Key Issues > High Risk > DOD Approach to Business Transformation
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DOD Approach to Business Transformation

The Department of Defense (DOD) should accurately track efficiencies gained and costs reduced as it transforms its business functions through a transition to shared services and other efficiency initiatives.

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DOD 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 weapon systems acquisition. Weaknesses in these areas adversely affect DOD’s efficiency and effectiveness, and render its operations vulnerable to waste, fraud, and abuse. DOD’s approach to transforming these business operations is linked to DOD’s ability to perform its overall mission, directly affecting the readiness and capabilities of U.S. military forces.

We added DOD’s overall approach to managing business transformation as a high-risk area in 2005 because DOD had not taken the necessary steps to achieve and sustain business reform on a broad, strategic, department-wide, and integrated basis. Further, DOD’s historical approach to business transformation has not proven effective in achieving meaningful and sustainable progress in a timely manner. Also, DOD did not have an integrated plan for business transformation with specific goals, measures, and accountability mechanisms to monitor progress and achieve improvements.

DOD Approach to Business Transformation

Since our 2017 High-Risk Report, DOD has met the action plan criteria. Ratings for the leadership commitment, monitoring, and demonstrated progress criteria are unchanged at partially met, and the rating for capacity declined to partially met.

Leadership commitment: partially met. In February 2017, the Secretary of Defense announced that DOD would undertake an effort to identify business services and tasks that no longer merit individual military department approaches. In January 2018, DOD issued its National Defense Strategy, which included reforming the department’s business practices for greater performance and affordability. DOD has taken steps to achieve efficiencies in its business services and to implement certain statutory requirements in the National Defense Authorization Acts (NDAA) for Fiscal Years 2017 through 2019. However, as we discuss in more detail below, the structure and processes and the involvement of a key leader on DOD’s Reform Management Group (RMG) have changed and remain unclear. Additionally, with the resignation of the Chief Management Officer (CMO), the Deputy Chief Management Officer (DCMO) assumed the role of the Acting CMO in December 2018. Given the importance of the CMO to achieving business reform, these developments raise concerns about the extent to which the department will be successful in its approach to business transformation.

Congress included a provision in the National Defense Authorization Act for Fiscal Year 2018 to create a CMO position that is distinct from the Deputy Secretary of Defense, eliminated the position of DCMO and provides a number of key responsibilities set forth in section 132a of title 10 of the U.S. Code. In February 2018, the Secretary of Defense implemented the statutory provision to establish the CMO position and disestablished the position of DCMO. Among other responsibilities, the CMO is responsible for (1) managing DOD’s enterprise business operations and shared services and (2) directing the secretaries of the military departments, and the defense agencies and field activities (DAFAs) that provide shared business services for the department or with regard to other matters for which the CMO is responsible.

In February 2017, the Secretary of Defense also issued a memorandum tasking the Deputy Secretary of Defense with leading an effort to identify business services and tasks that no longer merit individual military department approaches. In May 2018, DOD issued its National Defense Business Operations Plan, outlining the department's strategic goals and objectives for improving performance and reforming business operations.

These actions demonstrate a leadership commitment to business transformation. However, it will be important for the department to sustain its focus on this effort at the highest levels. In April 2005, we testified on the importance of a full-time leadership position at the right level dedicated to the planning, integration, and execution of business transformation efforts. The longer this critical position is filled by someone in an acting capacity, the greater the risk that DOD’s transformation efforts could be impacted.

Capacity: partially met. We have downgraded the capacity criterion from met in 2017 to partially met in 2019. In 2017, we reported that the DCMO had taken several steps to improve its capacity to monitor DOD’s business transformation efforts, including conducting a business process and systems review. However, with the planned establishment of the CMO position in February 2018, we reported that it would be critical that the Office of the CMO (OCMO) have the personnel and other resources needed to fulfill its significant responsibilities. While DOD has since established the OCMO and taken some steps to build its capacity, such as hiring a new Chief Data Officer and establishing plans to restructure the OCMO around its enhanced responsibilities, the OCMO may not yet have the capacity to perform certain key functions. For example, section 921 of the John S. McCain NDAA for Fiscal Year 2019 requires the CMO to review the budgets of certain defense agencies and field activities, beginning in fiscal year 2020. OCMO officials told us they are working to develop a process for this review and to determine which DAFAs would be subject to the review. Until the OCMO has developed the process and determined how many DAFA budgets the review will include, it will not know what, if any, resource implications this requirement has for the office.

