Defense Business Transformation: Achieving Success Requires a Chief Management Officer to Provide Focus and Sustained Leadership
Released: 2007-09-05T00:00:00

Letter

Background

DOD is perhaps the largest and most complex organization in the world and spends billions of dollars each year to maintain key business operations intended to support the warfighter, including systems and processes related to the management of contracts, finances, the supply chain, support infrastructure, and weapons systems acquisition. We have reported for years that inefficiencies in these business operations result in reduced efficiencies, ineffective performance, inadequate accountability, and lack of transparency. Despite various reform initiatives, DOD continues to face weaknesses in business operations that not only adversely affect the reliability of reported financial data, but also the economy, efficiency, and effectiveness of DOD’s operations.

To address long-standing management problems, we began our “high-risk” program in 1990 to identify and help resolve serious weaknesses in areas that involve substantial resources and provide critical services to the public. Historically, high-risk areas have been designated because of traditional vulnerabilities related to their greater susceptibility to fraud, waste, abuse, and mismanagement. As our high-risk program has evolved, we have increasingly used the high-risk designation to draw attention to areas associated with broad-based transformation needed to achieve greater economy, efficiency, effectiveness, accountability, and sustainability of selected key government programs and operations. For example, we first added DOD’s overall approach to business transformation to our high-risk list in 2005 because DOD had not taken the necessary steps to achieve and sustain business reform on a broad, strategic, departmentwide, and integrated basis. Furthermore, DOD continues to dominate the high-risk list. Specifically, DOD currently bears responsibility, in whole or in part, for 15 of our 27 high-risk areas. Of the 15 high-risk areas, the 8 DOD-specific high-risk areas cut across all of DOD’s major business areas. Table 1 lists the 8 DOD-specific high-risk areas. Also, as shown in table 1, many of these management challenges have been on the high-risk list for a decade or more. In addition, DOD shares responsibility for 7 governmentwide high-risk areas. Collectively, these high-risk areas relate to most of DOD’s major business operations that directly support the warfighter, including how servicemembers get paid, the benefits provided to their families, and the availability and condition of the equipment they use both on and off the battlefield.

Congress passed legislation that codified many of our prior recommendations related to DOD business systems modernization; this includes the establishment of various bodies and plans. Also as required by Congress, DOD commissioned studies examining the feasibility and advisability of establishing a CMO to oversee the department’s business transformation process. As part of this effort, the Defense Business Board, an advisory panel, examined various options and, in May 2006, endorsed the CMO concept. In December 2006, the Institute for Defense Analyses also endorsed the need for a CMO position at DOD. In May 2007, DOD submitted a letter to Congress outlining its position regarding a CMO at DOD, stating that the Deputy Secretary of Defense should assume the CMO responsibilities.

DOD Has Made Progress in Establishing a Management Framework upon Which to Develop Overall Business Transformation, but the Framework Focuses on Business Systems Modernization

Although DOD has made progress in establishing a management framework upon which to develop overall business transformation efforts, this framework currently focuses on business systems modernization rather than broader business transformation efforts. Congress included provisions in the National Defense Authorization Acts for Fiscal Years 2005 and 2006 to assist DOD in addressing financial management and business systems modernization challenges—two of our high-risk areas— and DOD’s leadership has taken steps to comply with these provisions. For example, to improve financial management, DOD issued the initial Financial Improvement and Audit Readiness Plan in December 2005, which was last updated in June 2007, to guide financial improvement and financial audit efforts within the department. Also, to address its business systems modernization challenges, DOD has established the following: Defense Business Systems Management Committee: The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 required DOD to set up a committee to review and approve major updates of the defense business enterprise architecture—or transformation blueprint— and the obligation of funds for defense systems modernization. Prior to the enactment of this legislation, we reported that DOD had not established a governance structure and the process controls needed to ensure ownership and accountability of business systems investments. Subsequently, Congress directed DOD to establish the Defense Business Systems Management Committee to oversee DOD business transformation. In February 2005, the Deputy Secretary of Defense chartered the Defense Business Systems Management Committee, which consists of senior defense military and civilian leaders. The Deputy Secretary of Defense serves as the chair of this committee and the Under Secretary of Defense for Acquisition, Technology, and Logistics serves as the vice chair of the committee. The committee is intended to establish strategic direction and plans for DOD’s business mission, oversee implementation of systemic performance in DOD’s business operations, approve business transformation plans and initiatives, ensure that funds are obligated for defense business systems modernization in accordance with the law, and recommend policies and procedures to the Secretary of Defense that enable efficient business operations throughout DOD.

