cost-consciousness is not simply about cutting spending. Rather, it is about reducing excess and being a good steward of taxpayer dollars. Unfortunately, the Department of Defense is not cost-conscious.
Four years after the sequestration cuts of 2013, the Department of Defense must relearn a lesson which all frustrated dieters know well: unless desired values and behaviors are truly engrained, old habits will prevail. In the era of flat or declining budgets, Defense cut costs and met global commitments; however, it did not embrace a cost-conscious culture. It must transition from a temporary “diet” to an enduring “lifestyle.”
With America’s economic recovery and a new administration promising increased spending, the Department of Defense must guard against old habits. Resource challenges remain, and with looming readiness and modernization bills, the Department must double down on cost-consciousness. Leaders must communicate a vision, incentivize saving, redress systems that emphasize spending, and cultivate innovation.
Implementing a cost-conscious culture is critical to strengthening national security. Former Chairman of the Joint Chiefs of Staff, Admiral Michael Mullen, linked economic and military strength, saying: “The most significant threat to our national security is our debt.” Growth in non-discretionary spending continues to limit the United States’ ability to resource its military. The Congressional Budget Office projects that annual interest payments on the national debt will soon exceed the defense budget. Realizing a shift in the strategic environment, then-Secretary of Defense Robert Gates jump-started waste reduction in 2010 and encouraged savings. These initiatives were the first in a series aimed at engraining “cost-consciousness” into the military’s culture.
Culture is a set of widespread and enduring beliefs, customs, values, and practices that characterizes an institution. Culture is incorporated and passed to future members of the organization. Culture shapes how the military operates as an institution and how it responds to changes in the strategic environment. Secretary Gates envisioned cost-consciousness as a value needed for shaping the military’s response to a decreased budget.
Cost-consciousness is a mindset, defined simply as, “knowing the cost of your decisions.” As a value, it means questioning spending; determining whether it’s necessary to meet mission requirements. Is there a less expensive approach? Are the benefits of this action or product worth the cost? Would I make the same decision if I were spending my own money? In this context, cost-consciousness is not simply about cutting spending. Rather, it is about reducing excess and being a good steward of taxpayer dollars. Unfortunately, the Department of Defense is not cost-conscious.
The military has earned a reputation for having a “spend culture” in a system that incentivizes spending over cost control. Both the high costs of failure and a widespread tendency toward risk aversion — especially in times of war — have made the military value effectiveness over efficiency. It’s usually better to spend your entire budget or develop a capability that exceeds requirements than it is to return funds, or to satisfy minimum requirements. Years of escalating budgets driven by Overseas Contingency Operations’ funding have masked enduring problems with defense spending and acquisitions. Cost overruns are rampant while requirement reductions are rare. In a resource-abundant environment, the Department simply spends more to solve emerging problems. In a resource-constrained environment, the dynamic shifts; however, changing the military culture remains difficult.
Cultural change is hard for large organizations, but the military’s size and success make change especially challenging. Drawing from Edgar Schein’s culture model, the levels of the military’s organizational culture, including its artifacts, norms, values, and underlying assumptions, are all deeply-rooted and time-proven. Organizations often resist change using three, sometimes unintentional, “systems of denial” that discount the need to change: (1) killing the messenger, (2) thinking, “that doesn’t apply to us,” and (3) revising the theory.
The “that doesn’t apply to us” view most-commonly hinders a cost-conscious culture. Successful businesses control costs and base decisions on anticipated returns on investment, while the military routinely resists industry comparisons. Consider the directive of former Acting Secretary of the Army, Patrick Murphy, under the “Every Dollar Counts” campaign. It states, “[a]lthough the Army is not a business and does not aspire to be one, we exist for one purpose: to fight and win the Nation’s wars.” While factual, the statement reinforces the value of military effectiveness above all, and supports a narrative that pursuing a cost-conscious culture sacrifices military effectiveness. A better message is that the military needs to leverage industry lessons to fight and win in a fiscally-constrained environment. Military leaders must drive the culture shift by creating buy-in and the agreement to pursue change.
Long-lasting cultural change which embraces cost-consciousness requires effective strategic leadership. Actions must include “embedding and reinforcing mechanisms” that drive changes to underlying assumptions and values. Specifically, leaders must ensure that regulations, policies, and legislative structures facilitate change. They must establish processes and programs to incentivize desired behaviors and norms. Finally, as W. Warner Burke notes in Organization Change: Theory and Practice, leaders must repeatedly communicate with all stakeholders to reinforce the need for change and to support that message’s “stickiness.” Eventually, underlying assumptions and values will align with the new vision and become part of the organizational culture.
Senior leaders must clearly articulate a vision for the future. Recent budget cuts created a sense of urgency for change, the first step in John Kotter’s change model. Secretary Gates’ efforts established a vision for cost-consciousness. Visions guide behavior and can become engrained in culture. Defense leaders should spread the vision of cost-consciousness through a robust communication campaign and remain at the forefront of cultural transformation efforts. For example, the National Defense and National Military strategies should reference cost-consciousness. Leaders should reinforce the message whenever they speak to internal or external stakeholders.
The services must break their current “spend culture” by focusing less on obligation and expenditure rates and more on maximizing value for each dollar spent.
Achieving two key steps in Kotter’s model — building a guiding coalition and empowering broad-based action — requires Department leaders to emphasize how cost-consciousness applies to the entire workforce. Otherwise, service members may defer cost-consciousness to the acquisition workforce alone. Furthermore, senior leaders may understate its importance. For example, as part of an initiative to “improve…professionalism,” the 2014 Quadrennial Defense Review’s only reference to cost-consciousness stated that efforts must “continue to increase the cost consciousness of the acquisition workforce.” Such slight mention undermines efforts to engrain cost-consciousness in the values of the entire workforce and to establish an “enterprise mindset.” Defense leadership must immediately make cost-consciousness a priority in strategic guidance documents as reinforcing mechanisms, to ensure they send a consistent message. Once the strategic communication campaign begins, leaders must also lead change through action.
