s oversight process suffers from four major flaws. First, it engenders an adversarial 

system that forces industry to extremes in accounting and business procedures. Oversight also 

includes the requirement to submit countless numbers of legal certifications, representations, 

declarations, and statements at every step of the acquisition and contracting process. Many such 

requirements exist in the FARs and drive the paper work burden, but do not exist in statutes. The 

1996 Clinger-Cohen Act directed the reduction of such non-statutory requirements, but the 

Department has not fully implemented the Act.99 Such pressures, for example, add approximately 

 

96 “Report of the Acquisition Reform Working Group,” December 2000, p. 16. 

97 See “Best Practices: Successful Application to Weapon Acquisitions Require Changes in DoD’s 

Environment,” Testimony before the Subcommittee on Readiness and Management Support, Committee on 

Armed Services, U.S. Senate, General Accounting Office report GAO/T-NSIAD-00-137, April 26, 2000. 

98 Carnegie Commission on Science, Technology, and Government, “New Thinking and American Defense 

Technology,” second edition, May 1993. 

99 See, “Report of the Acquisition Reform Working Group,” pp. 21-22, which cites Public Law 104-106, 

Section 4301. 

The defense industrial 

sector faces the same 

demands that Wall 

Street places on all 

companies. 
U.S. Commission on National Security/21st Century 

64 Creating Defense Excellence 

18 percent to the cost of products and services purchased by the Department’s labs.100 These 

requirements also contribute to the refusal of many companies to do business with DoD at all. 

Second, excessive regulation creates costly inefficiencies that often lead to products 

inferior to those produced under private sector regulations. As noted above, OSD employs a 

“division equivalent” of auditors by itself. Moreover, these 

are complemented by multitudes of various Service auditing 

organizations. Redundant requests for information are 

common. Contractor and government auditors duplicate 

each other’s work, and generally fail to consider each other 

in audit planning and execution—yet government auditors 

typically “live” with the larger contractors. The whole system of acquisition could gain greater 

efficiency by simply coordinating internal and external auditing. 

Third, the current system has a propensity to put the auditor in the role of secondguessing decisions using facts and information often not available at the time of the decision. 

Such an approach is destructive and creates timid decision-making within DoD that inhibits the 

taking of meaningful risks that could benefit many programs. Auditors must focus on how 

managers examined the options available to them at the time, and then, whether these managers 

made a reasonable decision based on that information. 

Fourth, auditing and oversight still focuses on process versus output. Oversight is 

necessary, but the Congress must allow DoD to adopt oversight procedures in harmony with 

standard commercial business processes in meeting the government’s need for cost data. 

Traditionally government audits are always behind schedule—anywhere from one to five years. 

Problems will still occur, but that price is less than the cost of excessive oversight created 

by too many auditing layers. The cost of occasional problems is far less than the benefits gained 

from adopting a modernized auditing philosophy. The Commission therefore recommends that 

the Congress modernize Defense Department auditing and oversight requirements by rewriting 

relevant sections of U.S. Code, Title 10, and the Federal Acquisition Regulations. 

To make this recommendation work, Secretary Rumsfeld must exercise significant 

leadership and work with the Congress to change the existing culture throughout the acquisition 

and procurement infrastructure. And in every sense, he will confront intractable and difficult 

problems, because the current culture is deeply resistant to change. But the culture of the 

acquisition community is not the only problem. 

Industry often fails to take advantage of flexibility 

in government regulations, because it is often easier 

to follow old procedures than to manage the 

relationship to its fullest potential. Positive actions 

taken in the past decade have paid off only when 

both DoD program managers and industry changed 

their way of doing business. Changing the FAR, 

however, would go far to incentivizing rational 

behavior on both sides of the fence. 

Excessive regulation involves not only auditing and oversight burdens. It also goes to the 

heart of the business relationship—the making of money. The specialized nature and low relative 

 

100 The DOD Cost Premium: A Quantitative Assessment, December 1994, Coopers and Lybrand and TASC. 

Positive actions taken in the 

past decade have paid off 

only when both DoD 

program managers and 

industry changed their way 

of doing business. 

OSD employs a 

“division equivalent” 

of auditors by itself. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 65

volumes produced for DoD programs has been a major factor hampering the Department’s ability 

to work with commercial companies and adopt more efficient practices. However, computer 

controlled machine tools and other modern manufacturing processes make the term “government 

unique” almost obsolete. Economies of scale no longer require massive lots of production of 

identical items. Changes in regulations, funding more technology experimentation, and staging 

technology transitions to move toward production more quickly—along with achieving program 

stability once in production—will significantly help in efforts to expand participation in the 

defense industrial base. 

 8. Incentivizing New Behavior

he impediments to effective reform are significant. The greatest of these is the lack of 

incentives to break the current cycle of initiating and sustaining weapon programs 

without making hard tradeoff decisions. Despite the known costs and inefficiencies, and a general 

inability to generate and absorb innovation, the current system meets many diverse “needs” of its 

major participants. In effect it has created a system of self-sustaining incentives for the status quo. 

This is evident from a cursory examination of the organizational needs of major stakeholders in 

the current system. 

For the Services, the system provides military capabilities, but also helps in defining roles 

and missions. Moreover, it justifies budget levels and shares. 

For the OSD Staff, the system provides organizational influence. It is a vehicle to provide 

independent advice to the Secretary and represents a justification for leveraging more power from 

the Service staffs. 

For the CINCs, the prime “customers” of the acquisition system, it furnishes their nearterm warfighting needs, albeit inefficiently. 

For the Defense Industrial Base, the system generally absorbs cost overruns and still 

provides jobs, careers, and minimal profits. As monopolies and/or duopolies, large firms in a 

number of defense market sectors jealously protect their turf and use programs as vehicles to 

influence political decisions. 

For Congress, the system provides many positive and negative issues on which to 

campaign: jobs and projects to meet constituent interests, as well as opportunities to “run against 

the bureaucracy.” 

As independent actors, these participants act “rationally” within the current system. They 

see their own needs as aligned with national interests. However, collectively, these needs create 

an environment encouraging destructive parallel 

parochialism. It certainly compromises good judgment. 

For example, is it reasonable to expect program sponsors 

to present objective risk assessment, report realistic cost 

estimates, or perform thorough tests, when such 

measures expose programs to disruption, deferral, or 

even cancellation? Because it is not reasonable to do so, 

a level of cost growth, performance problems, schedule delays, and difficulties with production 

remain essentially embedded in acquisition programs from the start. Because the system focuses 

on process instead of accountability and output, everyone is “safe.” 

T

Collectively, these needs 

create an environment 

encouraging destructive 

parallel parochialism. 
U.S. Commission on National Security/21st Century 

66 Creating Defense Excellence 

Seen in this light, blaming acquisition problems on program managers (or any other 

single participant for that matter) overlooks the fact that these problems are the collective 

responsibility of all who participate. Thus, the Services’ ability to change requirements during the 

execution of development contracts generates enormous cost growth. But this is acceptable to 

contractors, who more often than not, operate in a “cost plus” environment. There is no incentive 

for efficiency under such conditions. Several recent changes in DoD’s profit policy—to provide 

more cash to companies without any requirement to improved management or performance—

further incentivize wasteful behavior. On the other hand, Department’s insistence that contractors 

must return all cost savings from improvements in efficiency to DoD is a disincentive to the very 

efficiency it seeks. 

Strong incentives to support acquisition programs 

compromise the entire reform climate. It is easier to find 

ways to “afford” programs—by accepting increased risk, 

stretching programs, or limiting programmed buys—than 

to make hard decisions based on affordability or 

performance. Support grows as programs mature. 

Contractors deliberately find subcontractors in several 

states to leverage political support. Such efforts win highlevel sponsorship before the lower level staffs formally review program milestones. Once 

weapons systems are in production, an even larger problem exists in ending “good” programs. 

Political desires to sustain local jobs along with more elevated arguments about preserving 

defense industrial capacity inevitably extend programs beyond their rational utility and 

complicate force modernization. 

Past efforts to reform the acquisition process have emphasized coercive procedures to 

change the current system. Such proposals have suggested adding controls, increasing 

management, as well as streamlining and centralizing. But none of these attempts have changed 

the basic incentives or pressures that drive behavior. Despite incentives to reduce cost growth in 

a fiscally constrained environment, the motivation to preserve programs, force structures, and 

missions has always prevailed. Thus, to implement real change, as proposed in this Commission’s 

recommendations, the incentive structure must change as well to: 

● Produce a willingness to make a sacrifice in order to achieve better outcomes. 

● Produce a recognition that broader consequences will follow from individual actions. 

● Discourage excessive optimism, parochialism, and protection of immature programs. 

● Use competition to improve programs and help resolve decisions. 

● Address Congressional needs and incentives as well as Executive Branch problems. 

This last point is extraordinarily important. When the participants in the acquisition 

process view the Congress as always ready to overturn decisions, there is no compelling reason to 

make changes in DoD itself. To achieve true reform by changing the incentive structure, the 

following four aspects of implementation are critical: 

First, for DoD to manage and properly maintain oversight of the nation’s defense needs, 

it must attract and maintain qualified trained and experienced personnel well versed in both 

technology and modern business practices—not just the FARs. DoD must provide continuity by 

Strong incentives to 

support acquisition 

programs compromise 

the entire reform 

climate. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 67

retaining program managers at least through major milestones. Moreover, the Department must 

maintain a working environment that empowers personnel at all levels. Such policies will 

encourage a more aggressive, less timid evaluation process. 