Investment review boards: The Ronald W. Reagan National Defense Authorization Act also required DOD to set up investment review boards to evaluate systems’ consistency with the business enterprise architecture and to provide oversight of the investment review process for business systems. Prior to the establishment of investment review boards, we had reported that billions of dollars were being spent on business systems investments with little oversight. DOD established the investment review boards in 2005 to serve as the oversight and investment decision-making bodies for business system investments in their respective areas of responsibility. These boards assess modernization investments over $1 million and determine how the investments will improve processes and support the warfighter.

Business Transformation Agency: DOD established the Business Transformation Agency in October 2005 with the intent for it to support the Defense Business Systems Management Committee and coordinate business transformation by ensuring adoption of DOD-wide information and process standards as defined in the business enterprise architecture. The Business Transformation Agency reports to the Under Secretary of Defense for Acquisition, Technology, and Logistics in his capacity as the vice chair of the Defense Business Systems Management Committee. The Business Transformation Agency’s charter includes responsibilities such as identifying urgent warfighter needs that can be addressed by business solutions, articulating the strategic vision for business transformation, exercising executive oversight for DOD-wide programs, and implementing plans and tools needed to achieve DOD business transformation.

In addition, the department has developed various tools and plans to enable these entities to manage its business systems modernization efforts. The tools and plans the Defense Business Systems Management Committee approves, the Business Transformation Agency implements, and the investment review boards use to assess compliance include the following: Business enterprise architecture: DOD’s business enterprise architecture is a tool or a blueprint to guide and constrain investments in DOD organizations and systems as they relate to business operations. The business enterprise architecture provides the thin layer of corporate policies, capabilities, standards, and rules and focuses on providing tangible outcomes for a limited set of enterprise-level (DOD-wide) priorities, and the components are responsible under the department’s tiered accountability approach for defining their respective component- level architectures that are aligned with the corporate business enterprise architecture. According to DOD, subsequent releases of the business enterprise architecture will continue to reflect this federated approach and will define enforceable interfaces to ensure interoperability and information flow to support decision making at the appropriate levels.

Enterprise transition plan: DOD guidance states that the enterprise transition plan is intended to lay out a road map for achieving DOD’s business transformation by implementing changes to technology, processes, and governance consistent with DOD’s business enterprise architecture. According to DOD, the enterprise transition plan is intended to summarize all levels of transition planning information (milestones, metrics, resource needs, and system migrations) as an integrated product for communicating and monitoring progress—resulting in a consistent framework for setting priorities and evaluating plans, programs, and investments. The enterprise transition plan contains time-phased milestones, performance metrics, and a statement of resource needs for new and existing systems that are part of the business enterprise architecture. Business Transformation Agency officials said that they see the enterprise transition plan as the highest level plan for DOD business transformation. DOD released its first enterprise transition plan in September 2005. DOD updates the enterprise transition plan twice a year, once in March as part of DOD’s annual report to Congress and once in September.

While our prior work has acknowledged this progress, we also have reported on limitations. For example, while the latest version of the business enterprise architecture focuses on DOD-wide corporate policies, capabilities, rules, and standards, which are essential elements to meeting legislative requirements, this version has yet to be augmented by the DOD component organizations’ subsidiary architectures that are also essential to meeting these requirements and the department’s goal of having a federated family of architectures. While the latest version of the enterprise transition plan provides performance measures for the enterprise and component programs, including key milestones (such as initial operating capability), it does not include other important information needed to understand the sequencing of these business investments and does not address DOD’s complete portfolio of business system investments. While the department has established and begun implementing the investment review structures and processes that are consistent with legislation, it has yet to fully define the related portfolio-based information technology investment management practices.

Furthermore, DOD’s efforts have been mainly focused on business systems modernization. During our review, we examined key documents, such as DOD’s enterprise transition plan, business transformation guidance, and minutes from the meetings of the Defense Business Systems Management Committee, and our analysis found that DOD has not yet expanded the focus beyond business systems. In addition, DOD officials stated that the Defense Business Systems Management Committee has mainly focused on providing oversight for business systems investments, rather than overall business transformation efforts, because this is what legislation has required it to do. Similarly, DOD officials stated that the enterprise transition plan also is focused on business systems and does not provide enough detail about overall business transformation. DOD officials added that the Business Transformation Agency is also limited to focusing mainly on business systems because its role is to support the Defense Business Systems Management Committee, which primarily provides oversight for business systems initiatives as specified in the Ronald W. Reagan National Defense Authorization Act.

