Here’s a snippet from Christopher O’Donnell, acting ASD(Acquisition) at the 2021 GMU/DAU conference:
What the MTA has shown is that the JCIDS process and the time it takes to make all the sausage maybe isn’t as necessary as we thought it was. We are totally rethinking the entire what we call Big “A” acquisition process in the Department. It’s not just what are we doing in the acquisition system with the Adaptive Acquisition Framework, it’s how do we reform the requirements process and the PPBE. Until the three of those are lined up well we can’t pull things through the system quickly.
Secretary Kendall said that this is why says it takes 10 years to get anything done. It takes two years two years to get money, two years to write the requirement, it takes four years to figure out what you’re doing and then two years to go ahead and get it out. We need to cut a lot of that out. The funding cycle — we need to field hypersonic weapons. We can’t wait until the ’24 budget to do that.
It’s good to see leaders inside DoD starting to talk about requirements and budget reform. All that Little “a” and contracting reform can only go so far when governance mechanisms are left in the 1960s.
This moment might be the first time in generations that the environment is opening up to defense budget reform. There are three primary prerequisites to a change of such magnitude: (1) a significant emotional event; (2) new industry best practices; and (3) a strong academic narrative. All of these existed in 1960, the last time there was major movement on budgeting. Where are we on the prerequisites today?
Significant Emotional Event
The Soviet Union presented an existential threat to the nation’s security. In the 1950s, not only did the Soviets have a larger military force structure, in certain areas it could be said to be ahead of the United States technologically. There was no greater symbol of the American anxiety than Sputnik, launched in 1957. The DoD experienced a major reform effort the next year, the Defense Reorganization Act of 1958. Still, Congress pressured the DoD for more reforms. Presidential contender John F. Kennedy started speaking about a “missile gap” with the Soviets in 1958, and by the time he was elected there was enough momentum to push through the Planning-Programming-Budgeting System.
In the present day, China has become a point of increasing anxiety for policy makers. The previous hope that economic integration would eventually liberalize the Chinese Communist Party and usher it into the Western order proved wrong. While there may not be a significant emotional event as important as Sputnik, the sum total of events is cause for concern. A few examples include: the building of fortified island chains in the South China Seas; testing of stealth aircraft including the J-20 and the FC-31 and hypersonic missiles including the DF-17; rampant Chinese espionage and cyberattacks; and progress in system destruction warfare including the use of anti-satellite capabilities. China’s PLA Navy boasts more capital ships than the United States, 350 to 293 in early 2020, and they are rapidly increasing in sophistication. New models of unmanned and autonomous systems are being rapidly prototyped in China, while the DoD struggles to experiment. These considerations and more have created an uneasy atmosphere in the national security community. While China says it wants to be a world-class military by 2049, it will reach that mark well before then. It appears increasingly likely that a Sputnik moment with respect to China will occur within a few years if it hasn’t already.
Realignment with Commercial Practices
A powerful theme in postwar defense management was the emphasis on business efficiency. The rise of the Assistant Secretary of Defense (Comptroller) signaled the shift toward profit-and-loss calculation. Cost business systems and the beginnings of computerized information enabled decisions on resource allocation and pricing. Methodical multi-year budgeting by car model had been a norm in the auto-industry since General Motors started it in 1920s (Novick, 1969). Comptrollership became a fast-track to the top. Robert McNamara, an operations research analyst during World War II, created a class of “whiz kids” at Ford implementing scientific management principles. He rose to the company’s comptollership and then presidency for only a year before Kennedy tapped McNamara for the role of Secretary of Defense. The Planning-Programming-Budgeting System and its twin concept of systems analysis became his guiding principles, the darling of McNamara’s second-hand man in the Comptroller spot, Charles Hitch. The purpose was to install waterfall program planning from the top to create business efficiency where the services had been rather autonomous and competitive.
The problem with the business efficiency exemplified by the auto-manufacturers in the 1950s is that it didn’t work. Within two decades, U.S. auto giants like Ford and GM were quickly losing ground to higher-quality and lower-priced cars from Japan. The success of Japan’s automotive industry reflects the success of lean manufacturing and new business concepts. By the 2010s, it became obvious that the most successful and innovative firms operated nothing like Ford and GM from the 1950s. They did not use waterfall planning schemes, which worked fine for large assembly line runs but were downright harmful to the creation of intangible capital like software, data, product design, company culture, and more. Modern tech firms stress lean and agile principles, often operating too fast to work according to glacial government timelines. Over the last half of the 2010s, significant defense reform efforts have emphasized commercial practices, including streamlined decision-making, modular open systems architectures, and Other Transactions contracting. In 2015, Secretary of Defense created Defense Innovation Unit and since then dozens of innovation hubs have opened across the DoD. The desire to bring commercial practices to defense exists, even if it hasn’t yet touched the realm of budgeting.
Strong Academic Narrative
In the postwar years, academics routinely participated in defense analyses. Many prominent figures like John Von Neumann, Oskar Morgenstern, and Hans Bethe participated in technology reviews and economic analyses. In 1948, Project RAND was established to create a university without students focusing entirely on national security matters. Many top scholars visited RAND. There, an economics division was founded under Charles Hitch. Using the prevailing neoclassical economic theory of the time, Hitch and his colleagues applied the quantitative methods of marginal analysis to defense problems. They created what amounted to a social welfare function for the Department of Defense and called it the Planning-Programming-Budgeting System. The whole concept was laid out in a seminal 1960 book called Economics of Defense in the Nuclear Age, which McNamara adopted in full when he took over the Pentagon. This reform was a capstone on more than a decade of efforts to unify the decision-making within the military, including major legislation in 1947, 1949, 1953, and 1958. However, as Hitch observed, earlier budgeting reform provided “little unification in fact.” Only new management techniques could achieve the desired outcomes (Hitch, 1965).
By the end of the Vietnam War, many academics fled the subject of defense. Charles Hitch became president of the University of California and largely stopped writing on defense. Even the Alain Enthoven, who headed the Office of Systems Analysis, exited defense and turned his attention to healthcare. In the 21st century, the academic work in defense acquisition is largely internal to defense organizations themselves. Moreover, there is not the same coherent narrative of defense reform as there was in the 1940s through the 1960s, which focused on centralization. Yet in the academic community more generally, there is a coherent narrative about innovation and progress. It is perhaps represented best by Clayton Christensen’s concept of disruptive innovation and the related business strategies (1997). Agile, devops, small teams, delegated authority, flat organizations, and the emphasis on a culture of moving fast are all part of the accepted business discourse in the 21st century. Those ideas, which started to penetrate the DoD’s processes for requirements, acquisition, and contracting, have not yet been applied to budgeting.
Conclusion
Certainly the vast majority of people are aware that (1) China is a significant threat; and (2) The commercial tech industry has a completely different management paradigm than defense.
Even though the HASC and SASC had slated a commission on PPBE reform in the FY 2022 National Defense Authorization Act, my interactions have led me to conclude that the many defense insiders do not understand where PPBE came from, how it impacts every part of the defense system, and what the alternatives are.
My fear is that a PPBE reform commission finds unsympathetic commissioners and staff which see it as their duty to tweak PPBE around the edges — e.g., slightly higher reprogramming thresholds, biennial budgeting, FMR clean up, etc. Instead, what is needed is the wholesale ouster of the PPBE.
People who say, “let’s add flexibility to the PPBE” are comparable to people who say “let’s create an Agile EVMS guide.” That’s an oxymoron. “Let’s sprinkle agility into the waterfall process!” Sorry, won’t work.
Great, passionate message! Thanks for always bringing it!