Data show that DOD’s budget request for OCMO has declined from fiscal year 2017 to fiscal year 2019. At the same time, the CMO’s authorities and responsibilities have expanded. For example, the NDAA for Fiscal Year 2018 assigns the CMO the responsibility to serve as DOD’s Chief Information Officer for defense business systems. According to OCMO officials, DOD is still determining which responsibilities, if any, will transfer from the CIO to the CMO and what the resource implications of that transfer will be. Moving forward, we will closely monitor the OCMO’s ability to assume these and other responsibilities.

Additionally, DOD established nine reform teams, led by senior-level functional officials throughout the department who are charged with identifying and implementing initiatives to consolidate the department’s business operations. Our recent work indicates that some reform teams have encountered challenges that could impede their progress. For example, as we reported in January 2019, the OCMO did not request funding for reform team initiatives, and reform teams reported that they lack funding needed to implement some of their initiatives. OCMO officials told us that the teams submitted nine requests for funding in fiscal year 2018, but OCMO did not have funding to support four of these requests as of the end of fiscal year 2018.

Reform team membership relies on the military services’ and DAFAs’ continued willingness to provide members for each of the teams. Further, DOD senior leaders told us they plan to move many of the teams out of the OCMO to the components responsible for the functions they are trying to reform. This development raises questions about whether the teams will be fully empowered and sufficiently independent to drive change. We will continue to closely monitor development of the OCMO and progress of the reform teams to assess the extent to which they have the capacity to achieve their goals.

Action plan: met. In our February 2017 High-Risk Report, we stated, among other things, that DOD should refine its performance action plan or develop a corrective action plan that identifies the processes, systems, personnel, and other resources needed to implement reform initiatives. As previously stated, in May 2018, DOD issued its National Defense Business Operations Plan. This plan establishes a strategic goal of reforming the department’s business practices for greater performance and affordability. The strategic objectives supporting that goal are to: (1) improve and strengthen business operations through a move to DOD-enterprise or shared services, and reduce administrative and regulatory burden; (2) optimize organizational structures; and (3) undergo an audit and improve the quality of budgetary and financial information. As a result of these actions, the rating for the action plan criteria for this high-risk area has improved from partially met in 2017 to met.

DOD’s Fiscal Year 2019 DOD Annual Performance Plan identifies performance goals and measures to achieve the strategic goals and objectives described in the National Defense Business Operations Plan, including the goal of reforming the department’s business practices. The Performance Plan designates several business reform team leaders as responsible for meeting performance goals and measures. For example, the leader of the Information Technology and Business Systems Reform Team is responsible for transforming how the department delivers secure, stable, and resilient information technology infrastructure in support of warfighter lethality. This goal is consistent with the team’s overarching objective to plan and execute the transformation of all business systems affecting support areas within the department. Moving forward, it will be important for DOD to demonstrate that it is using its National Defense Business Operations Plan to guide its reform efforts.

Monitoring: partially met. According to officials, DOD established a Reform Management Group (RMG) in summer 2017; it was initially chaired by the Deputy Secretary of Defense and co-chaired by the CMO and the Director of Cost Assessment and Program Evaluation (CAPE), to identify opportunities for reform and provide support to the nine reform teams. The RMG was intended to (1) provide oversight and guidance, (2) make decisions on reform team recommendations, and (3) monitor the reform teams’ progress. However, according to officials, the structure and processes of the group have changed over time and remain unclear. For example, in October 2018, the Director of CAPE told us, and a senior OCMO official later confirmed, he was no longer co-chairing the group.

