DTIC ADA487493: And the Survey Says...The Effectiveness of DOD Outsourcing and Privatization Efforts

15 Pages·0.14 MB·English

by  Defense Technical Information Center

And the Survey Says… The EffectivenReEssS EofA DRoCDH Outsourcing and Privatization Efforts
AND THE SURVEY SAYS…
THE EFFECTIVENESS OF
DOD OUTSOURCING AND
PRIVATIZATION EFFORTS
Lt Col Warren M. Anderson, USAF,
LTC John J. McGuiness, USA, and
CDR John S. Spicer, USN
The Department of Defense (DoD) is implementing a Revolution in Business
Affairs (RBA) with the purpose of freeing resources for the Revolution in Military
Affairs (RMA). The goal of the RBA is to transform how DoD conducts business.
As part of this RBA, DoD has undertaken outsourcing studies using the Office
of Management and Budget (OMB) Circular A-76 and related initiatives. The
objective of these initiatives is to generate the cost savings needed to fuel the
RMA. Initial results have fallen short; clearly there are challenges facing DoD in
the attainment of its goals.
“We must put strategy first, then spending.
Our defense vision will drive our defense budget,
not the other way around.”
— President George W. Bush
A
s the 2000–2001 Defense Acquisi- research efforts and exposure to the for-
tion University Military Research mulation and execution of business strate-
Fellows, we were provided a re- gies while attending a Harvard Business
search topic, “Effectiveness of DoD’s School executive education program led
Implementation of Outsourcing, Privati- us to focus on the over-arching business
zation, and Commercial Acquisition Prac- strategy of a corporation.
tices.” This topic was indeed broad. We The more we studied this topic, the more
considered several narrow areas upon we were intrigued and the more parallels
which to concentrate. However, our early we were able to draw between the corpo-
91
Report Documentation Page Form Approved
OMB No. 0704-0188
Public reporting burden for the collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington
VA 22202-4302. Respondents should be aware that notwithstanding any other provision of law, no person shall be subject to a penalty for failing to comply with a collection of information if it

does not display a currently valid OMB control number.
1. REPORT DATE 3. DATES COVERED
2002 2. REPORT TYPE 00-00-2002 to 00-00-2002
4. TITLE AND SUBTITLE 5a. CONTRACT NUMBER
And the Survey Says...The Effectiveness of DOD Outsourcing and
5b. GRANT NUMBER
Privatization Efforts
5c. PROGRAM ELEMENT NUMBER
6. AUTHOR(S) 5d. PROJECT NUMBER
5e. TASK NUMBER
5f. WORK UNIT NUMBER
7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 8. PERFORMING ORGANIZATION
Ballistic Missile Defense Organization,Washington,DC,20301 REPORT NUMBER
9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSOR/MONITOR’S ACRONYM(S)
11. SPONSOR/MONITOR’S REPORT
NUMBER(S)
12. DISTRIBUTION/AVAILABILITY STATEMENT
Approved for public release; distribution unlimited
13. SUPPLEMENTARY NOTES
Acquisition Review Quarterly, Spring 2002
14. ABSTRACT

15. SUBJECT TERMS
16. SECURITY CLASSIFICATION OF: 17. LIMITATION OF 18. NUMBER 19a. NAME OF
ABSTRACT OF PAGES RESPONSIBLE PERSON
a. REPORT b. ABSTRACT c. THIS PAGE Same as 14
unclassified unclassified unclassified Report (SAR)
Standard Form 298 (Rev. 8-98)
Prescribed by ANSI Std Z39-18
Acquisition Review Quarterly — Spring 2002
rate world and business functions within Unlike discretionary spending, these
the Department of Defense (DoD). The accounts are not part of the annual Con-
application of business strategy method- gressional appropriations process. These
ologies represented a valuable analytical accounts pay automatically and their
tool with which DoD could examine some growth is squeezing discretionary accounts,
of the vexing problems it now faces to in- such as defense accounts, that are sub-
clude outsourcing and privatization. ject to annual appropriations. In 1965, dis-
In addition to the examination of cur- cretionary spending accounted for 35 per-
rent business literature, we developed and cent of federal outlays. By 1990, it had
administered a survey to a sample of DoD risen to 60 percent of federal outlays
personnel. This was done in order to gauge (Ippolito, 1994). This figure is projected to
attitudes and impressions of current out- reach 63 percent in 2000 and rise to 74
sourcing initiatives. We did this because percent by 2010 (Congressional Budget
we could find no evidence that anyone had Office, 2000). Despite funding supple-
attempted to gather such feedback on a mentals, federal agencies will continue to
Department-wide basis. The results were fight for a dwindling slice of discretionary
quite striking. dollars and, as the slice of defense spend-
This article goes through our initial find- ing declines, the battle then carries over to
ings, research hypothesis and approach an internal struggle within DoD.
