DOD is one of the largest and most complex organizations in the world. Overhauling its business operations will take years to accomplish and represents a huge management challenge. Execution of DOD’s operations spans a wide range of defense organizations, including the military services and their respective major commands and functional activities, numerous large defense agencies and field activities, and various combatant and joint operational commands that are responsible for military operations for specific geographic regions or theaters of operation. To support DOD’s operations, the department performs an assortment of interrelated and interdependent business functions—using more than 3,700 business systems—related to major business areas such as weapon systems management, supply chain management, procurement, health care management, and financial management. The ability of these systems to operate as intended affects the lives of our warfighters both on and off the battlefield. For fiscal year 2006, Congress appropriated approximately $16 billion to DOD, and for fiscal year 2007, DOD has requested another $16 billion in appropriated funds to operate, maintain, and modernize these business systems. Transformation of DOD’s business systems and operations is key to improving the department’s ability to provide DOD management and Congress with accurate, timely, reliable, and useful information for analysis, oversight, and decision making. This effort is an essential part of the Secretary of Defense’s broad initiative to “transform the way the department works and what it works on.” The savings resulting from an effective business transformation effort could be significant. The Secretary himself estimated that the department could save 5 percent of its annual budget, which for fiscal year 2006 would have been about $21 billion, through effective business transformation. Until DOD can successfully transform its operations, it will continue to confront the pervasive, decades-old management problems that cut across all of DOD’s major business areas. During the past year DOD has embarked on a series of efforts to transform its business operations, including issuing an enterprise transition plan for implementing its business enterprise architecture. In addition, in February 2005, DOD chartered the Defense Business Systems Management Committee (DBSMC) to oversee transformation and ensure it meets the needs and priorities of the warfighter. As the senior most governing body overseeing business transformation, the DBSMC is comprised of senior leaders who meet monthly under the personal direction of the Deputy Secretary of Defense to set business transformation priorities and recommend policies and procedures required to attain DOD-wide interoperability of business systems and processes. In October 2005, DOD also established a Business Transformation Agency (BTA) intended to advance defense-wide business transformation efforts in general but particularly with regard to business systems modernization. DOD believes it can better address managing defense-wide business transformation— which includes planning, management, organizational structures and processes related to all key business areas—by first transforming business operations that support the warfighter while also enabling financial accountability across DOD. The BTA reports directly to the vice chair of the DBSMC—the Under Secretary of Defense for Acquisition, Technology and Logistics—and includes an acquisition executive who is responsible for 28 DOD-wide business projects, programs, systems, and initiatives. The BTA is responsible for integrating and supporting the work of the Office of the Secretary of Defense principal staff assistants, who include the approval authorities that chair the business system investment review boards (IRB). While DOD has developed plans that address certain high-risk areas related to business transformation, and is taking other steps to guide and lead transformation efforts, I believe that the department still lacks several key elements that are needed to ensure a successful and sustainable business transformation effort. First, these efforts must include a comprehensive, integrated, and enterprisewide business transformation plan. Second, a chief management official with the right skills and at the right level of the department is essential for providing the sustained leadership needed to achieve a successful and sustainable transformation effort. Although some progress has been made in business transformation planning, DOD still has not developed a comprehensive, integrated, and enterprisewide strategy or action plan for managing its overall business transformation effort. The lack of a comprehensive, integrated, and enterprisewide action plan linked with performance goals, objectives, and rewards has been a continuing weakness in DOD’s business management transformation. DOD’s efforts to plan and organize itself to achieve business transformation are continuing to evolve. Critical to the success of these efforts will be top management attention and structures that focus on transformation from a broad perspective and a clear, comprehensive, integrated and enterprisewide plan that, at a summary level, addresses all of the department’s major business areas. This strategic 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; identify people with needed skills, knowledge, experience, responsibility, and authority to implement the plan; and establish an effective process and related tools for implementation. Such an integrated business transformation plan would be