Second, the Department must create direct monetary incentives for good program 

management. In the pre-program, R&D phase, which could last several years, the Department 

must incentivize and fully-fund experimentation. However, as programs move into later phases, it 

should consider different incentives. When programs come in on time or ahead of schedule, it 

needs to award the Service or the program a small increase in TOA. 

Third, the Department must deposit acquisition authority, accountability, and 

responsibility in a single place. The current practice of diffusing authority across several staff 

agencies within the Pentagon breeds mismanagement. No one is responsible, and no one can be 

held accountable. The proper place to run acquisition programs is the Services, not an OSD 

“Czar,” who gives an illusion of accountability. 

Fourth, a political mechanism may be necessary to allow the Secretary of Defense and 

the Congress to kill truly wasteful and under-performing programs. This may require the 

creation of a standing independent bipartisan commission similar to the Base Realignment and 

Closure (BRAC) Commission. Such a commission, sponsored by both the Administration and the 

Congress, would allow both branches of the government to work together and meet parochial 

concerns and backlash with answers based on wider national interests. It would create a release 

valve to escape the pressure of political incentives to sustain the status quo. 
U.S. Commission on National Security/21st Century 

68 Creating Defense Excellence 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 69

Section III. Military Capabilities Reform 

he reformation of policy mechanisms, structures, and process would allow the 

Department to transform its military capabilities. To secure this nation in the world the 

Commission sees emerging, would require a different mix of capabilities than presently exist. The 

Commission summarized and prioritized the needed military capabilities in its Phase II and Phase 

III reports as: 

● nuclear capabilities to deter and protect the United States and its allies from attack; 

● homeland security capabilities; 

● conventional capabilities necessary to win major wars; 

● rapidly employable expeditionary capabilities; and 

● humanitarian relief and constabulary capabilities.101

Most, but not all, of these capabilities exist today. Of those capabilities that do, the Services and 

the Department have not adequately structured, shaped, or resourced them to achieve the strategic 

ends paramount to future requirements. To place these capabilities in their proper balance, DoD 

must change the way it plans, trains, organizes, and equips its military forces. 

The Commission has focused its efforts on the strategic and policy making levels. Thus, 

it has produced an overriding National Security Strategy, not a National Military Strategy, nor a 

detailed Defense Planning Guidance. It would be inappropriate then for the Commission to 

dictate the exact number and type of divisions, wings, and naval battle groups the United States 

needs to execute a National Military Strategy. That is a task Secretary Rumsfeld and a remodeled 

Department should perform—given clear guidelines and direction from the National Command 

Authorities (NCA).102 That is where government accountability rests, something the Commission 

has consistently encouraged. 

The Commission would be remiss, however, were it not to make a number of 

observations based on its research and analysis since Phase II. In its second phase report, the 

Commission stated that the current Two Major Theater War (2MTW) yardstick “is not producing 

the capabilities needed for the varied and complex contingencies now occurring and likely to 

increase in the years ahead.” 103 To provide further strategic direction to the Department, the 

Commission recommended expanded guidelines regarding the force sizing requirements of future 

defense forces. The Department needs to shift from a threat-based sizing metric to a capabilitybased one. While some will argue that the current 2MTW approach is “capability-based,” the 

Commission emphasized that the 2MTW forces are clearly focused on traditional “threat” 

scenarios.104 Not surprisingly, the inflated force figures (order of battle) in the Defense Planning 

 

101 USCNS/21, Seeking a National Strategy, p. 14, and USNS/21, Road Map for National Security: 

Imperative for Change, 15 March 2001, pp 78-79. 102 The term “National Command Authorities” refers to the President and the Secretary of Defense, who are 

in the military chain of command. 

103 USCNS/21, Seeking a National Strategy, p. 14. 104 Despite its frequent use, OSD, the Joint Staff, and the military departments have never defined the term 

“MTW” in open literature. We infer it to require all forms of military capability (land, sea, air) on the scale 

equivalent to the Gulf War or that envisioned in the past for North Korea. 

T
U.S. Commission on National Security/21st Century 

70 Creating Defense Excellence 

Guidance’s “Illustrative Scenarios” drive specific force structure requirements beyond realistic 

needs. Finally, it should size and shape U.S. forces against a strategy of deterring war, 

precluding crises from evolving into major conflicts, and winning wars rapidly and decisively, 

when necessary. 

A. Force Sizing Requirements

s the Commission indicated in its Phase II report, the concept of fighting nearsimultaneously two major theater wars, the current basis for U.S. military force 

structure planning, has not produced the capabilities this nation requires. The commitment to 

readiness for all-out engagement in two widely separated regions of the world at the same time, 

without strategic prioritizing and sequencing of campaigns, is in itself an extraordinary notion. To 

envision at this period in history, two opponents capable of and willing to challenge the United 

States at the theater-wide level of conflict and doing so simultaneously is an even more 

extraordinary notion. In the Second World War, the only historically relevant example, the Allies 

established an overarching set of priorities and acted in accordance with that understanding. Thus, 

the United States focused first and foremost on the defeat of Nazi Germany. The NSSG finds it 

difficult to envision just where over the next 

several decades the United States would find 

two opponents with the both the capability and 

intent to fight large armored ground wars 

requiring the commitment of forces comparable 

to those used in Desert Storm. Conversely, other 

possible contingencies that would demand 

significantly different power projection assets, 

such as a possible conflict in the Taiwan Straits, 

have not received the attention they deserve. 

Even if the United States were to move toward a policy of more limited engagement in 

the world, the primary challenges confronting the U.S. military would still be complex 

contingencies. Those challenges beg for a transformation of the U.S. military. Ironically, this 

requirement could lead to establishing a new force structure “floor” for the military that was 

actually higher than the current 2MTW standard. Far more likely, are the need to retain readiness 

for a major conflict, while securing the homeland and responding to small-scale conflicts, 

international terrorism, peacekeeping, humanitarian actions, and other commitments, such as 

securing access to space, which would require U.S. support. Failure to plan for the more likely 

requirement impedes the transformation process needed to produce capabilities better suited to 

the current and emerging security environment. 

 1. Problems with Current Force Planning Process

he institutional processes that defined and constructed the current 2MTW force were 

continuations of those that fielded the successful Cold War and Desert Storm forces. 

It is therefore reasonable that the Pentagon continued an accepted process that rationalizes current 

force structure and capabilities. Yet, the threat forces against which the Department constructed 

these 2MTW units have either disappeared or are significantly diminished in current capability. 

The current 2MTW yardstick focuses excessively on two scenarios, one of which—North 

Korea—analysis has consistently inflated and which is increasingly less likely. The Southwest 

Asia scenario is also little more than a strawman. Current rapid deployment forces, combined 

with prepositioned assets, could handle a conflict in that area, especially in view of the modest 

capabilities of both Iranian and Iraqi forces and U.S. experience with the latter during Desert 

 A

T

The NSSG finds it difficult to 

envision just where over the 

next several decades the United 

States would find two 

opponents with both the 

capability and intent to fight 

large armored ground wars. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 71

Storm. The decade just past has been a reasonable precursor to that which will follow. That is a 

world in which the United States has no peer competitor, but faces threats to its homeland from a 

widening array of actors on the global stage with access to weapons of mass destruction and 

disruption. A strategic environment where the likelihood of an interstate conflict threatening U.S. 

interests is diminishing, while intrastate conflict in areas important to U.S. security is on the rise. 

And the U.S. military has not been paying attention. 

Another factor hindering transformation is the perceived deterrent value provided by the 

declared 2MTW “strategy.” In fact, the reality is 

that the United States does not now possess a 

true 2MTW capability as currently defined—a 

fact that no potential adversary could miss. The 

process of changing from a 2MTW declaratory 

policy may result in some short-term political 

turbulence. But given the window of opportunity 

the Commission defined in Phase I—no global 

competitor likely to arise over the next 25 

years—this is the time to make the transition 

with minimum risk.105 The NSSG believes the greater risk by far would be an unaltered force 

that proves unsuitable and ineffective in the future, a development that would ultimately harm 

U.S. credibility and coalition leadership far more seriously. 

Resource availability is another major consideration impeding change. Within the 2MTW 

construct, the cost of transforming the current structure into forces more relevant to the modern 

security environment can only occur if defense spending increases significantly ($20 to $60 

billion plus per year), or if resources are made available through significant reductions in current 

force structure. The first of these alternatives seems unlikely and could be compounded by efforts 

to increase space and missile defense funding; the second is worrisome to the military Services 

accustomed to operating the kinds of forces they presently possess. 

The Commission clearly emphasizes that the current 2MTW construct is a force planning 

tool, not a “strategy.” As a planning tool, it is utterly inadequate for the Commission’s strategy, or 

any other strategy that focuses on the future. The 2MTW planning construct fails to support 

transformation and over-invests in the past. A useful force sizing tool must both shape and size

the force, but the present method only preserves size, by assuming that complex contingency 

requirements are “lesser included demands” satisfied by current forces. While some diversity of 

capability exists within different types of units, the NSSG contends that force capabilities are not 

infinitely flexible or fungible. It emphasizes the need to shape the military to ensure that U.S. 

forces prepare for a wider range of operations with extremely deployable, lethal, and agile units. 