spurred by these early findings, the subse- The effects of monetary and contin-
quent survey methodology, and the signifi- gency pressures are becoming apparent
cant results drawn from the survey re- in terms of aging equipment and increas-
sponses. The final report, “From Chaos to ing maintenance costs. This phenomenon
Clarity: How Cost-Based Strategies are is so prevalent throughout DoD it has be-
Undermining the Department of Defense,” come known as the “death spiral.” Clearly,
is available online at http://www.dsmc. future defense readiness will continue to
dau.mil/pubs/misc/clarity.htm. decline as long as modernization dollars
are limited and equipment continues to age,
requiring increased maintenance (see Fig-
INITIAL FINDINGS ure 1). More resources are required, yet
increases in top line defense spending are
During our initial interviews and litera- neither likely nor sufficient.
ture research it became quite apparent that Change is imperative and DoD senior
the strategy behind the Office of Manage- officials see outsourcing as a means to-
ment and Budget (OMB) A-76 and stra- ward cost savings to fuel the moderniza-
tegic sourcing initiatives is cost-savings in tion. This cost-based strategy appeared
response to limited resources stemming reasonable on the surface, so we began to
from dramatic increases in non-discretion- review the business landscape to deter-
ary spending. This category of spending mine how the commercial sector is using
includes entitlement programs such as outsourcing.
Medicare, social welfare programs, and The business world is rapidly increas-
payment on the national debt. ing its use of outsourcing. This increase is
driven by the expanding demands of the
92
And the Survey Says… The Effectiveness of DoD Outsourcing and Privatization Efforts
Figure 1. Readiness Death Spiral
evolving Information Economy. Accord- activities to ever reach this level of annual
ing to the most recent Dun & Bradstreet expenditure” (p.1). In fact, global
(2000) Barometer of Global Outsourcing outsourcing has nearly doubled in the past
report, outsourcing expenditures would three years, growing at an average of 25
surpass the $1 trillion mark at the end of percent a year (see Figure 2).
2000, becoming “one of the few business
Figure 2. Global Outsourcing Growth
93
Acquisition Review Quarterly — Spring 2002
Yet, the reason for this explosive growth That vision of where you want the busi-
goes much further than cost savings. The ness to be is then captured within a busi-
growth is fueled by the real potential of a ness strategy that seizes upon the unique
complete transformation of the business. resources from which a firm or organiza-
The commercial sector has realized the tion obtains and retains its competitive ad-
question is not about “how to do things vantage. According to Peter Drucker
more efficiently.” Outsourcing has become (2001), strategy converts the firm’s theory
a powerful management tool that forces of the business into performance. Given
one to reconsider “what to do.” The com- that DoD has initiated an RBA to trans-
mercial sector’s experience with out- form the way DoD conducts business, we
sourcing over the past 10 years has shown felt the critical research questions are:
that it has evolved to the point that it can
fundamentally redefine a business — (cid:127) What is the right business strategy for
DoD?
