FEATURE ARTICLE

March 2007

Army not always amenable to the ways of corporate America

By Sandra I. Erwin

It is a study in contrast that an Army that deploys the world’s most modern military force is governed by management rules and practices that no sane corporation would tolerate.

But the Army is not in business to make money, so why should it care about those things that obsess Corporate America, such as efficiency and productivity?

Many of the Army’s top leaders in fact are fretting about the way the service manages its resources. They confront an alarming financial situation that is caused by escalating war expenses, wasteful buying practices and costly plans to drastically expand the size of the force.

Commanders also must contend with the endemic inefficiencies and bureaucratic logjams that slow down the delivery of equipment and supplies. With military spending at an all time high, many officers wonder privately how it is possible that many units are woefully short of essential gear such as armored trucks. If the Army were a corporation, these “customer service” problems would be unacceptable.

About a year ago, a directive from Army Secretary Francis Harvey called for a “business transformation” in the service’s non-combat operations, such as procurement, logistics and facilities. If the Army could squeeze enough inefficiency and waste out of the system, Harvey reasoned, billions of dollars could be freed up for war-fighting.

In an institutionally recalcitrant Army, however, it could take years, or decades, to realize these goals.

“The Army is a 21st century fighting force but the business apparatus is still a mid-20th century apparatus in terms of organization,” says Michael A. Kirby, deputy undersecretary of the Army for business transformation.

Kirby, formerly a defense industry executive, is in charge of introducing modern management techniques to Army business operations that he describes as “antiquated.”

Harvey directed that the Army embrace the so-called “lean six-sigma” principles that allow managers to make data-driven decisions. The lean six-sigma movement began in the corporate world more than two decades ago as a way to optimize auto manufacturing. It then evolved as an initiative to improve quality control in the semiconductor industry.

“Six-sigma tries to make decisions based on facts,” Kirby says in an interview. The Army industrial depots, for example, have been quite successful at applying these techniques and, in the process, have lowered the costs of repairing military hardware, Kirby says.

But he concedes that the Army is confronting exceedingly complex problems that require more than corporate fix-it tools.

Frequent troop rotations in and out of Iraq demand a steady flow of new and refurbished equipment, as well as timely logistics support. On a daily basis, officials have to decide, for example, whether damaged or worn-out vehicles should be replaced or fixed. Or whether they should assign the repair work to a government depot, or outsource it to contractors.

Over time, says Kirby, the Army will become a “more sophisticated customer.” In most cases, there are no simple answers to politically complicated issues such as outsourcing. “I see us making rational decisions,” he says.

Managing contractors is another challenge for the Army, he says. Amid swirling allegations of contracting irregularities and war profiteering, the Army has to ensure it is properly overseeing its resources, Kirby says. “We are the original publicly held company that taxpayers own … We are trying to do our homework and clean up our own act so that decisions are not clouded by the noise level of antiquated business practices.”

With a backlog of equipment repairs rapidly growing, he notes, the Army is trying to curtail costs by having contractors compete with the Army’s own depots for a share of the work. “Industry has to make the value proposition much more explicit” than was the case in the past, Kirby says.

The procurement process, which the Defense Department has tried to reform for decades, remains a thorny issue. “It is number one on my list,” Kirby says. Foremost at fault is the way the Army generates and articulates weapon requirements. The process is “cumbersome and inefficient,” Kirby says. “Everyone agrees it’s a problem.”

Army Deputy Chief of Staff Lt. Gen. James Lovelace is heading a review panel to try to fix the bottlenecks in the system. “Everyone can point to some flaw in the requirements process,” says Kirby. The mandate from Lovelace is to produce “articulate logical solutions to generate capabilities,” he says. “It’s not rocket science, it’s management science.”

The Army in recent decades has been stung by ill-timed procurement decisions, such as the Crusader heavy artillery weapon and the Comanche helicopter. By the same token, it failed to predict the demand for items that it has sorely lacked in Iraq, such as armored humvees.

“Six sigma can’t fix that,” Kirby says. “But it can make the process more open, more discernable, and knock down the artificial barriers between peoples’ communications” within the Army.

For the Army, as well as for the other military services, predicting weapons requirements has been a constant challenge, says Steven Kosiak, a defense analyst at the Center for Strategic and Budgetary Assessments.

Managing procurement programs, which has been problematic even during peacetime, is becoming even more difficult now that the Army is at war, Kosiak says. “Financial management is a continuous problem at the Defense Department.”

As to whether business reform can bring about meaningful change, experts remain skeptical.

Despite a stream of continuing Army rhetoric about adopting business practices, “costs only go up, not down,” says Winslow Wheeler, a military expert at the Center for Defense Information. “They are continuing the typical behavior but calling it business practices,” he says.

The Army also has to do better at keeping track of its expenses, says the Government Accountability Office. William M. Solis, director of defense capabilities and management at GAO, writes in a report to Congress that the Army has yet to account for $38 billion appropriated for equipment repair and upgrade costs since 2002.

“The Army cannot track or report equipment reset expenditures in a way that confirms that funds appropriated for reset are expended for that purpose,” Solis tells lawmakers. “Based on our analysis, the Army’s reset tracking system does not provide sufficient detail to provide Congress with the visibility it needs to provide effective oversight.”

Daniel Goure, a senior defense analyst at the Lexington Institute, views the Army’s current management reforms — including the application of lean six-sigma — as a “smokescreen” that fundamentally does not solve anything.

“They are making much less progress than should be the case for all the effort they are putting out,” says Goure. “There has been a lot of noise about transformation, but not much to show for it.”

In the procurement arena, it will be tough to improve anything as long as the Army’s business sectors — acquisition, logistics, supplies — continue to be “balkanized” into fiefdoms that don’t necessarily cooperate or share information, he says. The Army Materiel Command is leading a sweeping effort to integrate the various stovepipes, but it’s uncertain whether it will achieve results. “AMC leaders have all the themes right, all the right arguments. But they face resistance in the trenches,” says Goure.

The Army’s business leaders also have failed at capturing innovations in the private sector that could help lower the cost of repairing and maintaining systems. Most of the contracts are awarded to large prime contractors, or “original equipment manufactures,” whose only real interest is to sell “more of the same,” he says. “As you increase competition for the parts and the support contracts, you create discipline for the OEMs.” The Army “makes it difficult for the niche players,” he adds. “The military keeps talking about taking the principles from business. But when it comes down to practice, they keep flinching.”

The war has created overwhelming procurement and logistics demands, Goure says. “Lean six sigma is a good thing. But it cannot fix this. That’s utter nonsense.”

To the Army’s credit, some “business transformation” efforts have paid off, such as the transfer of more than 15,000 personnel from the institutional part of the Army to the operational force, says Carl Conetta, co-director of the Project on Defense Alternatives. The Army had hoped for a larger number, Conetta says, but at least it is showing some progress.

Please email your comments to SErwin@ndia.org

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