Additionally, DOD has not clearly defined or institutionalized interrelationships, roles and responsibilities, or accountability for establishing a management framework for overall business transformation. For example, the Deputy Secretary of Defense chairs an advisory board called the Deputy’s Advisory Working Group, which DOD officials have stated has a role in overall business transformation. The Deputy’s Advisory Working Group started in 2006 as an ad hoc committee, co-chaired by the Deputy Secretary of Defense and Vice Chairman of the Joint Staff, to manage the planning process for DOD’s strategic plan, the Quadrennial Defense Review. According to DOD officials, this working group is to provide departmentwide strategic direction on various issues that it chooses. Many of the same individuals who sit on the Defense Business Systems Management Committee also serve on the Deputy’s Advisory Working Group. However, opinions differ within DOD as to whether the committee or the working group will function as the primary body responsible for overall business transformation, and the relationship between these two entities has not been formalized. In addition, opinions differ between the two entities regarding the definition of DOD’s key business areas, with the Defense Business Systems Management Committee and the Business Transformation Agency using a broader definition of business processes than the Deputy’s Advisory Working Group and its supporting organizations. These differences hinder DOD’s ability to leverage the business systems modernization management framework to fully address broader business transformation efforts. Until the department institutionalizes a management framework that encompasses all aspects of business transformation, including establishing overall responsibility for and defining what is included in business transformation, DOD will be unable to integrate related initiatives into a sustainable, enterprisewide approach and to resolve weaknesses in business operations that we have shown are at high risk of waste, fraud, and abuse.

Two Critical Challenges Affect DOD’s Success in Maintaining and Furthering Its Progress in Overall Business Transformation

DOD faces two critical challenges to achieving successful business transformation. First, DOD does not have a comprehensive, integrated, and enterprisewide plan or set of linked plans supported by a planning process that sets a strategic direction for overall business transformation efforts and monitors progress. Second, DOD lacks a full-time leadership position dedicated solely to the planning, integration, and execution of business transformation efforts. Until the department establishes a comprehensive, integrated planning process and establishes full-time sustained leadership, DOD will be challenged to integrate related initiatives into a sustainable, enterprisewide approach and to resolve weaknesses in business operations that we have shown are at high risk of waste, fraud, and abuse.

DOD Has Not Developed a Comprehensive, Integrated, and Enterprisewide Plan or Set of Plans Supported by a Planning Process for Business Transformation Efforts

DOD continues to be challenged in its business transformation efforts because it has not developed a comprehensive, integrated, and enterprisewide action plan or set of linked plans for business transformation that is supported by a comprehensive planning process. Such a plan or set of plans would help set strategic direction for overall business transformation efforts, prioritize initiatives and resources, and monitor progress through the establishment of performance goals, objectives, and rewards. Our prior work has shown that this type of plan should cover all of DOD’s key business functions; contain results-oriented goals, measures, and expectations that link institutional, unit, and individual performance goals and expectations to promote accountability; and establish an effective process and related tools for implementation and oversight. Furthermore, such an integrated business transformation plan would be instrumental in establishing investment priorities and guiding the department’s key resource decisions.

Our analysis shows that DOD does not have an integrated plan in place and has not fully developed a comprehensive planning process. For example, we analyzed the enterprise transition plan and determined that the goals and objectives in the enterprise transition plan were not clearly linked to the goals and objectives in the Quadrennial Defense Review, DOD’s highest level strategic plan. In addition, the enterprise transition plan is not based on a strategic planning process. For example, it does not provide a complete assessment of DOD’s progress in overall business transformation efforts aside from business systems modernization. Furthermore, while the enterprise transition plan contains goals and milestones related to business systems, the plan does not contain results- oriented goals and measures that assess overall business transformation. Finally, we determined that DOD’s business transformation efforts are currently guided by multiple plans that are developed and maintained by various offices within DOD.

DOD officials acknowledged our analysis that DOD does not have an integrated plan in place. Business Transformation Agency officials see the enterprise transition plan as the highest level plan for business transformation but acknowledge that it does not currently provide an assessment of the department’s overall approach to business transformation. Business Transformation Agency officials also acknowledged that they are challenged to work across various offices to develop an integrated planning process and results-oriented measures to assess overall business transformation. These officials added that DOD is starting to develop a family of linked plans to guide and monitor business transformation. Specifically, DOD’s March 2007 update to the enterprise transition plan includes an approach that is intended to align other business plans with the enterprise transition plan, establish working relationships among plan owners across DOD’s major business areas, and identify interdependencies among their products. However, according to Business Transformation Agency officials and others within DOD, the alignment currently involves only ensuring data consistency across DOD’s major business plans and does not yet encompass the full integration they envision. In addition, it is not clear from discussions with these officials which committee or office within DOD will be responsible for developing a family of linked plans and a supporting comprehensive planning process.