(cid:127) What the business is,
(cid:127) How should DoD pursue outsourcing
(cid:127) What its objectives are, given that strategy?
(cid:127) How it defines results,
RESEARCH HYPOTHESIS AND APPROACH
(cid:127) Who its customers are, and
From these questions, we developed our
(cid:127) What the customers value and pay for hypothesis and approach for tackling the
(Drucker, 2001). research topic. The purpose of the study
was to provide an analytical framework
The decision on which outsourcing strat- for examining DoD from a corporate
egy to pursue is dependent on the firm’s perspective. With that corporate frame-
vision of where it wants to be positioned work, we hypothesized that an outsourcing
in the future. Whether you seek approach could be developed consistent
efficiencies, more focus onto the core busi- with a DoD corporate strategy, benefiting
ness, or whether you want to change the DoD across the spectrum of DoD-wide,
business altogether (see Figure 3). regional, and base level activities. We then
Strategy Objective
Tactical Seeking efficiency
Outsourcing
Strategic Seeking focus
Transformation Seeking change
Figure 3. Outsourcing Objectives
94
And the Survey Says… The Effectiveness of DoD Outsourcing and Privatization Efforts
tested the hypothesis by answering these Practices study conducted by Pretium
questions: Partners, Inc. (2000) in partnership with
the Fisher College of Business at The Ohio
(cid:127) Does transformation urgency exist? State University and Michael F. Corbett
& Associates. The Pretium study focused
(cid:127) Do DoD outsourcing initiatives align on determining and understanding the fac-
with DoD’s business strategy? tors involved in justifying outsourcing de-
cisions, including the tangible and intan-
(cid:127) Has the A-76 process generated the gible benefits of outsourcing. The study sur-
results expected? veyed a random sampling of U.S. and Ca-
nadian compa-
(cid:127) Have Strategic Sourcing initiatives nies with $1 bil-
generated the results expected? lion or more in “The Pretium
study focused on
annual revenue.
determining and
(cid:127) Have shortfalls resulted from execution More than 60
understanding the
problems or are they strategy related? companies re-
factors involved
sponded with
in justifying
(cid:127) What are the benefits of a new corpo- detailed informa-
outsourcing
rate strategy approach? tion. Our out- decisions….”
sourcing survey
(cid:127) Can such an approach be implemented? was modeled af-
ter this study in order to facilitate a
Of course, the answers to these ques- comparison of the results.
tions would come from literature searches, The survey was sent to over 1,300 mem-
interviews with leading DoD and commer- bers in the Department of the Air Force,
cial outsourcing experts, and DoD and Department of the Army, Defense Logis-
commercial outsourcing participants. tics Agency (DLA), and Department of
However, we soon came to realize no one the Navy. We received over 230 re-
in DoD had conducted a survey of DoD sponses, about an 18 percent response
outsourcing participants. We knew that this rate. For the Air Force and Army, the sur-
information was vital to answering the first vey was sent to personnel that are or may
two questions: “Does a transformation ur- be involved in outsourcing initiatives. In the
gency exist?” and “Do DoD outsourcing Air Force, the survey was sent to the A-
initiatives align with DoD’s business strat- 76 Commercial Activity program manag-
egy?” Fortunately for us, we were able to ers and to Air Force base and group com-
find commercial outsourcing surveys from manders. Likewise, all garrison and deputy
which to author a meaningful DoD survey. garrison commanders in the Army were
specifically targeted.