Military forces cannot train and hold themselves ready for a wide number of 

fundamentally different missions without degrading readiness required to execute their primary 

war-fighting missions. Force capabilities are not seamlessly transferable. Forces trained for hightempo combat operations cannot assume peacekeeper missions, and vice versa, without attendant 

loss of capability. As technologically advanced units assume duties other than their primary 

mission, the more time they require for training—and retraining upon return—at both individual 

and collective skill levels. Time required is a function of personnel, equipment, and unit 

preparation. Personnel must retrain in their collective skills to required levels of proficiency. 

Even with an absolute priority in training resources and funds, one cannot assume a unit returning 

 

105 USCNS/21, New World Coming, Major Themes & Implications, p. 4. 

The reality is that the United 

Stated does not now possess a 

true 2MTW capability as 

currently defined—a fact that 

no potential adversary could 

miss. 
U.S. Commission on National Security/21st Century 

72 Creating Defense Excellence 

from peacekeeping missions could restore its normal level of combat proficiency faster than 

peacetime training cycles dictate. Of course, the Department can continue to place unit personnel 

on an accelerated schedule, but this near round-the-clock activity engenders attendant morale and 

discipline problems. Such operational tempo and personnel tempo (OPSTEMPO and 

PERSTEMPO) “churn” required by the current 2MTW requirement is wearing U.S. military 

forces out at rates faster than planned, while it is also robbing modernization accounts to pay for 

current operations and maintenance. 

The NSSG recognizes full well the high 

opportunity costs of the current force posture. It suboptimizes forces for contingencies, it defers 

modernization, and it crowds out transformation. 

Worse, the precipitous readiness erosion inside today’s 

armed forces will accelerate unless the Department 

realistically matches its forces to anticipated uses. The 

current system prevents the force from transforming and is leading to what many believe is a 

defense death spiral.106 

2. A Capabilities-Based Planning Process

espite the factors which militate against change, the world has evolved, and the rate 

of change in coming decades will only increase. A vital ingredient in the 

justification for moving from a threat-based to a capabilities-based approach is the proliferation 

of growing global technology into the hands of both state and non-state actors. This alone 

introduces a higher modicum of uncertainty into the planning process. The overarching challenge 

still stands—how to refocus U.S. military force planning to meet tomorrow’s threats, 

opportunities, and requirements. As stated, force planning should both size and shape U.S. forces 

against a strategy of deterring war, precluding crises from evolving into major conflicts, and 

winning wars rapidly and decisively when necessary. The answer lies in how the Department 

organizes its force capabilities for the future, and how it manages that transformation. 

Accordingly, the Commission recommends that the Secretary should direct the Department to 

shift from the threat-based, 2MTW force sizing process to one which measures requirements 

against recent operational activity trends, actual intelligence estimates of potential adversary’s 

capabilities, and national security objectives once formulated in the new Administration’s 

national security strategy.

 This commission believes that the United States should maintain sufficient capabilities of 

the kind it now possesses, with some modernization, to prevail against the possible emergence of 

a theater level opponent. Further, the nation’s military must develop the ability to deal with small 

to medium violent conflicts requiring very rapid, forced entry response, as well as long-term 

stability operations in tense, post-conflict scenarios. Land, sea, and air capabilities suitable to 

such a security environment must possess speed, agility, lethality, ease of deployment and 

sustainment, and highly networked connectivity. Peace keeping and humanitarian duties should 

be reduced, but will likely continue, with their inherent constabulary requirements. The U.S. 

military must also organize and train for these missions. Finally, the Department of Defense and 

the federal government must place new emphasis on the special needs of homeland security. 

 

106 Daniel Goure and Jeffrey Ranney, Averting the Defense Train Wreck in the New Millennium, 

(Washington D.C.: CSIS Press, 1999). 

D 

The NSSG recognizes full 

well the high opportunity 

costs of the current force 

posture. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 73

 In using the current 2MTW-based force sizing process, military planners consider 

“illustrative” scenarios and force structures of Iraq and North Korea and then provide sufficient 

friendly forces to ensure a high degree of success to U.S. efforts. Using attrition-based modeling 

tools, planners determine likely military outcomes in these scenarios. 107 The models emphasize 

mass, firepower and survivability against large, traditional threats. In the end, such models call 

for more friendly forces to achieve success than Desert Storm experience or common sense would 

dictate. Consequently, the large numbers of forces that must be assigned to these scenarios ensure 

that force planners have limited assets remaining to execute other missions. 

 In a capability-based sizing process, such as this Commission has recommended, military 

planners would identify the types of missions necessary to implement the NCA-assigned national 

security objectives and then structure defense programs and military force capabilities to 

accomplish those missions. Planning must rest on updated modeling techniques (discussed above 

in the PPBS section) that emphasize “effects” over “mass.” Modeling should highlight the 

synergistic effects of Joint forces with modern weapons employed in a networked environment 

against symmetrical and asymmetrical opponents. 

During the transformation to a capability-based 

force, the NSSG recommends retention of near-term 

capabilities to fight a major theater war with forces 

currently in the inventory, with some modernization. 

Ideally, planners should posture the “MTW” force 

against a “composite” and modernized threat, one that 

exhibits the most threatening capabilities projected for 

Iraq, Iran, North Korea, and possibly others. Such an 

approach would require operational utility in various 

terrain and environments, as well as capabilities for war 

fighting, power projection, control of required environments (air, land, sea, and space), strategic 

lift, and logistic supportability. Such demands should also include integrated capabilities for 

sustained land combat operations ashore, as well as sea- and air-based power projection options. 

The NSSG proposes the creation of forces capable of a robust and unilateral response in any 

theater with minimum access to host-nation support or mature infrastructure. Such forces would 

provide a deterrent hedge against the possible rise of a regional competitor or hostile coalition. 

Under this construct, the United States would build the capacity to respond, either East or West, 

to a major regional conflict with lethal, decisive forces against an adversary (or adversaries) 

whose military technology will obviously not equal those possessed by U.S. forces for the 

foreseeable future, but who may miscalculate U.S. political will. 

This theater warfighting force would preserve America’s war winning capabilities and 

enable victory, if the United States were to find itself engaged in a major war. These conventional 

forces would primarily constitute the high-end “deter” and “win” components of the 

Commission’s proposed Phase II strategy. Such a force would consist of active, as well as reserve 

forces, maintained at higher levels of readiness. Additional reserve tiers of readiness would exist 

as a hedge against other unexpected conflicts. A major contingency would result in commitment 

of other rapidly deployable active and reserve forces, while incorporating allied capabilities, 

where present.108 Forces committed to less critical small-scale contingencies would normally find 

 

107 See above in the PPBS section, (II, A, 7). 108 Note this construct is similar in some respects to the strategy reflected in National Security Decision 

Memorandum 27 (NSDM-27) of 1969, which was known as the “one-and-one-half war” doctrine, which 

emphasized including America’s allies in force sizing requirements. 

The NSSG recommends 

retention of near-term 

capabilities to fight a 

major theater war with 

forces currently in the 

inventory, with some 

modernization. 
U.S. Commission on National Security/21st Century 

74 Creating Defense Excellence 

themselves retasked to higher priority missions recognizing a considerable degree of difficulty in 

redeployment. 

As the transformation process continues, the primary focus of the U.S. military will 

gradually emphasize multiple complex contingencies and homeland security. Noting that U.S. 

overseas bases and force structure have decreased dramatically over the last decade, while the 

frequency and duration of commitments has increased, the transformation process must maximize 

fielding fast, agile, and rapidly deployable forces. For example, assuming our national strategy 

required the stabilization of a region by military intervention in a fragmenting country, capabilitybased force planners would design units strategically deployable, logistically sustainable, 

operationally agile, highly survivable, and extremely 

lethal. Properly trained and equipped, this intervention 

capability would be militarily useful anywhere in the 

world. Furthermore, due to their enhanced operational 

characteristics, such units would possess utility, whether 

employed in a fragmenting country or participating in a 

regional conflict. The end result of a capability-based 

process, freed from the constraints of 2MTW illustrative 

scenarios, would be an extremely flexible, highly capable 

military force. 

An equal focus on multiple complex contingencies would also shape the U.S. military to 

ensure that its forces were prepared to engage in a wider range of crisis response missions. Such 

rapid expeditionary forces would contribute to a “deter” and “win” capability, but would 

primarily represent the “preclude” component of the Commission’s proposed Phase II strategy. 

Some forces will require rapidly deployable, lethal, and agile units, while others will demand 

little lethal capability. At a minimum, U.S. military forces need to be able to execute three 

different types of missions simultaneously rather than focusing on contingency levels that just 

total “three.” Engagement and stability operations are also necessary for implementing preventive 

strategies. They have in the past, and will continue in the future, to account for a great drain on 

resources. They require equal emphasis and provisioning in force planning requirements. 

The NSSG has examined the implementation of these recommendations by exploring 

needed changes in military forces and military capabilities. We have gathered enough data points 

across the 1990s to plot future directions for the armed forces. It is now time to act. 