The Defense Science Board, the Defense Business Board, and the Institute for Defense Analyses agree with our analysis. These organizations have issued reports supporting DOD’s need for an integrated planning process for business transformation. In a February 2006 report on military transformation, the Defense Science Board concluded that DOD needed, but did not have, a multiyear business plan capable of relating resources to mission purposes. In addition, the report said that confusion existed over roles in identifying needs, proposing and choosing solutions, executing programs, and overseeing performance. The Defense Science Board concluded that an effective business plan would give decision makers a clear understanding of the impact of resource decisions. The Defense Business Board arrived at a similar conclusion. In a May 2006 report on governance at DOD, the Defense Business Board reported that a challenge facing DOD’s business activities was the move from a hierarchical, functional approach to an enterprisewide, cross-functional, horizontal approach. The Defense Business Board recommended that DOD develop a strategic plan that contains clear goals and supporting objectives, including outcome-based metrics. In a December 2006 report about the need for a CMO at DOD, the Institute for Defense Analyses recommended that DOD adopt a planning structure that would ensure that the strategic-level directions and priorities drive day-to-day planning and execution. The Institute for Defense Analyses said that the planning structure should contain top-level goals, approaches, and resources and link these goals to the required resources within the executing activities.

DOD Has Not Established a Full-time Leadership Position at the Right Level Dedicated Solely to Business Transformation Efforts

DOD continues to lack sustained leadership focused solely on business transformation. We have reported that as DOD and other agencies embark on large-scale organizational change initiatives, similar to defense business transformation, there is a compelling need to, among other things, (1) elevate attention on management issues and transformational change efforts, (2) integrate various key management and transformation efforts into a coherent and enterprisewide approach, and (3) institutionalize accountability for addressing transformation needs and leading change. Without such leadership, DOD is at risk of not being able to sustain and ensure the success of its overall business transformation efforts, and its progress is at risk of being another in a long line of unsuccessful management reform initiatives.

The Deputy Secretary of Defense has elevated the attention paid to business transformation efforts, and he and other senior leaders have clearly shown a commitment to business transformation and to addressing deficiencies in the department’s business operations. For example, the Deputy Secretary has been actively engaged in monthly meetings of both the Defense Business Systems Management Committee and the Deputy’s Advisory Working Group, and directed the creation of the Business Transformation Agency to support the Defense Business Systems Management Committee. However, these organizations do not provide the sustained leadership needed to successfully achieve overall business transformation. The Defense Business Systems Management Committee’s representatives consist of political appointees whose terms expire when administrations change and the roles of the Deputy’s Advisory Working Group have not been institutionalized in DOD directives or charters. Without this, the committee’s very existence and role could change within or between administrations.

A broad-based consensus exists among GAO and others that the status quo is unacceptable and that DOD needs a CMO to provide leadership over business transformation efforts, although there are different views concerning the characteristics of a CMO, such as whether the position should be codified in statute, established as a separate position from the Deputy Secretary of Defense, designated as Executive Level II or Level III, subject to a term appointment, or supported by a deputy CMO. As required by Congress, DOD commissioned studies of the feasibility and advisability of establishing a deputy secretary of defense for management to oversee the department’s business transformation process. As part of this effort, the Defense Business Board, an advisory panel, examined various options and, in May 2006, endorsed the CMO concept. Furthermore, in December 2006, the Institute for Defense Analyses issued a study that reported on various options for the creation of a CMO position and recommended that a CMO is needed at DOD. In response to the Institute for Defense Analyses report, DOD submitted a letter to Congress in May 2007 outlining the department’s position on a CMO at DOD. However, this position does not adequately address the key leadership challenge that we discuss in this report—that is, the lack of a senior leader, at the right level, with appropriate authority, to focus full time on overall business transformation. In summary, DOD is proposing to Congress that the role of a CMO be assigned to the Deputy Secretary of Defense. While the Deputy Secretary may be at the right level, with the appropriate authority and responsibility to transform business operations, we have testified that the demands placed on him and other senior leaders make it difficult for them to maintain the oversight, focus, and momentum needed to resolve business operational weaknesses, including the high-risk areas. Finally, DOD does not agree with codifying the CMO role in legislation, stating that doing so would restrict the flexibility of future Presidents and Secretaries of Defense to build an integrated management team. DOD would rather leave the assignment of the CMO role to the discretion of the Secretary of Defense, and DOD plans to formalize the Deputy Secretary’s CMO and business transformation duties in a DOD directive.