In addition, OCMO officials are considering whether the RMG should meet bi-weekly rather than weekly; and whether teams should meet with the RMG only when a team is chartered and when it briefs the proposed solution for its initiatives, rather than throughout implementation as has been the case. It is unclear at this point what effect these and other changes may have on oversight of the teams’ progress. DOD has also developed a dashboard containing project milestones and metrics for monitoring reform team progress. Although not completely populated in September 2018, when we received a demonstration, the dashboard will indicate whether each of the initiative’s project milestones and metrics are on track.

While these steps demonstrate progress in the area of monitoring, we remain concerned that the department has not clearly established reliable baselines for measuring progress and verifying cost savings estimates. In July 2017, we reported that DOD did not have a reliable estimate to support the cost savings it had identified for its past efficiency initiatives. As recently as May 2018, DOD provided a progress report to Congress on past efficiencies that included inconsistent documentation, raising questions about the accuracy of its prior cost savings estimates. According to the John S. McCain NDAA for Fiscal Year 2019, the CMO is required, by not later than January 2020, to develop a baseline of costs to perform certain business activities, such as real estate management. We will be reviewing this baseline to assess the extent to which it includes all elements required under the NDAA and helps DOD track cost reductions effectively.

DOD is also working to develop a cost management framework to estimate cost savings for its reform efforts, but it is unclear what effect this framework will have on improving the accuracy of the department’s future cost savings estimates. Without a reliable cost estimate that includes a cost baseline, DOD will be unable to determine and accurately report actual savings achieved from its reform efforts. For example, we reported in July 2017 that DOD’s projected cost savings estimates were unreliable because DOD-provided documentation, when compared with best practices for cost estimates, was not sufficiently detailed to support the estimates.

Demonstrated progress: partially met. As noted above, DOD established nine reform teams aligned to its functional lines of business in February 2017 to achieve its goal of reforming business practices for greater performance and affordability. These include functional lines such as financial management, supply chain and logistics, human resources, and information technology and business systems. Each of these reform teams is to implement initiatives in its respective line of business that will transform some aspect of the department’s business operations and free up resources to reinvest in warfighter priorities.

However, it remains to be seen how effective these reform teams, or the other reform initiatives in the department, will be. Notably, DOD has not met many of its internal goals and milestones for business operation reform, and the absence of a clear process for identifying and prioritizing available funding for reform teams may impede their progress. In November 2018, CMO officials told us they planned on narrowing the scope of reform efforts to focus on four areas: 1) fourth estate, or those organizations other than the military departments or combatant commands, such as the Office of the Secretary of Defense, the Joint Staff, the defense agencies, and DOD field activities; 2) information technology; 3) health care; and 4) DOD’s approach to buying goods and services more efficiently and cost effectively, called category management. This reduction in scope raises questions about the extent to which enterprise reform will be made in the areas that were deemphasized, such as human resources.

Since we added this area to our High-Risk List, we have made numerous recommendations related to this high-risk issue, including 9 since the last high-risk update in February 2017. As of December 2018, all 9 remain open.

In order to make progress in its approach to business transformation, DOD should:

  • provide department-wide guidance on the CMO’s roles, responsibilities, and authorities; implement and communicate a process for providing resources to the reform teams, including funding to implement reform initiatives, as needed;
  • demonstrate that the National Defense Business Operations Plan is being used and updated, as needed, to guide reform efforts;
  • ensure that the Reform Management Group continues to monitor and oversee reform team progress;
  • fully populate and actively use the dashboard and the associated milestones and metrics to gauge team success in identifying and achieving efficiencies and cost savings;
  • establish the cost baseline required by section 921 of the John S. McCain NDAA for Fiscal Year 2019 and use it to accurately estimate savings anticipated within the business functions covered under the NDAA;
  • develop additional cost baselines, modeled on the baseline created in accordance with the NDAA for Fiscal Year 2019, to accurately track actual savings resulting from implementation of reform initiatives in additional business functions, such as health care management;
  • effectively consolidate key business functions in the department and show cost savings from the consolidation; and
  • demonstrate progress in implementing reform efforts outlined in the National Defense Business Operations Plan, including those not covered by the reform teams.
Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.
  • portrait of Elizabeth Field
    • Elizabeth Field
    • Acting Director, Defense Capabilities and Management
    • (202) 512-2775