On the other hand, a completely random
SURVEY METHODOLOGY sampling was taken from the DLA and
Department of the Navy, using the DLA e-
The survey instrument was designed mail directory and Navy/Marine Corps
based on the Outsourcing Justification White Pages, respectively. Although
95
Acquisition Review Quarterly — Spring 2002
random, command billets were targeted in 111 respondents that identified themselves
the Navy and Marine Corps. By targeting as being in a command position, the per-
command and supervisory positions, we centage responding “yes” to this question
were aiming at determining whether the rose to 91 percent. Using this figure as a
sense of urgency had reached mid-level benchmark, it seems clear that the stage
managers sufficiently to effect change and is set for a transformation in the way DoD
whether the linkages between DoD corpo- operates its business functions.
rate strategy and lower-level strategies
existed. THE BAD
Yet, the survey responses suggested
DoD might not harness this sense of
SURVEY FINDINGS:
urgency since coalition is perhaps lacking.
“THE GOOD, THE BAD, AND THE UGLY” In Leading Change, John Kotter (1996)
points out that one of the reasons firms’
THE GOOD fail is they do not create a sufficiently pow-
In his book, John P. Kotter on What erful guiding coalition. Successful firms set
Leaders Really Do, Kotter (1999) exam- a vision, captured in the firm’s corporate
ines the role of leadership in bringing about strategy, that becomes the guidepost for
successful change in an organization. He transformation.
lists some common mistakes made by se- The corporate strategy of DoD is found
nior leaders that prevent an organization in Appendix I of the 2001 Annual Defense
from transforming. Error number one is Report (DoD, 2001). Sixty-four percent
not establishing a great enough sense of of the 232 survey respondents and 66
urgency. Based on his research, Kotter percent of the 111 commanders surveyed
believes the urgency rate is sufficient to regarding DoD corporate strategy have not
effect change read it. If key personnel within DoD, who
when about 75 are critical to successful change, have not
“The sample
percent of an even read that strategy, it is not possible to
consisted of 240
organization’s achieve coordination or instill commitment.
contracts identified
management is
with the necessary
data to test the convinced that THE UGLY
four hypotheses.” “business-as- Furthermore, if the change vehicle is the
usual is totally A-76 process or strategic sourcing, these
unacceptable” data indicate no coalition is possible, at least
(1999, p. 79). no majority coalition. Fifty-three percent
Based on our survey results, there is a of the survey respondents disagreed or
strong sense that transformation does strongly disagreed DoD was headed in the
need to occur and that business as usual is right direction with respect to outsourcing
unacceptable. In the survey, we asked the (see Table 1). Similarly, for the 41 respon-
question regarding the need for change. dents who identified themselves to be in
Of the 232 who responded to this ques- staff/policy positions, 54 percent disagreed
tion, 87 percent responded, “Yes.” For the or strongly disagreed.
96
And the Survey Says… The Effectiveness of DoD Outsourcing and Privatization Efforts
Table 1. DoD Attitudes toward Outsourcing Policy
DoD Is Headed in the Right Direction with Respect to Outsourcing Issues
(All Respondents)
Strongly Agree 3%
Agree 27%
Neither Agree nor Disagree 18%
Disagree 35%
Strongly Disagree 18%
NOTE: Total may not add to 100% due to rounding error.
In our analysis we could find no one or strongly disagree that DoD is headed in
group where a majority of respondents the right direction with regard to
strongly agreed or agreed with this state- outsourcing. Their responses are shown
ment. The closest category consisted of in Table 2.
the 10 respondents who identified their area Continuing this line of analysis, we
of expertise as budget/finance. Of this looked at the 78 respondents in positions
group, three people agreed DoD was of command who have been involved in
headed in the right direction with respect an outsourcing effort. Their attitudes are
to outsourcing. None in this category even more pronounced. Of this group,
strongly agreed with the statement. 64 percent disagree or strongly disagree
If these data are representative, it’s quite that DoD is headed in the right direc-
remarkable that DoD is aggressively pur- tion regarding outsourcing initiatives (see
suing outsourcing policies that so many Table 3).
disagree with. More striking still are the While we are in no way stating that in-
111 respondents in positions of command. stallation commanders are not executing
Of this group, 57 percent either disagree outsourcing policy based on these personal
Table 2. Commanders’ Attitudes toward DoD Outsourcing Policy
DoD Is Headed in the Right Direction with Respect to Outsourcing Issues
(Commanders’ Responses)
Strongly Agree 4%
Agree 24%
Neither Agree nor Disagree 15%
Disagree 33%
Strongly Disagree 23%
NOTE: Total may not add to 100% due to rounding error.