Because of the complexity and long-term nature of business transformation, we have long advocated the establishment of a CMO position at DOD with significant authority and experience and a term that would provide sustained leadership and the time to integrate the department’s overall business transformation efforts. Major transformation initiatives often take at least 5 to 7 years in large private and public sector organizations. Codifying a separate, full-time CMO position in statute would ensure continuity and help to create unambiguous expectations and underscore congressional desire to follow a professional, nonpartisan, sustainable, and institutional approach to this position. Without formally designating responsibility and accountability for results, reconciling competing priorities among various organizations and prioritizing investments will be difficult and could impede the department’s progress in addressing deficiencies in key business areas. A full-time and separate CMO position could devote the necessary time and effort to further and sustain DOD’s progress and would be accountable for planning, integrating, and executing the department’s overall business transformation efforts. Further, we believe that the CMO should be at Executive Level II and report directly to the Secretary of Defense so that the position has the stature needed to successfully address integration challenges, address DOD’s high-risk areas with a strategic and systematic approach, and prioritize investments across the department. By subsuming the CMO duties within the Deputy Secretary of Defense position as DOD advocates, the CMO would be at level II, but not subject to a term or able to focus full-time attention on business transformation. Finally, we advocate an extended term appointment for the CMO of at least 5 to 7 years so that the position could span administrations to sustain business transformation when key personnel changes occur.

Conclusions

DOD’s efforts at business transformation consist of various entities whose interrelationships are not clearly articulated and numerous plans that are not integrated across the department. Currently, there is no single individual, office, or integrated plan within DOD to provide a complete and focused assessment of the department’s business transformation efforts. DOD continues to face formidable challenges, both externally with its ongoing military operations and internally with the long-standing problems of fraud, waste, and abuse. Pervasive, decades-old management problems related to its business operations affect all of DOD’s major business areas. While DOD has taken positive steps to address these problems, our previous work has shown a persistent pattern of limited scope of focus and a lack of integrated planning and sustained leadership. In this time of growing fiscal constraints, every dollar that DOD can save through improved economy and efficiency of its operations is important to the well-being of our nation and the legitimate needs of the warfighter. DOD can no longer afford to address business transformation as it has in the past. Unless DOD elevates and integrates its efforts, billions of dollars will continue to be wasted every year. Furthermore, without strong and sustained leadership, both within and across administrations, DOD will likely continue to have difficulties in maintaining the oversight, focus, and momentum needed to implement and sustain the needed reforms to its business operations. In this regard, we continue to believe that a CMO whose sole focus is to integrate and oversee the overall transformation of the department’s business operations remains key to DOD’s success.

Recommendations for Executive Action

To ensure successful and sustained business transformation at DOD, we recommend that the Secretary of Defense take the following two actions: Institutionalize in directives the roles, responsibilities, and relationships among various business-related entities and committees, such as the Defense Business Systems Management Committee, investment review boards, the Business Transformation Agency, and the Deputy’s Advisory Working Group, and expand the management framework to capture overall business transformation efforts, rather than limit efforts to modernizing business systems.

Develop a comprehensive strategic planning process for business transformation that results in a comprehensive, integrated, and enterprisewide plan or set of interconnected functional plans that covers all key business areas and provides a clear strategic direction, prioritizes initiatives, and monitors progress across the department.

Matter for Congressional Consideration

Given DOD’s view that the Deputy Secretary of Defense should be assigned CMO duties, Congress should consider enacting legislation to establish a separate, full-time position at DOD with the significant authority and experience and a sufficient term to provide focused and sustained leadership and momentum over business transformation efforts.

Agency Comments and Our Evaluation

In written comments on a draft of this report, DOD generally concurred with our recommendations that the department institutionalize a management framework and develop a comprehensive strategic planning process for business transformation, and disagreed with our matter for congressional consideration that Congress enact legislation to establish a separate, full-time CMO position. The department’s comments are reprinted in appendix II. In its overall comments, DOD expressed concern about what it characterized as GAO’s belief that the department placed improper emphasis on business systems modernization to the detriment of overall business transformation efforts. In particular, DOD stated that business systems modernization is a critical step in achieving overall business transformation, and that lessons learned and governance structures developed for modernizing business systems acquisition processes are being evaluated for implementation beyond the business side. It further stated that the Deputy’s Advisory Working Group and the Defense Business Systems Modernization Committee both focus more broadly on defense business transformation. DOD also believed we had overstated the nature of “broad-based consensus” between GAO, the Institute for Defense Analyses, and the Defense Business Board about the need for a CMO in DOD, noting that the Institute for Defense Analyses had examined four alternate methods for institutionalizing the roles of the CMO and ultimately supported the department’s position that those duties be vested in the Deputy Secretary of Defense.