The Secretary of Defense should hold the Service Chiefs accountable for cost-control and efforts to incentivize cost-consciousness. Similarly, Service Chiefs should hold subordinate leaders accountable. This will drive desired behaviors throughout the military. Rewarding good practice is a strong embedding mechanism. The services should discuss cost-consciousness as part of commanders’ performance feedback and consider documenting results in formal evaluations. To incentivize further cost controls, the Department should also work with congressional stakeholders to allow the services to retain a portion of any savings.
The Secretary of Defense should propagate tenets of the acquisition community’s ‘Better Buying Power’ campaign throughout the military, specifically its “Should Cost” initiative. “Should Cost” policy directs managers at all levels to actively manage costs and to seek long-term improvements. Cost reduction targets and initiatives are developed, tracked, and briefed at all major program reviews. Services are able to reinvest program savings to satisfy additional requirements. Former Secretary of Defense Ashton Carter, told the U.S. Senate that Better Buying Power has driven costs down steadily since 2011, with annual cost growth at a 30-year low in 2015. Kotter would call this a “short-term win.” To sustain this success and produce change, the DoD must transfer the lessons learned to the rest of the military.
Applying measures and actively tracking cost management initiatives are embedding mechanisms that incentivize desired behaviors, and will help ensure funds are spent efficiently throughout the force, not just in defense acquisition programs. The services must break their current “spend culture” by focusing less on obligation and expenditure rates and more on maximizing value for each dollar spent. Secretary Murphy directed the U.S. Army to “eliminate `use or lose’ funding practices,” but also acknowledged that the Office of the Secretary of Defense (OSD) would continue to hold services accountable for traditional execution metrics. As long as OSD uses obligation and expenditure metrics to identify under-executing programs and to target funding cuts, then commanders will have to quantify them. Unfortunately, these metrics do not incentivize cost-conscious behaviors or values. For example, program managers may forgo the time it takes to negotiate a better deal or value because they are evaluated by how fast money gets spent. OSD should consider metrics that assess value along with execution metrics, to evaluate program health, and to incentivize effective spending.
The services should also request that Congress remove incentives for wasteful end-of-year spending due to the current “use it or lose it” system. Since organizations “lose” expiring funds at the end of the fiscal year, there is an incentive to spend all remaining funds, regardless of value. Jeffrey Liebman and Neale Mahoney’s research shows that federal spending is significantly higher at the end of the fiscal year and that the quality of spending is significantly lower. Asking Congress to allow the military to roll over a small percentage of unused funds, perhaps five percent, for use the following fiscal year would improve spending quality. Liebman and Mahoney note that Congress authorized the Department of Justice to roll over a portion of its budget starting in 1992 and the results have been positive. This would also provide the military some margin to navigate annual continuing resolutions, with limited spending allowances at the beginning of most fiscal years.
Defense leaders must foster a culture of innovation. Cost-consciousness and “doing more with less” require challenging the status quo and seeking new ways of using limited means to achieve desired ends. Recognizing the need for new approaches, Secretary Carter created the Defense Innovation Board. He stated, “One of my core goals…has been to push the Pentagon to think outside our five-sided box and be more open to new ideas…” The military’s hierarchical organization and penchant for structure, standardization, and codified procedures constrain creative thinking and make it difficult to transform into what Peter Senge terms a “learning organization” in his book, The Fifth Discipline. Real change must begin with the leadership articulating a vision and incentivizing desired behaviors through embedding and reinforcing mechanisms.
The services are increasingly emphasizing the need for innovation; however, further action is required. The U.S. Air Force added the phrase, “Powered by Airmen, Fueled by Innovation” to its 2013 vision statement and encouraged creative thinking through its annual innovation awards program. Leaders and commanders at all levels should add both formal and informal recognition programs for innovative ideas, particularly for those which create efficiencies and exemplify cost-consciousness. Programs and processes must allow ideas to flow unfiltered through organizational hierarchies to senior leadership. Leaders must also create a climate that encourages “creative abrasion” in their organizations, to avoid “group thinking” and to reach the best decisions. Finally, senior leaders must remain self-aware and continue to diversify their organizations to encourage innovation and to challenge the status quo. Expanding recruiting efforts to non-traditional sources and increasing accessions from industry, particularly among the civilian ranks, will broaden the workforce at the grass-roots level. If leaders create an environment in which people with different backgrounds and approaches to problem solving can flourish and are valued, then the organization will keep innovating to overcome challenges.
As budget pressures persist and security challenges remain, the Department of Defense must improve efficiency. It must “do more with less — get more bang for the buck,” according to Jacques S. Gansler of Issues for Science and Technology Magazine. To adapt to a changing strategic environment, the military must successfully ingrain the value of cost-consciousness in its culture. Developing programs and incentives that encourage cost-control, holding personnel accountable for the costs of their decisions, rewarding innovation, and emphasizing value when spending, are all critical steps toward changing the military’s culture. Taking them will allow cost-consciousness to become an enduring value that will shape organizational behavior long after today’s senior leaders leave military service.
Ryan Frazier is a U.S. Air Force lieutenant colonel and member of the academic year 2017 resident program at the U.S. Army War College. The views in this article are the author’s and do not necessarily reflect those of the U.S. Army or U.S. Government.
Photo credit: Timothy Walter/U.S. Navy via Getty Images