97
Acquisition Review Quarterly — Spring 2002
Table 3.
Attitudes of Commanders Who Have Undergone Outsourcing
DoD Is Headed in the Right Direction with Respect to Outsourcing Issues
(Responses of Commanders Who Have Outsourced)
Strongly Agree 4%
Agree 17%
Neither Agree nor Disagree 15%
Disagree 39%
Strongly Disagree 26%
NOTE: Total may not add to 100% due to rounding error.
assessments, it should be noted they are (cid:127) It appears as though few consider the
concerned about these issues and their broader strategic impact of changes
concern rises markedly after they have done in isolated areas.
gone through the experience of out-
sourcing in its current form. At the very (cid:127) I think we need to cut this BS out!
least, their feedback is worth gathering and
assessing. While comments offered on a Based on our initial research efforts,
survey administered to a random sample these survey responses were not surpris-
of DoD personnel are not well suited for ing. The level of disagreement was. We
the type of broad feedback needed, we suspected that a sense of urgency for
list some of the comments submitted by change did exist and that the reason behind
installation commanders. the inconclusive results from DoD out-
sourcing efforts stemmed from a strategy
(cid:127) Military forces must always be EFFEC- perspective. Thus, the basis for our second
TIVE on the battle[field] and we are question, “Do DoD outsourcing initiatives
building organizations that are designed align with DoD’s business strategy?”
to be most EFFICENT [sic] during Our analysis showed us the link from
peacetime. the national military strategy to DoD cor-
porate strategy existed. The question
(cid:127) The only outsourcing issue I have had remained, does the strategy behind out-
personal experience with is A-76. It is sourcing link as one progresses down the
a terrible process. organizational layers of DoD and the
Services? The survey responses of the
(cid:127) I am not sure where DoD is heading approximate 130 individuals who have
quite frankly...and rules, regulations, undertaken an outsourcing effort indicate
etc. thus far have only made waters the outsourcing initiatives currently under-
murkier. way may not be aligned to a common
vision and there may not be a linkage
98
And the Survey Says… The Effectiveness of DoD Outsourcing and Privatization Efforts
Table 4.
Outsourcing Initiative Alignment to Corporate Strategy
DoD Is Headed in the Right Direction with Respect to Outsourcing Issues
(Responses of Commanders Who Have Outsourced)
Yes
DoD corporate strategy 42%
Your Service or agency’s strategy 66%
Your major command’s strategy 67%
Your unit’s strategy 38%
Your function or department’s strategy 36%
between the organizational levels of DoD on this core belief of a cost-based strat-
(see Table 4). egy that was being executed primarily
In addition to examining the linkage of through personnel cuts.
strategy, we sought further information on When asked which issues are impor-
the validity of a cost-based strategy. Our tant considerations when conducting an
early research indicated strategy must be outsourcing study, impact on mission per-
aligned to the core beliefs of an organi- formance and impact on personnel were
zation. For DoD, that belief has histori- cited as considerations that ranked above
cally been focused on the best people, the impact on cost. These data are displayed
best equipment, and the best training. The in Table 5.
next question to examine was the effect
Table 5.
Importance Attributed by DoD Personnel
Regarding Impact of Outsourcing
Which of the Following Issues Are Important Considerations
when Conducting an Outsourcing Study?
Impact on Impact on Impact on Mission
Cost Personnel Performance
Strongly Agree 37% 58% 77%
Agree 51% 33% 19%
Neither Agree nor Disagree 6% 4% 0.9%
Disagree 4% 3% 0.4%
Strongly Disagree 2% 2% 2%
NOTE: Total may not add to 100% due to rounding error.
99