We disagree with DOD’s characterization of our report with respect to the emphasis of the department’s efforts and the nature of the broad-based consensus on the need for a CMO. The report specifically gives DOD credit for progress to date on setting up an overall framework for broader business transformation, and in no way suggests that any specific steps taken regarding modernizing business systems are detrimental to this progress. Rather, we note that the framework, as currently structured and implemented, focuses on business systems, is a foundation to build upon, and needs to be expanded to more fully address broader transformation issues. The report also recognizes the establishment of the Deputy’s Advisory Working Group and the Defense Business Systems Modernization Committee. While DOD suggests these two groups focus more broadly on business transformation, our work shows that DOD has not clearly defined or institutionalized interrelationships, roles and responsibilities, or accountability for broader business transformation among these entities. Also, differences of opinion exist within DOD about the roles and scope of the various entities. Further, contrary to DOD’s view, we did not overstate the nature of the “broad-based consensus” regarding the need for a CMO. In fact, the Defense Business Board, Institute for Defense Analyses, and the department are on record in their support for establishing a CMO at DOD. Specifically, the board endorsed the CMO concept in a study completed in May 2006, the Institute for Defense Analyses identified the need for a CMO in its study completed in December 2006, and DOD, in a May 2007 letter, informed Congress of its view that the Deputy Secretary of Defense should assume CMO responsibilities. The Institute for Defense Analyses also recommended that Congress establish a new deputy CMO position with an Executive Level III term appointment of 7 years to provide full-time support to the Deputy Secretary in connection with business transformation issues. We believe these actions demonstrate a broad-based consensus regarding the need for a CMO and, therefore, that the status quo is unacceptable. Notwithstanding these positions, we also recognize, as stated in the report, that there are different views concerning the characteristics of a CMO, such as whether the position should be codified in statute, established as a separate position from the Deputy Secretary, designated as Executive Level II or Level III, or subject to a term appointment. As stated in this report and numerous testimonies, we believe the CMO position should be codified in statute as a separate and full-time position, designated as Executive Level II, and subject to an extended term appointment.

In addition to its overall comments, DOD provided detailed comments on our two recommendations. Specifically, DOD concurred with our first recommendation that the department institutionalize in directives the roles, responsibilities, and relationships among various business-related entities and committees and expand the management framework beyond business systems modernization to capture overall business transformation efforts. In fact, DOD stated explicitly in its comments that the department is a strong advocate for institutionalizing, in its DOD Directives System, the functions, responsibilities, authorities, and relationships of its principal officials and the management processes they oversee. DOD added that the Deputy Secretary of Defense has issued a directive-type memorandum on the management of the Deputy’s Advisory Working Group and that a draft DOD directive has been prepared to define the functions of the Defense Business Systems Management Committee and elaborate its relationships with the Defense Business Transformation Agency and other key business-related entities in the department. We recognize that directives and memorandums, in some cases, do exist, and that DOD plans to finalize additional directives, particularly for the Defense Business Systems Management Committee. As noted in our report, during the course of our review, we found that DOD has not clearly defined or institutionalized interrelationships, roles and responsibilities, or accountability for establishing a management framework for overall business transformation, and that differences of opinion exist within the department regarding which of the various senior leadership committees will function as the primary body responsible for overall business transformation. Therefore, we encourage DOD to ensure that its efforts to institutionalize its management framework for business transformation in directives specifically address these matters, and once directives are finalized, to take steps to clearly communicate the framework and reinforce its implementation throughout the department.

Further, DOD partially concurred with our second recommendation that the Secretary of Defense develop a comprehensive strategic planning process for business transformation that results in a comprehensive, integrated, and enterprisewide plan or set of plans. Specifically, DOD stated that it has already begun to expand the scope of the enterprise transition plan to become a more robust enterprisewide planning document and to evolve this plan into the centerpiece strategic document for transformation. DOD added that as the enterprise transition plan evolves, it will continue to improve in aligning strategy with outcomes, identifying business capability gaps, prioritizing future needs, and developing metrics to measure achievement. DOD also stated that it will continue to evolve its family of plans to address our recommendation. While DOD’s proposed actions to address both of our recommendations appear to be positive steps, the key to their success will be in the details of their implementation. Moreover, we continue to believe that these efforts alone will not be sufficient to bring about the desired transformation. More specifically, efforts to institutionalize and broaden the scope of a management framework and develop a comprehensive strategic planning process for business transformation will not be successful without a CMO to guide and sustain these efforts.