B. Military Forces 

 The forces detailed below are “idealized,” in that they represent desirable endstates of a 

long transformation process. They present military planners a holistic force structure vision 

between the suggested force-sizing metrics above and the more detailed military capabilities that 

will follow. These are based on the Commission’s five capabilities specified in the Phase II and 

Phase III reports. Resource availability will obviously constrain the journey towards this vision. 

merica’s ground forces need significant rebalancing. The NSSG applauds ongoing 

efforts to create less heavy, more readily deployable ground forces that can rapidly 

deploy and fight in organizational structures below division level, where appropriate. The U.S. 

military must also preserve some modernized heavy capabilities to conduct sustained operations 

in a high-tempo war against a regional opponent. Rapid response capabilities are necessary to 

counter possible anti-access strategies, when the United States aims at projecting its forces into a 

theater. The difficulties in sequencing rapidly deployable forces and heavier forces needs 

A

Properly trained and 

equipped, this 

intervention capability 

would be militarily 

useful anywhere in the 

world. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 75

attention, because the United States cannot suffer delays in its ability to escalate combat power. 

The Department needs to trade off some near-term heavy and light capabilities to achieve these 

future modernization goals. 

Future ground forces need the ability to conduct operational and strategic maneuver by 

closing on an objective from all directions and dimensions, air, land, sea, and space. Possessing 

strategic speed, ground forces optimally must arrive in a threatened theater early enough to 

preclude enemy ground forces from taking offensive action or achieving operational objectives, 

should hostilities begin. 

The Department needs to balance deep maneuver and strike capabilities reasonably 

against overall needs. Ground forces will have to operate within a joint environment that brings 

the many complementary precision strike capabilities of air and naval forces into play. An 

intervening ground force should have the ability to achieve dominance in combat power on 

arrival. The operational intent must be to exploit dominance in situational awareness to sense, 

track, and anticipate enemy movements and place discrete, but decisive, forces unexpectedly 

against enemy centers of gravity at minimum risk. The operational objective would be to rob the 

enemy of the advantage of time, while achieving rapid and decisive results. 

Ground forces, as with air and naval forces, 

seek combat efficiencies by subtle trade-offs between 

protection, mobility, firepower, and information. If 

increases in range and precision firepower correspond 

to increases in information and situation awareness, 

then military forces can often trade off protection for 

mobility. They can avoid hits and achieve mass by 

ranging the enemy with precision firepower through 

maneuver, rather than by providing heavy protection 

in the expectation of enduring close-in fires. 

Above all, the Department needs to evaluate more closely “tail-to-tooth” requirements 

and incorporate as much “reach back” as possible in combat support and combat service support 

functions without increasing the risk to combat forces. This would reduce deployment 

requirements and shrink the in-theater “footprint.” The objective should be to minimize in-theater 

logistic support, increase efficiency, and achieve higher “tail-to-tooth” ratios in theater, where the 

true measure must be improved operational effectiveness. 

America’s ground forces must also have capabilities dedicated more directly to missions 

of lower combat intensity and operations without a clear enemy. This includes peace 

enforcement, peace keeping, humanitarian relief, and constabulary operations that obviously 

require greater civil support and military policing functions. 

.S. naval forces will continue to play an important stabilizing role within this 

country’s overall national security strategy—that of a mobile, sea-based containment 

and power projection force. The Department should rebalance future naval forces from several 

perspectives. First, the Navy should continue its emphasis on forward presence, but recognize that 

forward basing will likely decrease over the next quarter century. Thus strategic deployment from 

home must be a growing capability. This requires the building of tacit knowledge through 

sustained operations in key forward areas, and posturing for rapid response. Second, the Navy 

should provide a full spectrum of naval combat capabilities—not just strike. This means: stronger 

low-end capabilities; the need to maneuver; and the ability to fight anywhere, not just from 

U

If increases in range and 

precision firepower 

correspond to increases in 

information and situation 

awareness, then military 

forces can often trade off 

protection for mobility. 
U.S. Commission on National Security/21st Century 

76 Creating Defense Excellence 

distant sanctuaries. Third, the Navy needs to own the littoral, which means the ability to assure 

access to the domains of competition. The Navy must acquire or use expeditionary sensor 

capabilities—space-based sensing may not be enough—and invest seriously in mine 

countermeasures. The Navy must be able to acquire access, fight decisively, and sustain itself and 

other forces in the littoral environment. Fourth, with respect to platforms, the swift and the many 

may dominate the slow and the few. Therefore, the Navy must examine buying different 

platforms in different ways. Finally, it must be able to secure the oceans for the world’s 

commerce. 

A percentage of funding for the surface combatant Navy should go to a family of new 

ships designed for the highly contested close-in littoral fight. These would be very fast survivable 

ships, low in cost with the ability to change missions through modular adaptations of different 

weapons loads. Such technologies are near at hand, and this approach could dramatically increase 

the size of the surface Navy with ships that could swing between the high and low ends. 

Adopting technology and modularization should also significantly reduce crew size. 

Naval forces need to expect and counter anti-access strategies through defense, stealth, 

and speed. The Navy should accentuate its joint role in 

defeating anti-access strategies—theater missile 

defense—and include capabilities to defeat future 

precision-guided, advanced atmospheric vehicles that 

pose significant threats to future U.S. platforms and 

bases. The submarine force should adopt a high-low mix 

approach with the low end picking up many surveillance 

missions. 

The Navy needs to improve its fire support for operations ashore. It needs to balance 

naval aviation, missiles, and guns to insure they are capable of fulfilling requirements for 

supporting ground and air operations ashore. Naval aviation should introduce some unmanned 

combat air vehicles (UCAVs) within this time frame, but the NSSG acknowledges UCAV 

limitations to conduct certain missions. The aircraft carrier will still be necessary for many 

reasons, including the importance of having a high-energy source at sea in a mobile, fairly high 

speed, and survivable platform. 

Naval forces need to retain and build a powerful and rapid strategic mobility function and 

maintain a balance between strategic fast sealift, prepositioning, and intra-theater lift. Maritime 

prepositioning may eventually no longer be necessary with high-speed transports based on current 

fast-ferry concepts. However, before investing in a new round of advanced maritime 

prepositioned assets or in fast sealift, the Navy must conduct a detailed and thorough cost and 

operational effectiveness analysis (COEA) to examine the relative merits of using advanced hull 

forms and fast-ferry technologies. 

arine forces will need to meet tomorrow’s diverse threats to prosecute the concept 

of expeditionary, maneuver warfare. Their current capability to strike anywhere in 

the world's littorals needs to be preserved, while at the same time, the operational flexibility of 

Marine forces in crisis response and conventional warfighting in both littoral and urban contexts 

needs expansion. 

Future crisis situations will be dynamic and explosive in both their onset and nature. The 

continued validity of a strategically agile, expeditionary force-in-readiness is clear for both 

preventive responses and as early entry forces in support of a combatant CINC’s campaign. The 

M

Naval forces need to 

expect and counter antiaccess strategies through

defense, stealth, and 

speed. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 77

Marine Air Ground Task Force (MAGTF) approach brings unique capabilities. It is sharply 

different than conventional land armies and contributes to a CINC’s joint force capabilities. But 

the future also suggests demanding requirements for training and equipping Marine forces. These 

include substantive improvements in tactical mobility, lightweight sensors, and unmanned 

vehicles and logistics support that requires less of a footprint ashore. 

In light of the pervasiveness of future anti-access strategies and missile proliferation, the 

Marines should seek greater range, mobility, and stand off distance for their maneuver forces. 

Modernization efforts to expand the operational reach of Marine air-ground forces and improve 

maritime pre-positioning or the use of “fast” transports should seek next generation capabilities. 

The Marines must avoid reinvesting in legacy systems. The velocity of Marine forces in both 

deployment and operational maneuver must increase. 

In this regard, the Marines must acquire more 

agile and precise means of fire support to achieve 

effects vice attrition by sheer mass. Marine aviation 

must maintain its tactical responsiveness and flexible 

basing, but its fire support must become more precise. 

Future fire support requirements need sizing for both 

organic needs and within the joint context. Marine 

operations must take into account the increased joint 

capability of the armed forces that has become increasingly visible since Goldwater-Nichols, as 

well as the availability of standoff precision fire support. In stressing future MAGTF core 

missions, the NSSG sees the need to increase the lethality of Marine attack helicopter forces and 

explore the balance offered between rotary wing, fixed wing, and organic and joint precision fire 

support capabilities. The Corps must vigorously pursue efforts to reduce future fixed wing 

aviation’s footprint. 

Maritime forces need to ensure continued access to the littorals by evolving expeditionary 

capabilities that include mine and obstacle countermeasures, joint air support, and naval surface 

fires. Where adversaries develop an access-denial strategy, MAGTFs require the ability to 

identify and exploit seams to gain access or, if necessary, they must be able to overwhelm the 

enemy instead with the full range of capabilities necessary for forcible entry options. The ability 

to project combat power swiftly across long distances may require the dramatic flexibility of 

technological innovations, such as tilt-rotor aviation platforms. 

The Marine Corps should examine and pursue alternative force structures for task 

organized expeditionary warfare across the spectrum of conflict. Scaleable Marine Expeditionary 

Brigade capabilities, more closely matched to the anticipated contingencies foreseen over the next 

several decades, are necessary. Such contingencies would place a premium on the Marine Corp’s 

unique competencies, but also require greater velocity, easier sustainability, and modernized 

capabilities.

ir forces have made great strides towards air dominance as well as expeditionary 

warfare. In the future the Air Force should continue shifting the balance toward 

creating longer range, high precision forces that permit the rapid projection of distant influence 

and power without projecting vulnerabilities in the same ratio. 

