Faced with decreasing budgets and changing or resurging threats, governments must reform and modernize defense forces while preserving their military readiness. At the same time, leaders must bolster homeland security by improving the organizational effectiveness and efficiency of supporting functions like justice, immigration, border protection, and intelligence—which themselves are facing new challenges and budgetary restraints. Is there an answer to these challenges?
How do you cut costs sustainably and still retain and grow functional capabilities and strength? It is difficult, both politically and administratively. But it can be achieved through a disciplined, value-based transformation that considers both short-term challenges and long-term consequences.
Critically, governments must also address their existing acquisition practices and reform them so that timelines are more responsive; acquisition leaders are better trained in private sector and public sector best practices for managing large programs, reducing costs, and procuring goods and services; and program managers are more incentivized with positive rewards for success.
With this approach, defense and supporting agencies will be able to meet their immediate fiscal challenges, improve returns on investments over time, identify and manage future risks—and strengthen their capabilities, now and in the future.
Joe Davis, a BCG senior partner and managing director for working in the Public Sector practice, spoke with Flournoy about her experiences driving change in the US Department of Defense (DoD). Here is a summary of that conversation; you can also listen to the full interview.
Q: How did the Budget Control Act of 2011 affect the DoD and your role as Undersecretary of Defense for Policy?
A: This legislation required DoD to cut $487 billion over ten years—obviously a big cut. . . In this case, the president asked, “How do we manage this reduction of resources while still sustaining US leadership in the world?” We had to determine what our priorities were and how we would manage risk.
Q: How did you involve DoD stakeholders in this process?
A: One of the principles we followed was that if someone was responsible for a major aspect of implementation, they should be at the table in the development of the strategy. So the president asked for all of the combatant commanders and service chiefs who drive a lot of the military’s direction to meet with him, almost as a corporate board of directors. Together, they decided how the department would operate during a time of change and reduced resources.
Q: How did you ensure that the new strategy was reflected in the budget?
A: When we went back to the department to translate those priorities into the actual budget, it was easy to hold people to account because they were in the room when the strategy was decided. When we got to hard decisions, we could ask, “If you’re going by the strategy, would you keep this thing or cut it or delay it?” I think as a result, the budget was very much in alignment with the strategy, which is unfortunately rare in government.
Q: How did you determine the balance between new priorities and traditional military capabilities?
A: We’re bad at predicting the future, so we need a force that’s very agile. The future direction of warfare . . . is taking us into cyberspace . . . and into areas where Special Operations forces will be more important and where we need to rely more on intelligence, surveillance, and reconnaissance, as well as on unmanned vehicles and automation. You can try to protect and strengthen investment in those areas, even as you have to tighten belts in other areas.
Q: You also led a human capital transformation. Can you tell us a little bit about that?
A: When I came into government, my people were really my only asset. Yet no one was investing in their professional development. . . . We started a human capital strategy that clarified the values and priorities for the organization and had a very clear leadership model. We did 360-degree reviews of every leader, starting with me, and then these cascaded down through the organization. We used feedback tools, regular surveys, focus groups, town halls, plus surprise walk-arounds.
Q: What were the results?
A: It created an internal conversation about how to work better together, and it led to very noticeable increases in performance. … Most importantly, it led to some significant changes in the way we worked. We instituted an alternative work schedule, which included flextime, “flexplace,” and predictable compensation for extra hours worked. People said it couldn’t be done in government when you’re managing crises 24/7. So we made the two busiest offices the pilots. We knew if we could do it there, we could do it anywhere.
Q: What are some of the most important leadership lessons that you’ve learned?
A: One is to be very clear about your vision and where you’re trying to take the organization. … You also need to set some very clear expectations about values, roles and responsibilities, and decision rights and processes. . . . Empower people, then hold them accountable. Make sure there’s feedback and a way to measure whether progress. Investing in people, giving them feedback, and caring about their professional development goes a long way, and you get tremendous performance in return.