However, DOD disagreed with our matter for congressional consideration that Congress consider enacting legislation to establish a separate, full- time CMO position at DOD to provide focused and sustained leadership and momentum over business transformation efforts, stating that no official below the Secretary of Defense, except the Deputy Secretary, has the rank and perspective to provide the strategic leadership and authoritative decision making necessary to ensure implementation of departmentwide business activities. DOD stated that the Deputy Secretary of Defense is to be designated as the CMO and that an internal directive is being revised to that effect. DOD also stated its belief that the continuity of business transformation is best ensured by institutionalized processes and organizations, the knowledge and perspective of DOD’s career workforce, clear and mutually agreed to economy and efficiency goals, and the due diligence of future administrations and Members of Congress to nominate and confirm highly qualified executives to serve at DOD. Further, DOD stated that the establishment of an additional official at the under secretary level to lead business transformation would generate dysfunctional competition among the five other Under Secretaries by creating confusion and redundancy in their roles and responsibilities. DOD added that the Deputy Secretary of Defense as the CMO has sufficient officials available to assist in managing the department and the authority necessary to refine the department’s management structure to continue business management reform and integrate business transformation activities with the operational work of the department.

Because of the complexity and long-term nature of business transformation, we have consistently reported and testified that DOD needs a CMO with significant authority and experience, a term that would provide sustained leadership, and the time to integrate overall business transformation efforts. In our view, DOD’s plan to subsume the CMO duties within the Deputy Secretary of Defense position and to establish this action by directive would place the responsibilities at the appropriate level—Executive Level II—but would result in a position not subject to a term or able to focus full-time attention on business transformation. Transformation is a long-term process, especially for large and complex organizations such as DOD. Therefore, a term of at least 5 to 7 years is recommended to provide sustained leadership and accountability. To ensure continuity, it should become a permanent position, with the specific duties authorized in statute. As stated in our report, we believe codifying a separate, full-time CMO position in statute would also help to create unambiguous expectations and underscore congressional desire to follow a professional, nonpartisan, sustainable, and institutional approach to this position.

We recognize that the Deputy Secretary of Defense has officials and institutional structures available to support the transformation process; however, transformation cannot be achieved through a committee approach. Ultimately, a person at the right level, with the right type of experience, in a full-time position with a term appointment, and with the proper amount of responsibility, authority, and accountability is needed to lead the effort. Contrary to DOD’s view, we believe the establishment of a separate CMO position would bring leadership, accountability, focus, and direction to the department’s efforts rather than creating dysfunctional competition and causing confusion. The CMO would not assume the responsibilities of the Under Secretaries of Defense or any other officials. Rather, the CMO would be responsible and accountable for planning, integrating, and executing the department’s overall business transformation effort, and would be able to give full-time attention to business transformation. As such, the CMO would be a key ally to other officials in the department in dealing with the business transformation process. Without formally designating responsibility and accountability for results, reconciling competing priorities among various organizations and prioritizing investments will be difficult and could impede progress in addressing deficiencies in key business areas. We believe DOD’s position essentially represents the status quo, and that in the interest of the department and American taxpayers, the department needs a CMO to help transform its key business operations and avoid billions of dollars in waste each year.

We are encouraged that this matter is now before Congress as it prepares to deliberate on pending legislation that calls for statutorily establishing a CMO for DOD. In particular, we believe any resulting legislation should include some important characteristics for the CMO position. Specifically, a CMO at DOD should be codified in statute as a separate and full-time position that is designated as an Executive Level II appointment and reports directly to the Secretary of Defense so that the individual in this position has the stature needed to successfully address integration challenges, adjudicate disputes, and monitor progress on overall business transformation across defense organizations. In addition, the position should be subject to an extended term appointment such that the CMO would span administrations to sustain transformation efforts when key personnel changes occur. Transformation is a long-term process, especially for large and complex organizations such as DOD. Therefore, a term of at least 5 to 7 years is recommended to provide sustained leadership and accountability. In addition, we would recommend a requirement for advance notification should the Secretary decide to remove an individual from the CMO position.

We are sending copies of this report to interested congressional committees and the Secretary of Defense. We will also make copies available to others upon request. This report is also available at no charge on GAO’s Web site at http://www.gao.gov.

If you or your staff have any questions regarding this report, please contact me at (202) 512-9619 or pickups@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other staff members who made key contributions to this report are listed in appendix III.