The Air Force needs to hone a global response capability that focuses on reducing 

response time from days to hours and minutes. It needs to continue migrating functions to space, 

when practical, while ensuring seamless integration for the joint team. This should occur at the 

A

The Marines must acquire 

more agile and precise 

means of fire support to 

achieve effects vice attrition

by sheer mass. 
U.S. Commission on National Security/21st Century 

78 Creating Defense Excellence 

expense, if necessary, of close air support capabilities. The United States needs to maintain 

control, as needed, of vital airspace and air lines of communications in regional power projection 

contingencies and air and space denial/control operations. Similarly, air forces must retain their 

air mobility roles in support of the Department’s full spectrum power projection capabilities. That 

mobility is also critical for contingency operations such as peace enforcement and disaster relief. 

The air-breathing role in C4ISR will continue over the near term, but eventually where 

practicable it will move to space. 

Over time, the Commission anticipates the reduction of permanent forward operating air 

bases. Thus, future air forces need to contribute to U.S. strategy through long-range and rapid 

expeditionary air operations that defeat an enemy’s anti-access efforts that aim at countering U.S. 

power projection. 

The future Air Force should continue to adapt stealth, standoff, and high-precision 

capabilities into its weapons and platforms. Efforts should include information operations, 

miniaturized weapons using multi-spectral, semi-autonomous, and self-adopting seekers and 

guidance systems that can overcome camouflage, deception, and dispersion techniques. 

Information operations must combine with adaptable munitions to produce precisely definable 

effects—both lethal and nonlethal that minimize 

physical and political collateral damage. In the 

future, U.S. adversaries will mingle their 

combatants among civilian populations or 

enterprises. The Air Force needs to continue 

development, testing, exploration, and adoption 

of unmanned systems, to include expendable 

standoff weapons and reusable UCAVs, for 

those missions where their use proves feasible 

and offers efficient operational advantages. 

The combination of theater and long-range air forces needs to be highly survivable and 

capable of operating with limited or no forward deployments, while integrating information and 

space capabilities to achieve desired effects. Future air forces also need great flexibility and the 

capability to operate jointly with both ground and naval forces across the spectrum of conflict. 

ystems operating in space should receive greater focus as essential supporting 

elements for all joint forces. Consequently they need protection. Future efforts should 

continue to emphasize a shift from terrestrial military force structures and supporting capabilities 

to placing significant investments in space, wherever practicable, to exploit American technical 

and strategic advantages. The command, control, communications, computers, intelligence, 

surveillance, and reconnaissance (C4ISR) capabilities provided by space forces could replace 

many terrestrial and theater-based systems, while significantly reducing the logistic tail and 

footprint of current power projection forces. 

The United States must adopt a hedging strategy and move towards the capability of 

controlling the space medium, if necessary, over the mid- and far-term. This requires continued 

progress in developing both directed energy and launch-on-demand capabilities. If necessary, 

limited numbers of space-based, conventional precision weapons or energy weapons could 

augment forward-based forces. This would further reduce strategic lift requirements needed to 

realize global and regional force projection. Such weaponization of space, if pursued, would 

S

The Air Force needs to 

continue development, testing, 

exploration, and adoption of 

unmanned system, to include 

expendable standoff weapons 

and reusable UCAVs. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 79

include weapons capable of employing into space, in space, and from space.109 Space-based 

weapons could also complement other combat force structures, possibly reducing the need to 

concentrate major platforms that support target coverage. The NSSG does not recommend that the 

United States pursue either space “control” or that it immediately rush weapons into space. It 

does believe, however, that the United States must develop the latent capacity should 

circumstances demand such action.

C. Military Capabilities 

iven the preceding discussion on force sizing requirements, and the above vision for 

military forces, the NSSG deems it essential to relate these elements to the five 

military capabilities proposed in the Phase II report and slightly expanded in the Phase III report. 

As stated in Road Map for National Security, it would be inappropriate for the Commission to 

delve into detailed force planning recommendations. However, it provides guidance and a 

mechanism to move the Department in the necessary direction. Accordingly, the Commission 

recommends that the Secretary should revise the current categories of Major Force Programs 

(MFPs) used in the Defense Program Review to focus on providing a different mix of military 

capabilities. 

As noted in the PPBS section above, the original MFPs tried to enhance oversight of the 

defense budget by producing a number of common categories across Service defense programs. 

Theoretically, this allowed the establishment of objectives and the measurement of progress 

toward those objectives. Unfortunately the MFPs lacked sufficient definition—and OSD lacked 

sufficient will—to establish useful objectives. The system has remained unchanged since 1961 

with the exception of a new category, Special 

Operations Forces, added in 1987 in response 

to the Cohen-Nunn Amendment to the 

Goldwater-Nichols Act. Given the need for 

transformation, the Department must update 

the categories of Major Force Programs, and 

use them as they were originally intended—to 

measure progress toward prioritized 

objectives. This should become a key tool in 

imposing true management reform on the Department. 

At present, only three of the current eleven MFPs focus on military “forces,” while the 

remainder includes defense support activities. Of the three MFP “force” categories, two are 

specific (Strategic Nuclear and Special Operations), while a single MFP category (General 

Purpose Forces) contains all conventional capabilities. Thus, it provides no visibility over the 

types of capabilities needed, the direction required to transform the force, or the ability to 

measure progress towards that transformation. The Department should create new MFPs 

corresponding to the five military capabilities the Commission deemed essential in its Phase II 

 

109 It is worth stating that there are very few international legal impediments to such a course. The Outer 

Space Treaty bans only the deployment of weapons of mass destruction in space, and the Anti-Ballistic 

Missile Treaty only limits interference with national means of verification with respect to arms control 

agreements. Even the United Nations Charter, Article 51, states explicitly that no nation is precluded from 

taking appropriate defensive measures in any environment. See also “Report of the Commission to Assess 

United States National Security Space Management and Organization,” January 11, 2001, pp. 36-38. 

G

The Department must update the 

categories of Major Force 

Programs, and use them as they 

were originally intended—to 

measure progress toward 

prioritized objectives. 
U.S. Commission on National Security/21st Century 

80 Creating Defense Excellence 

Fewer such forces are 

necessary to dominate 

potential threats than 

current assumptions and

models have previously 

defined. 

report. This would better reflect future requirements and force objectives and ensure a permanent 

mechanism to implement needed changes within DoD. We expand on those capabilities below. 

Strategic nuclear forces must retain the ability to perform their classic role of nuclear 

deterrence against WMD actors. However, strategic defense should also be factored into strategic 

offensive capabilities. In addition, the future security environment and probable strategic nuclear 

arms reduction efforts portend smaller arsenals that call into question the need and ability to 

maintain the three legs of the strategic nuclear triad in a cost effective manner. Future high 

precision weapons containing improved conventional explosives may well be able to strike 

targets previously reserved for nuclear weapons—fixed targets of limited physical extent. 

Therefore, the Department should give serious consideration to eliminating the most vulnerable 

and least responsive air-breathing leg of the triad. Long-range air assets released from this 

mission could carry standoff cruise missiles that would improve conventional air missions. 

Homeland security forces must have the ability to deter, protect, and respond to threats to 

America’s homeland. Homeland security is not entirely a military function; it is a major 

interagency challenge. The bulk of strategic defensive military forces, both active and reserve, 

should remain under the purview of DoD. Enhanced border security should consolidate into the 

proposed National Homeland Security Agency detailed in the main Phase III report. Portions of 

the National Guard should transform themselves to assume their historic and Constitutional role 

as a premier force for defending and securing the homeland as well as responding to disasters. 

Most Guard units, not currently tasked to augment the active Army, could transition into military 

police, engineering, transportation, CBR defense, communications, and medical units that have 

great utility for homeland security (including humanitarian assistance and disaster response). 

Forces equipped to respond to natural, manmade, and/or WMD-triggered disasters should have 

state and regional as well as an out-of-the-continental United States (OCONUS) deployment 

capabilities. Such capabilities would enable the United States to respond rapidly to domestic and 

overseas disasters and lessen the need for active duty military forces to prepare for and conduct 

such missions. 

Conventional forces need sizing and tailoring to threats defined by realistic scenarios and 

updated force modeling. For the foreseeable future, Army legacy-equipped, heavy units, “blue 

water” naval forces, full-spectrum air power, and Marine forced-entry units will provide this 

capability. Fewer such forces, however, are necessary to 

dominate potential threats than current assumptions and 

models have previously defined. Given likely limitations 

on strategic airlift and fast sealift, pre-positioned legacy 

equipment in regions at risk requires renewed emphasis, 

along with follow-on mobility provided by fast sealift. 

The National Guard and reserve forces, maintained in 

peacetime at a higher state of readiness, would serve as 

the strategic reserve to mobilize upon declaration of a 

crisis. Forces not required for conventional response could begin the transformation process. 

Aviation support would come from theater or U.S.-based units, augmented by sea-based 

platforms, and space-based systems, if they become available. 

