Transforming Public-Private Enterprises: Defense

National defense, and acquisition of weapon systems in particular, has long been a target of transformation.  The Packard Commission in 1985 provided a very reasonable set of recommendations for reforming defense acquisition processes.  These recommendations resulted in relatively minor changes.  Blue ribbon committees both before and after the Packard Commission had comparably minor impacts.

President Dwight Eisenhower highlighted the notion of a military-industrial complex in his farewell speech in January of 1961.  He cautioned that the often-cozy relationship between government and defense contractors could result in priorities that were less aligned with the nation’s defense than with the particular interests of the agencies, services, and companies involved.  Fifty years later, this perspective remains relevant.

The acquisition of weapon systems is an enormously complicated organizational process.  A few years ago, we focused on the acquisition of ships.  We learned that if the shipyards could produce ships instantaneously, it would take three years to get one.  The process of buying ships is so complicated that three years are consumed, on average, by the procedures and paperwork associated with acquiring a ship.

The problem, not surprisingly, is that all the various elements of the ship buying process has stakeholders who feel entitled to their roles in the process.  Streamlining the acquisition process would eliminate large numbers of jobs and many companies whose business models were designed to take advantage of how the acquisition system operates now.  Changing the acquisition system would obsolete many business models.  The owners of these business models will not go quietly.

There are also information issues.  There is a lack of transparency of how the system operates, what activities occur when, and how money flows accordingly.  It is very difficult, perhaps impossible, to improve a system when you cannot determine how it is currently operating.

A couple of years ago, I had a series of discussion with a senior defense official focused on what information I could get to employ with the economic models we were developing.  I commented that DoD seemed to collect and archive information on virtually everything, so they should easily be able to provide the information I was seeking.  He said, “You are assuming we have a financial management system.  We do not.  You are assuming we have a cost accounting system.  We do not.  All we have is a checkbook and, usually, we know who we write checks to.”

Finally, of course, there are issues of incentives.  Millions of people are buttering their bread because of how the acquisition system works now.  Thousands of companies were explicitly designed to succeed in the current system.  Hundreds of members of Congress see as their role the securing of as large a portion as possible of the jobs and money associated with the current system.  The incentives are overwhelmingly aligned with preserving the status quo.

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