instrumental in establishing investment priorities and guiding the department’s key resource decisions. While DOD has not yet developed a comprehensive, integrated, enterprisewide business transformation plan, its leaders have recognized the need to transform its business operations. In September 2005, DOD issued a business enterprise architecture and an enterprise transition plan for modernizing its business processes and supporting information technology assets. The business enterprise architecture provides a foundational blueprint for modernizing business operations, information, and systems, while the enterprise transition plan provides a roadmap and management tool that sequences business system investments in the areas of personnel, logistics, real property, acquisition, purchasing, and financial requirements. However, the enterprise transition plan does not go far enough to constitute a strategic plan for the overall business transformation efforts since it is more focused on business systems. Business transformation is much broader and encompasses not only the supporting systems, but also the planning, management, organizational structures, processes, and accountability mechanisms related to all of DOD’s major business areas. Such areas include support infrastructure management, human capital management, financial management, planning and budgeting, and supply chain management. DOD officials acknowledge that the enterprise transition plan may not have all of the elements of an overarching business transformation plan as we envision it. However, they consider the business enterprise plan to be an evolving plan. DOD’s key strategic documents also highlight the need for business transformation. For example, the National Defense Strategy issued in March 2005 and the February 2006 Quadrennial Defense Review both state that DOD must transform the way the department works and what it works on, including its capabilities for defending the nation by revolutionizing management, technology, and business practices to support the needs of the combatant commanders. Nevertheless, these are high level documents that do not contain supporting details such as key metrics, milestones, and mechanisms to guide and direct business transformation efforts. Further, the QDR and other DOD planning documents do not address the ongoing gap between wants, needs, affordability, and sustainability in what is likely to be a resource constrained environment. While DOD has established leadership and oversight mechanisms to address transformation, DOD lacks the sustained leadership at the right level needed to achieve successful and lasting transformation. Due to the complexity and long-term nature of DOD’s business transformation efforts, we continue to believe DOD needs a chief management officer (CMO) to provide sustained leadership and maintain momentum. Without formally designating responsibility and accountability for results, choosing among competing demands for scarce resources and resolving differences in priorities between various DOD organizations will be difficult and could impede DOD’s ability to transform in an efficient, effective, and reasonably timely manner. In addition, it may be particularly difficult for DOD to sustain transformation progress when key personnel changes occur. The CMO would serve as the Deputy Secretary of Defense or Principal Under Secretary for Management and as the strategic integrator for DOD’s overall business transformation effort. This position would elevate, integrate, and institutionalize the attention essential for addressing key stewardship responsibilities, such as strategic planning, enterprise architecture development and implementation, information technology management, and financial management, while facilitating the overall business management transformation effort within DOD. I would also like to articulate what this position would not do. The CMO would not assume the responsibilities of the undersecretaries of defense, the service secretaries, or other DOD officials for the day-to-day management of the department. Instead, the CMO would be responsible and accountable for planning, integrating, and executing the overall business transformation effort. The CMO also would develop and implement a strategic plan for the overall business transformation. I understand that DOD has been legislatively mandated to study the feasibility of a chief management official position in DOD. It is also my understanding that the Defense Business Board has recommended the creation of a Principal Under Secretary of Defense to serve as a CMO. The Secretary of Defense, Deputy Secretary of Defense, and other senior leaders have clearly shown a commitment to business transformation and addressing deficiencies in the department’s business operations. During the past year, DOD has taken additional steps to address certain provisions and requirements of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, including establishing the DBSMC as DOD’s primary transformation leadership and oversight mechanism, and creating the Business Transformation Agency (BTA) to support the DBSMC, a decision making body. However, these organizations do not provide the sustained leadership needed to successfully achieve business transformation. The DBSMC’s representatives consist of political appointees whose terms expire when administrations change. Furthermore, it is important to remember that committees do not lead, people do. Thus, DOD still needs to designate a person to provide sustained leadership and have overall responsibility and accountability for this effort.