Appendix I: Scope and Methodology

To assess the progress the Department of Defense (DOD) has made in setting up a management framework for business transformation, we reviewed and analyzed relevant documents and current literature about the department’s business transformation and interviewed key DOD senior leaders and defense experts. Documents that we used for our review included, but were not limited to, (1) GAO reports related to DOD’s high- risk areas, including business systems modernization, development of the business enterprise architecture, and organizational transformation; (2) DOD products, including the 2006 Quadrennial Defense Review and updates to DOD’s enterprise transition plan; (3) DOD’s annual reports on business transformation to Congress (and biannual updates); (4) DOD testimony to Congress on the status of business transformation; and (5) meeting minutes and briefing documents, such as those from the Defense Business Systems Management Committee, the Deputy’s Advisory Working Group, and the Defense Business Board, related to DOD’s business transformation, governance, and management reforms. We obtained testimonial evidence from officials representing the Business Transformation Agency, offices within the Office of the Secretary of Defense (including the Program Analysis and Evaluation Directorate; Office of the Director, Administration and Management; and the Office of Business Transformation), the Joint Staff, the military departments, and defense experts.

To assess the challenges DOD faces in maintaining and ensuring success in its overall business transformation efforts, we compared DOD’s efforts to key practices we found to be consistently at the center of successful organizational mergers and transformations, specifically, establishing a coherent mission and integrated strategic goals to guide the transformation and ensuring that top leadership drives the transformation. We also reviewed relevant plans and related documents to assess integration among DOD’s various business-related plans. These plans included DOD’s Quadrennial Defense Review, Performance and Accountability Report, Financial Improvement and Audit Readiness Plan, Defense Acquisition Transformation Report to Congress, Supply Chain Management Improvement Plan, Focused Logistics Joint Functional Concept and the Focused Logistics Campaign Plan, Human Capital Strategy, and the Defense Installations Strategic Plan. In addition, we reviewed proposals for a chief management officer (CMO) at the department and obtained testimonial evidence from key DOD officials and defense experts. As part of this effort, we considered comments raised by several public and private sector officials during a forum sponsored by the Comptroller General in April 2007. The purpose of this forum was to discuss the merits of a CMO or chief operating officer concept. We also analyzed congressionally mandated CMO reports prepared by the Defense Business Board and the Institute for Defense Analyses and reviewed DOD’s response to the study prepared by the Institute for Defense Analyses.

We conducted our work from September 2006 through July 2007 in accordance with generally accepted government auditing standards.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

In addition to the contact named above, David Moser, Assistant Director; Thomas Beall; Renee Brown; Donna Byers; Grace Coleman; Gina Flacco; Barbara Lancaster; Julia Matta; and Suzanne Perkins made key contributions to this report.

Related GAO Products

DOD Business Systems Modernization: Progress Continues to Be Made in Establishing Corporate Management Controls, but Further Steps Are Needed. GAO-07-733. Washington, D.C.: May 14, 2007.

Business Systems Modernization: DOD Needs to Fully Define Policies and Procedures for Institutionally Managing Investments. GAO-07-538. Washington, D.C.: May 11, 2007.

DOD Transformation Challenges and Opportunities. GAO-07-500CG. Washington, D.C.: February 12, 2007.

Business Systems Modernization: Strategy for Evolving DOD’s Business Enterprise Architecture Offers a Conceptual Approach, but Execution Details Are Needed. GAO-07-451. Washington, D.C.: April 16, 2007.

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007.

Defense Business Transformation: A Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are Needed to Assure Success. GAO-07-229T. Washington, D.C.: November 16, 2006.

Department of Defense: Sustained Leadership Is Critical to Effective Financial and Business Management Transformation. GAO-06-1006T. Washington, D.C.: August 3, 2006.

Business Systems Modernization: DOD Continues to Improve Institutional Approach, but Further Steps Needed. GAO-06-658. Washington, D.C.: May 15, 2006.

GAO’S High-Risk Program. GAO-06-497T. Washington, D.C.: March 15, 2006.

Defense Management: Additional Actions Needed to Enhance DOD’s Risk-Based Approach for Making Resource Decisions. GAO-06-13. Washington, D.C.: November 15, 2005.

Defense Management: Foundational Steps Being Taken to Manage DOD Business Systems Modernization, but Much Remains to be Accomplished to Effect True Business Transformation. GAO-06-234T. Washington, D.C.: November 9, 2005. 21st Century Challenges: Transforming Government to Meet Current and Emerging Challenges. GAO-05-830T. Washington, D.C.: July 13, 2005.

DOD Business Transformation: Sustained Leadership Needed to Address Long-standing Financial and Business Management Problems. GAO-05-723T. Washington, D.C.: June 8, 2005.

Defense Management: Key Elements Needed to Successfully Transform DOD Business Operations. GAO-05-629T. Washington, D.C.: April 28, 2005.