Preserving capacity, General Tom Lawson, Chief of the Defence Staff, Keys to Canadian SAR
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D DEfENCE REnEWaL 22 aPRIL/May 2015 www.vanguardcanada.com i n 2011, PwC began a conversation with global defence leaders on the concept of "agile de- fense" – reconciling tensions created by ever- evolving threats, increasing reliance on technol- ogy, and tighter defence budgets for most nations and alliances. Specifi cally, budget pressure, and a mandate for cost reduction, can serve as a catalyst for greater de- fence agility and how defence organizations can pro- mote, rather than undermine, agility characteristics as they seek to simultaneously reduce costs, accom- plish current missions, and build future capabilities. Since 2011, budget pressures have forced defence organizations to reduce spending dramatically, though security threats remain un- abated. Canada's armed forces identifi ed the need to cut $1 billion by 2017 through business transformation, terminating civilian jobs, reducing contractors, and retiring obsolete weapons systems and vehicles. The Department of National Defence's Defence Renewal program was initiated to establish the conditions for continuous improvement while minimizing ineffi ciency, streamlining business processes and maximizing operational results. These contrary dynamics of agility versus cost reduction raise ques- tions about the future structures and capabilities of defence organi- zations. Perhaps there is no better question in the next several years than this one: "Can we reduce costs without sacrifi cing agility?" Sustainable cost reduction as 'agility accelerator' Traditionally, cost containment initiatives in the defence sector have had short-term results, repeatedly targeting the same operat- ing and maintenance expenses. These approaches fall short if they do not deliver transformation that in turn enables substantive, permanent reduction in operating costs. Otherwise, the nation's ability to achieve mission requirements both locally and abroad is degraded. Worse, over time costs typically re-emerge. So what has been achieved? The defence organization may have achieved low- er costs in the short term, but has sacrifi ced agility in exchange. Instead, there is a need to focus cost reduction efforts in areas that strengthen and reinforce fi ve threads of agility: visibility, ve- locity, adaptability, collaboration, and innovation. This period of dynamic change and long-term resource re- striction demands creative solutions. The opportunity exists to eliminate constraints previously seen as fi xed by politics, policy, or organizational inertia. Defence organizations that sacrifi ce agility to cut costs will inevitably re-learn the painful lessons re- lated to eras of demobilization followed by intense and costly remobilization. PwC has identifi ed 12 actions for defence organizations to es- tablish and maintain agility while reducing costs: 1. Assemble decisive leaders who are simultaneously visionary, inspirational, and pragmatic; 2. Defi ne and maintain a focus on the ultimate outcomes your organization must achieve; 3. Employ lean processes and governance to set your strategy and monitor execution; 4. Ensure that you accurately understand resource drivers and key cost areas; 5. Target cost areas that hold promise for sustainable savings; 6. Establish outcome-focused metrics and take action based on results; 7. Empower subordinates and hold them accountable for results; 8. Establish forums focused on challenging strategy, programs, and underlying assumptions; 9. Maintain appropriate balance on near-term wins and long- term transformational results; 10. Remember that innovation entails failure and forgiveness; if you are not cancelling initiatives, you are either not innovat- ing or not recognizing when initiatives should be terminated; 11. Make hard trade-off choices and do not spread resources too thin – you are not looking deep enough if you are not having to make tough choices; under-investment in programs often generates more risk than eliminating programs or mission ca- pabilities; and 12. Evaluate your strategy, programs, and processes against their effects on the fi ve agility threads. All public sector organizations struggle with maintaining agility while simultaneously reducing costs. Often transformation pro- grams are started but the organization is unable to embed the new capabilities and "make change stick" because of, for example, high turnover and the rotational nature of military careers. In addition, organizations are not always incented to create sustainable effi cien- Jeff rey Rodney is director, consulting and deals, in the Government defence practice of PricewaterhouseCoopers Canada. aGiLe defence Five areas for sustainable cost reduction 3 Agile Defense Sustainable Cost Reduction on the Path to Greater Agility Traditional strategic paradigms in defense and security have addressed enhanced threat environments with bigger budgets, more people, more equipment, and more infrastructure. To some extent this has been an effective strategy, but it is not one that is necessarily sustainable or well-suited to the emerging security environment which most nations, big and small, currently face. Rather, the increasingly complex and varied threats to national and international peace and security are demanding a more enlightened approach to both defense strategy and organization. Three years ago we began exploring this topic through conversations with senior defense leaders around the world. The outcome of these discussions was a paper titled "Agile Defense" which outlined this concept and the organizational characteristics that defined the attributes an agile defense organization should cultivate and promote. In the interim, increasing budget pressures have exacerbated this demand for change as defense organizations have been forced to reduce spending dramatically even though the proliferation of security threats has proceeded unabated. These opposing dynamics will continue to raise significant questions about the future structures and capabilities of defense organizations, but perhaps no question will be more salient in the next several years than this one: "Can we reduce costs without sacrificing the mandate for even greater agility?" This paper attempts to answer that question in the affirmative. The approach we espouse is focused on reinforcing the key threads of agility (Visibility, Velocity, Adaptability, Collaboration, and Innovation) while achieving complimentary improvements in five key cost areas (Human Capital, Infrastructure, Information Technology, Acquisition & Procurement, and Supply Chain). Within each cost area, we identify and examine proven techniques that provide the most promise for sustainable reductions. Executive Summary We demonstrate further that if efforts to reduce costs in these areas are led by inspired leaders, and approached methodically with a keen sense for their impact on the characteristic threads of organizational agility, they can in fact accelerate change and lead ultimately to a more agile defense organization. Such efforts require focus and a relentless pursuit of cost reduction that enhances, rather than degrades, organizational agility. Human capital Human Capital • Manpower-Mission Alignment • Capabilities Based Assessment and Workforce Analytics • Blended Learning and Cross Training Human capital Information Technology • Prototyping and Agile Development • Cyber and Information Assurance • Business Intelligence • Data Strategy and Optimization Human capital Infrastructure • Reliability Centered Maintenance • Asset and IT Inventory Management • Smart Grid, Facilities and Installations • Joint Basing Human capital Supply Chain and Logistics • Best Value Maintenance • Supply Chain Optimization • Total Ownership Cost Reduction • Burden Sharing Human capital Acquisition & Procurement • Cost Estimation • Priority-Based Budgeting • Industrial Base Analytics • Strategic Sourcing Key cost areas Cost reduction efforts can either... ...undermine and weaken Agility Threads VS ...strengthen and reinforce Agility Threads Cost Reduction Inertia Aspiration Lethargic Agile Organizational Characteristics Cost Reduction Inertia Lethargic Agile Organizational Characteristics Aspiration 5 threads of Agility: Adaptability Innovation Collaboration Visibility Velocity Through the approach we outline in this paper, we hope to encourage and inspire defense leaders to address current cost-cutting challenges with an appreciation for the true organizational "upside" that cost reduction efforts can deliver when intentionally paired with a concomitant emphasis on agility as both an aspiration – and a mandate.