Expeditionary capability must come from a combination of expeditionary marine, army, 

air, naval, and special operations forces. Enhanced MAGTF capabilities are essential as well as 

light and medium Army units. The naval component will need to shift its emphasis from super 

large platforms to include littoral and brown-water capable forces. Sea-based, firepower-intensive 

platforms must provide a critical element of this capability. Long-range, homeland-based or 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 81

overseas-deployed aircraft, or possibly space-based systems are essential for the delivery of 

precision munitions. To enhance their mobility, survivability, and lethality, and to reduce their 

logistic footprint, U.S. expeditionary capabilities should receive priority for modernization 

resources. These air, naval, ground and space forces must provide the United States with 

preemptive capabilities against major threats to national security, while retaining the ability to 

hold key assets of potential opponents at risk with conventional weapons. 

Humanitarian relief and constabulary operations must come from some homeland 

security forces and residual Army light units augmented, when appropriate, by expeditionary 

Marine units. Potential crises would require light infantry, military police, engineering, medical, 

civil affairs, and logistics units in situations that anticipate low potential for combat operations. 

The Commission envisions the need for purely constabulary force as relatively small, but 

necessary. The “constabulary” descriptor does not infer non-military skills, or a lesser degree of 

proficiency. Such forces would focus on different tasks, similar to the elite constabulary forces of 

other nations. Interagency, non-DoD assets also need consideration for long-term, follow-on 

constabulary operations. 

he Commission recognizes the transformation process will produce these five 

capabilities over time. Nevertheless, some must mature at a faster rate. Ultimately, 

the transformation process should render the distinction 

between conventional forces and expeditionary forces 

moot, as both types of capabilities would eventually 

possess enhanced mobility, survivability, and lethality. For 

the near term, however, expeditionary capabilities are the 

most critical to the existing and future security 

environments. Consequently, the Commission 

recommends that the Department should devote its 

highest priority to improving and further developing its 

expeditionary capabilities.

D. Implications

iven the proximity of the next Quadrennial Defense Review and the Secretary’s 

strategic review, the Department must consider several additional points. Strategic 

mobility and responsiveness remain constrained by current capabilities, primarily by the amount 

of available airlift and sealift. Short of funding additional strategic lift, the only alternative to 

enhancing strategic mobility is to maximize use of pre-positioned assets in regions at risk. 

Furthermore, savings from defense infrastructure reductions, such as future Base Reductions And 

Closures (BRACs), will only occur over the long-term. 

Significant increases in defense spending in the near term—of the magnitude needed to 

modernize the entire force—is desirable but highly unlikely. Therefore, modernization of force 

capabilities will necessitate force structure reductions or a reduction in the force structure that 

requires modernization. “Means” must be correlated to match “ends,” with acceptable risk, or the 

ends must be reduced. Without significant additional capital outlays, the Department will have to 

reduce the currently defined “end”—that of modernizing the entire force. The NSSG cannot 

overstate the criticality of clear direction and priorities. Without such guidance, the Department 

cannot explore tradeoffs, nor can it implement decisions through an improved planning, 

programming, and budget process. 

 T

G

Ultimately, the 

transformation process 

should render the 

distinction between 

conventional forces and 

expeditionary forces 

moot.
U.S. Commission on National Security/21st Century 

82 Creating Defense Excellence 

As stated earlier, the Commission did not specify the numbers and types of units 

required—that is the task for Secretary Rumsfeld and a remodeled Department. The Commission 

has identified what the U.S. military needs to achieve for the future—U.S. forces capable of 

deterring war, precluding crises from evolving into major conflicts, and winning wars rapidly 

and decisively when necessary. How to get there is best left to the responsible experts. 

This nation may discover that a transformed U.S. force structure will require even more 

resources and generate a capabilities baseline that is actually higher than that required by the 

current 2MTW construct. But above all, the transformation process will require a reprioritization 

of current resources. Ultimately, the result may be a larger force, or a smaller one, but we are 

confident that it will be a better force—a force more suited to advancing our interests and 

defending against true threats. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 83

Section IV. Implementing Defense Reform 

resident Bush and Secretary of Defense Rumsfeld surprised a great many people 

when they declared that a strategic review should, and would, precede any judgments 

about the scale and allocation of defense resources. 

Let them be surprised. 

It is high time that American leaders employed a serious strategy process to determine 

defense requirements. Secretary Rumsfeld clearly realizes that an intellectual process alone will 

not generate a force structure appropriate to the times, and that meaningful defense reforms 

cannot be achieved by “cherry picking” a handful of programs. The underlying reason the 

Pentagon has proven unable to generate a post-Cold 

War military is that its management mechanisms 

are broken. Its staffs are overblown. Its 

programming and budgeting system is sclerotic. Its 

acquisition process is out-of-synch with 

contemporary business practices and technological 

cycles. If these management deficiencies are not 

fixed, root and branch, no strategy review and no 

program pruning, no matter how well-intended or 

ripe for “picking,” will produce the desired results. 

The new Defense Secretary knows this and is selecting proven managers to address the problem. 

Secretary Rumsfeld has indicated a willingness to rewire organizations and adjust

processes within the Pentagon. Even more important, he has begun to articulate a strategic vision

of how the Department should operate, and what military capabilities it needs to produce. The 

Secretary is rightly focused on desired outcomes. In our view, those outcomes are seven-fold: 

 

• An OSD leadership function focused on strategic direction, resource allocation, and policy. 

• Streamlined and efficient DoD infrastructure support systems. 

• OSD management tools that tie resources to policy. 

• OSD tasking functions that can reallocate resources. 

• Reinvigorated military Services that embody authority, responsibility, and accountability. 

• An acquisition system that fields technology faster than potential adversaries. 

• DoD mechanisms that adapt to change and produce different military capabilities. 

To attain these objectives, defense reform must embody some underlying prerequisites, and must 

base itself on a prioritized game plan to see the effort through. 

A. Defense Reform Prerequisites

he defense reform problem should be based upon four major prerequisites: linking 

reform efforts to strategic objectives; involving DoD senior management in the 

reform process; selecting critical initiatives to pursue; and establishing a sound implementation 

mechanism. We address each in turn. 

 P

T

If management deficiencies 

are not fixed, root and 

branch, no strategy review 

and no program pruning, no 

matter how well intended or 

ripe for “picking” will 

produce the desired results.
U.S. Commission on National Security/21st Century 

84 Creating Defense Excellence 

1. Linking Reform to Strategic Objectives

he Commission recognizes a disconnect between the process of establishing national 

security objectives and the process of allocating resources. Responding to the 

complex threat environment requires an integrated approach combining the capabilities of a 

number of Executive Branch agencies—not just the Department of Defense. This can be achieved 

through a National Security Council-coordinated interagency planning process. Currently, crisis 

response consumes too much attention, leaving little time for deliberate planning. To correct this 

problem, the Commission recommends a crosscutting planning process that captures the 

President’s national security priorities and translates them into long-term plans to guide resource 

allocation. 

The Commission proposes a framework designed to integrate domestic, foreign, military, 

and economic policies. The framework would guide national security activities by means of a 

strategic planning process that lays out how the allocation of resources serves the nation’s overall 

national security goals. Consequently, the process would institute closer coordination between 

departments and agencies, including DoD, on national security matters.110

The President should personally guide a top-down strategic planning process and 

delegate authority to the National Security Advisor to coordinate that process. This procedure 

would foster a coherent national security policy that effectively links policy, strategy, 

programming, and budgeting and would encapsulate the President’s national security vision. The 

National Security Council staff should prepare an outline of the President’s top priority national 

security goals and objectives based on his vision. The NSC principals111 should then use the 

outline as a starting point to translate the President’s vision into defined, strategically critical 

goals and priorities. 

Specific guidance from the NSC principals 

would constitute a relatively short, classified 

document (in the 20-25 page range) called the

National Security Planning Guidance (NSPG). This 

document would link the President’s strategically 

critical goals and priorities with regional objectives. It 

would integrate foreign policy, economic, and 

military activities. It would assign responsibility for intelligence collection as well as planning for 

engagement and contingency operations. It would direct resource allocation among crosscutting 

activities, including preventive diplomacy, crisis response, non-proliferation, counter-terrorism, 

and homeland security. It would provide fiscal guidance to departments and agencies. Finally, it 

would specify directions for resource allocation to meet Presidential priorities. It is essential that 

the Director of the Office of Management and Budget (OMB) be involved to provide 

management, programming, and budgeting advice. The NSC Principals Committee (NSC/PC) 

and OMB would review the NSPG, ensuring that it incorporates coordinated policy direction and 

priorities. 

Once the President determines that the National Security Planning Guidance reflects his 

priorities and provides sufficient instruction for the departments, it should be distributed on a 

 

110 See the NSC reform chapter in Road Map for National Security: Addendum on Implementation, 

USCNS/21, April 15, 2001, available at www.nssg.gov. 111 The term “NSC Principals” refers to the NSC Principals Committee, of which the SecDef is a member, 

and which is the senior interagency forum for considering policy issues affecting national security. 

T

Specific guidance from the 

NSC principals would 

constitute a relatively 

short, classified document.
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 85

limited basis for implementation. Its preparation should precede the departments’ initial budget 

preparation. Ideally, distribution of the final NSPG should occur in March to initiate department 

budget and planning processes. The Defense Department should use the National Security 

Planning Guidance to direct the development of its budget submissions via the PPBS process. 

The NSPG would be broadly hewn, highlighting critical goals, but it would provide enough detail 

to instruct and guide DoD’s priority programs and activities. 

DoD reforms should tie USD(P) directly into this strategic planning process, and the 

Defense Planning Guidance should echo and refine the President’s and Secretary Rumsfeld’s 

objectives and priorities. Defense reforms should be focused on integrating the Department into 

this strategic planning process, and on transforming the Department’s ability to better translate 

plans and policy into resource allocations, programs, and budgets. The Commission advocated 

an Assistant Secretary of Defense for Strategy and Planning within USD(P) as a key element to 

performing this function.

2. Involving DoD Senior Management

he short, simple, and obvious truth is that Secretary Rumsfeld will need to be 

personally engaged in defense reform efforts. The challenges are too great to delegate 

responsibility to others and only the Secretary, strongly supported by the President, possesses the 

gravitas to push significant reforms through the system. 

At the same time, other senior officials who are 

responsible and accountable must support defense reform or 

the momentum for change will quickly dissipate. Senior 

officials must understand that defense reform is not an end 

state but a continuous journey. As cynically defined in The 

Devil’s Dictionary, reform is “a thing that mostly satisfies 

reformers opposed to reformation.” 112 Thus, reform should 

not be diluted to appease bureaucrats who secretly shun 

change. 

Senior leaders and managers need to embed reform and the creation of defense 

excellence into their personal objectives. They must understand they are working the Secretary’s 

agenda when involved with defense reform. If they do not understand the processes whereby 

organizations reinvent themselves they must learn—because they will have to lead those 

processes. If they cannot learn, they need to leave. 

Senior leaders must create incentives within their organizations to gain the active support 

of middle and lower management tiers. Bureaucratic non-compliance and foot-dragging must be 

identified and remedied. Low-level problems will arise from the civil servants within OSD, and 

from within the military Services. They will not admit resistance, but it will be evident in a 

thousand minor ways unless senior leaders develop visible and successful pockets of reform and 

court serious involvement from both formal and informal leaders. That is the only way to defeat 

expected “end runs” to the Hill, to labor unions, and to other special interest groups. 

Secretary Rumsfeld must visibly empower senior leaders to implement reform. The topic 

must be on the Secretary’s regular agenda, and senior officials must report to him regularly and 

frequently (weekly/bi-monthly) on their progress. Reform is not something to be taken out and 

 

112 Ambrose Bierce, The Devil’s Dictionary (New York: Dover Publications, 1993), p. 103. 

 T

Senior officials must 

understand that 

Defense reform is not 

an end stated but a 

continuous journey. 
U.S. Commission on National Security/21st Century 

86 Creating Defense Excellence 

flashed before the press once or twice a year. Reform is a process that must be nurtured 

constantly to produce results. 

3. Selecting Critical Initiatives to Pursue

olitical capital is valuable and should not be squandered on minor reform efforts. If 

approached like a “shotgun,” where the velocity and vector of hundreds of “reform 

pellets” dissipate over distance and time, it will likely fail. If focused like a “rifle” on five or six 

critical “reform bullets,” however, it stands a chance of hitting its distant target. Picking the right 

bullets can together constitute a “tipping point” that will in train draw other processes in the 

direction of genuine reform. Thus, Secretary Rumsfeld and senior defense officials must select 

carefully the key initiatives that will create the tipping point. These must be tied to critical 

objectives and priorities outlined by the strategic planning process illustrated above. 

 Realigning organizational structures is only part of any solution. The real emphasis must 

be on fixing key processes within DoD. When processes are changed, structures will normally 

conform to them. The heart of organizational reform should be three-fold: to meet strategic 

priorities; to make the key processes work; and to eliminate redundancy and inefficiency by 

focusing on core competencies. 

 The initiatives should be selected for their longterm payoff. Meaningful changes cannot be implemented 

overnight, and easy fixes tend to preserve the status quo. 

At the same time, some attention must be paid to shortand mid-term reforms, if for no other reason than they may 

be necessary. They may also be useful vehicles as 

intermediate steps in the road to reform. 

 For each critical initiative, the Secretary will find it useful and necessary to gather 

associated problems into a cluster of reforms. Each cluster would focus on key and supporting 

processes, products, and organizational changes. The reason is that critical initiatives will likely 

be complex, will interact with other key reforms, and the solution path to implementing them will 

likely require “drill down” efforts and analysis to identify underlying problems. 

 The selection of initiatives will itself require resources and tradeoff decisions. The 

resource decisions involve the political capital and time expended. The tradeoff decisions require 

fundamental analysis of both the benefits and opportunity costs of selecting some issues and not 

others. These decisions will essentially be political in nature, so the Secretary must ensure that the 

President presents his selections in such a way as to garner Congressional support. 

4. Establishing a Sound Implementation Mechanism

ome proposals, however insightful and practical they may be, are never implemented 

for lack of appropriate method. The process for implementing reform is just as 

important as the choice of reforms pursued. Secretary Rumsfeld needs to create a reform office of 

some type—a reform implementation cell—responsible directly to him for structuring and 

implementing defense reform efforts. It must be empowered to work closely with senior defense 

P

S 

Meaningful changes 

cannot be implemented 

overnight, and easy 

fixes tend to preserve 

the status quo. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 87

officials and support them in developing detailed plans and methods, monitoring progress, and 

assisting them and the Secretary in identifying and overcoming obstacles.113 

 The Department and the reform cell may do well to maintain contact with outside 

commissions, institutes, associations, and public policy groups interested in defense reform that 

have a solid knowledge base. Using them in a semi-official status could assist the reform effort by 

contributing inputs, acting as “sounding boards,” and using these constituent groups for outreach 

and public/Congressional advocacy. 

 No reform effort can propose credible improvements to the Department without first 

understanding how DoD actually functions. It must also recognize that such a large organization 

with complex processes is inherently in a state of constant evolution—particularly during 

transitions of administrations. But before institutional redesigns can occur, or before detailed road 

maps can be constructed to get the defense establishment headed in the right direction, the reform 

cell needs to understand how the Department is structured and how it goes about its business. 

Thus, the reform effort must begin with a strong “baseline” of current DoD structures and 

process. The work by the USCNS/21, Road Map for National Security: Addendum on Structure 

and Process Analyses will prove a useful tool in this endeavor.114 

Successful defense reform will ultimately hinge 

upon workable, detailed implementation plans for each 

critical issue. The defense reform implementation cell 

should develop such plans to identify where 

responsibilities lie, suggest timelines, sequence actions, 

and specify the necessary coordination and consultation 

nodes between the Executive and Legislative Branches. 

In addition, the plans must address the impact on costs 

and personnel levels (where applicable), and identify 

issues that are likely to impede implementation. The implementation plans should also recognize 

whether legislation, Presidential directives, or internal departmental actions are required to bring 

the reform into being, should identify the key elements, and provide draft implementation 

language. Finally, the plans should highlight issues that, unless addressed, are likely to render 

implementation less effective—such as bureaucratic considerations, cultural impediments that 

accompany all transformations, and lessons derived from earlier events—and provide options 

that, if adopted, will facilitate implementation of those reforms. A suggested outline for the 

implementation plans is provided below:115 

• Background 

• Implementation Blueprint 

Actions 

Responsibilities 

Timelines 

• Process Maps and/or Organizational Charts (as required) 

• Personnel Implications 

• Costs 

 

113 The reform implementation cell could also support the defense management board contemplated by 

Secretary Rumsfeld. 

114 USCNS/21, April 15, 2001, available at www.nssg.gov. See Volumes I, IV, and VI. 115 Based on several implementation plans developed by the Commission. See USCNS/21, Road Map for 

National Security: Addendum on Implementation, April 15, 2001, available at www.nssg.gov. 

Successful defense 

reform will ultimately 

hinge upon workable, 

detailed implementation 

plans for each critical 

issue. 
U.S. Commission on National Security/21st Century 

88 Creating Defense Excellence 

• Issues and Considerations 

• Implementation Means 

Draft Legislation, Presidential Directives, and/or Departmental Directives 

The Department and the reform implementation cell must remember that plans are 

developed to implement reforms aimed at solving specific problems. The detailed implementation 

plans, however, are only starting points that will invariably require alteration. As every military 

commander knows, plans are designed primarily to exercise the process and to get you to “first 

contact.” Even excellent plans must be constantly adjusted. The keys are to present 

bureaucratically feasible steps, to establish a mechanism and a process, and to provide 

appropriate incentives. 

The implementation process will be just as 

important as the implementation plans, which only serve 

as a foundation for change. In this light, it would also be 

wise to develop and use some “pilot programs” in the 

implementation process to test key reforms. Pilot programs 

provide several advantages. They allow for early success 

to help build momentum. They provide reform “paths” so 

that actions can be undertaken in sequential fashion rather than one giant leap. Lastly, they 

provide means to detect unexpected consequences, which permits the plan to be refined and 

adjusted. The latter assumes the reform implementation cell establishes an assessment process 

and develops appropriate metrics to measure progress or failure. 

B. A Defense Reform Game Plan

he implementation plans recommended above represent tactical and operational 

vehicles to achieve specific ends. However, the larger reform effort should be based 

upon a strategic game plan aimed at creating excellence within DoD. Eight key elements 

constitute such a plan. (See Figure 7.) In the ideal world, they can be prioritized in a sequential 

manner, however, the real world dictates that several elements can and should be pursued in 

parallel. 

First, reiterating the Commission’s emphasis on top-down strategic planning, the 

President and the Secretary of Defense must define what the military component of the national 

security strategy must accomplish. In other words, what are the key objectives at the global and 

regional levels? This should flow from the National Security Strategy (NSS), the National 

Security Planning Guidance (NSPG), and the Defense Planning Guidance (DPG). These key 

objectives must be based on our national interests and values, and need to include opportunitybased policy goals as well as response-based security requirements.116 The key to accomplishing 

this first step depends on Secretary Rumsfeld supporting the process to develop an NSPG and 

pursuing the recommendations in Section II of this Addendum to reform the DPG into a more 

useful planning document. 

Second, flowing from the above step, DoD needs to identify the military capabilities 

needed to provide the defense component of the NSS and the NSPG. All trails lead towards the 

conclusion that military capabilities should be “mission oriented” and “outcome measured.” This 

task begins with revising the Major Force Programs (MFPs) and Program Elements (PEs), and 

harmonizing the Joint Warfighting Capabilities Assessment around similar missions. The revised 

 

116 See USCNS/21, Seeking a National Strategy. 

T

The implementation 

process will be just as 

important as the 

implementation plans. 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 89

MFPs must in turn be tied to a strategy-driven DPG. As long as individual programs remain 

unconnected to specific mission capabilities, the Department will lack the mechanism to link 

outputs to larger national security objectives, or to conduct tradeoff analyses. 

Third, the Department must size and shape the military forces and design the sustainment 

structures for the required military capabilities. This should be accomplished in a QDR, or a 

QDR-like process. This task must encompass an OSDdesigned methodology to revise the force planning process 

that includes improved modeling and the ability to address 

and resolve several critical issues in different categories. 

The “force” related issues include: major theater war and 

multiple complex contingency requirements (to include 

power projection); reserve component requirements; 

homeland security requirements; and allied interoperability issues and contributions. The “combat 

support” issues include C4ISR requirements and strategic lift/prepositioning tradeoffs. The key 

“service support” issues should be addressed within a strategic plan to outsource and privatize the 

Department’s infrastructure. Nothing precludes DoD from initiating efforts to begin working 

these issues in parallel with steps one and two above. 

Fourth, the Department must designate a responsible Service and/or Defense Agency for 

each required military force structure and support/sustainment function. Authority, 

responsibility, and accountability must be clarified rather than diffused across staffs and agencies. 

OSD should function to designate Services as Administrative or Executive Agents, as required, 

for certain cross-Service programs. The Department should also propose legislation to delegate 

certain DAB authorities away from USD(AT&L) and back to the Services to empower them to 

execute programs. Where appropriate, the Services should compete for who provides the 

capability within a QDR process. The competition could be total—winner takes all—or for shares 

of required missions—a 40/60 split could be used, for example. 

Fifth, OSD must impose management systems over the current DoD structures that 

facilitate input and output measurement, similar to current best business practices, to determine 

efficiencies of the current systems, to evaluate potential improvements, and to develop the 

available alternative courses of action. At the macro level this begins with reforming the PPBS 

process by changing the Defense Planning Guidance, the Major Force Programs, and 

reorganizing the individual Program Elements. Management reviews would be performed during 

the QDR process and during the annual issue cycle. At the micro level this requires instituting 

workplace performance concepts such as Army 

Workload and Performance System (AWPS) within 

infrastructure support systems that measure output value. 

Management reform would thus be in place to evaluate 

infrastructure consolidation, outsourcing, and 

privatization alternatives. Acquisition management 

reform should focus on the changes and flexibility 

necessary to deliver the types of military capabilities 

needed. In other words, zero in on the critical capabilities 

first, versus across the board acquisition reform. 

Sixth, flesh out the risks and costs associated with each course of action: force structure 

or military capability; supporting/sustaining infrastructure; and acquisition system. This is where 

the Department must examine tradeoffs and investment priorities between force requirements, 

force sustainment/readiness, and force modernization. It must differentiate between strategic and 

Acquisition management 

reform should focus on 

changes and flexibility 

necessary to deliver the 

types of military 

capabilities needed. 

This task must 

encompass OSD 

putting a methodology 

in place. 
U.S. Commission on National Security/21st Century 

90 Creating Defense Excellence 

operational risk. It must determine whether to pursue incremental change or skip a generation. It 

should evaluate alternative programs for the size and composition of active and reserve forces. It 

must dissect needs for high-demand low-volume assets. It must consider the use of space assets 

and the C4ISR enhancements necessary for network-centric operations. It should probe various 

power projection and basing options. It must also consider costs for enduring presence and 

engagement options. It must review force re-capitalization choices as well as fundamental cost 

effective alternatives to reforming defense infrastructure. 

Seventh, decide on a course of action. This is primarily a SecDef decision, but obviously 

Secretary Rumsfeld should also rely on the advice of his senior executives—the Under 

Secretaries and the Service Secretaries, as well as the Chairman and the Joint Chiefs. Because 

most defense issues are deeply moored to the political process, such enormous decisions will 

obviously involve the President, the Congress, and numerous outside stakeholders. Neither 

“military efficiency” nor “national security” alone will likely generate the support needed to carry 

many decision through to completion. Defense “reform” has little constituency on the Hill 

compared to “pro-defense” positions that thinly mask support for local installations and jobs 

associated with defense programs. Thus political capital must be expended and steps must be 

taken to inform the Congress and generate required “buy in” on key decisions. Again, a BRACtype commission may be necessary to provide political cover for some courses of action. 

Eighth, acquire the capabilities needed to field and sustain the required military forces 

using reformed PPBS and acquisition processes. This task should fall mostly upon the military 

Services, assuming OSD has properly laid the groundwork for and guided the defense reform 

process. This last step feeds directly back into the defense reform prerequisites detailed in the 

front of this section with the suggested implementation mechanisms. 

efense reform could be Secretary Rumsfeld’s real legacy to this nation, and it should 

not be allowed to wander aimlessly about the corridors of the Pentagon. Secretary 

Rumsfeld needs to be in charge of defense reform if he hopes to create true excellence. He needs 

his senior managers to carry out reforms effectively, and this requires a dedicated defense reform 

implementation cell to assist the effort. Lastly, the Secretary should focus the entire reform effort 

on a few key areas. From this addendum, we offer four issues as being critical: reform the major 

staffs around their core competencies; reengineer defense infrastructure to reduce costs and 

improve efficiency; reform the PPBS process into a true management tool; and reform the 

defense acquisition system to field the needed military systems. Two additional issues from the 

Commission’s main Phase III report bring the total number of initiatives to six: military and 

civilian personnel reform; and transforming the National Guard to better assume a homeland 

security mission.117

As noted in the summary of this addendum, the problem of defense reform and creating 

excellence within DoD is an enormous and daunting challenge. However, as an old proverb 

states, “If you have a mountain to climb, waiting around won’t make it any smaller.” Adapting 

the Department of Defense to the security environment of the 21st century will be a difficult 

climb, but it is time to start assaulting the summit. 

 

117 See details in Sections I and IV of Road Map for National Security. Also see the “Personnel Reform” 

and “Homeland Security” chapters in Road Map for National Security: Addendum on Implementation. 

D
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 91

_______________________________________________________________________________________________ _______________________________________________________________________________________________ _______________________________________________________________________________________________ _______________________________________________________________________________________________ _______________________________________________________________________________________________ 

Figure 7. Defense Reform Game Plan 

2 

Identify 

Required 

Military 

Capabilities 

3 

Size & 

Shape

Force

4 

Designate

OPRs

5 

Institute

Management 

Systems

6 

Evaluate

Effectiveness, 

Risks, 

& 

Costs 

7 

Decide 

COA 

8 

Field 

Capabilities
U.S. Commission on National Security/21st Century 

92 Creating Defense Excellence 
U.S. Commission on National Security/21st Century 

Creating Defense Excellence 93

National Security Study Group 

Staff, Contractors, Consultants, and Advisors

Executive Director Research Staff 

Charles G. Boyd Erin C. Conaton, Research Staff Director 

 Chris Dishman 

Deputy Executive Director Garrick Groves 

Arnold Punaro Christopher Hall 

 Mark Kohut 

Chief-of-Staff Kelly Lieberman 

Hank Scharpenberg Rachel Schiller 

 Betsy Schmid 

Study Group Coordinator 

Pat Allen Pentland (primary author) Support Staff 

 James Freeman, Administrative Officer 

Study Group Members Annette Atoigue 

Patti Benner Antsen Carmen Augustosky 

Lyntis Beard Marilyn Bridgette 

Keith A. Dunn Jamie Finley 

Adam Garfinkle John Gardner 

Frank Hoffman Marvin Goodwin 

Charles Johnson Michele Hutchins 

Jim Locher Diane Long 

Williamson Murray Jonathan Nemceff 

 Gerald Posey 

 Tom Prudhomme 

 Paula Siler 

 Cynthia Waters 

 

Contractors 

Fred Frostic and George Raach, from Booz-Allen & Hamilton 

Consultants 

Charles Barry 

Paul Byron Pattak 

Advisors

General Michael P.C Carns, USAF (Ret.) 

M. Thomas Davis 

Joseph Eash (DoD) 

Katherine Schinasi (GAO) 

Note: Only individuals who produced or commented on sections of this Addendum are listed. Not 

every individual endorsed every nuance in the report. 
U.S. Commission on National Security/21st Century 

94 Creating Defense Excellence