Secretary of Defense Jim Mattis has directed Deputy Secretary Work to lead a review of DOD’s business operations with the intent to reduce the footprint and costs associated with delivery of services such as human resources, contracting, financial management, real property management, logistics and supply chain management, and others. Secretary Mattis said “We have sometimes allowed our focus on service uniqueness to extend into business operations, leading to duplication of effort and costs we can no longer afford. To achieve greater departmental efficiency and savings, we must now pursue cross-enterprise consolidation of business activities.”
The review is driven, in part, by DOD’s interest in obtaining more dollars for mission requirements. If they are to be credible in asking Congress for more money, they have to do what they can internally to reduce the costs of common services. It makes sense. Given the Secretary’s reputation for being a no-nonsense leader, everyone in the DOD management establishment should take this directive very seriously. In the past, efforts to consolidate business operations across service lines have been hard to make happen. The parochial interests of the services and Defense agencies have gotten in the way. Secretary Mattis’ directive is the best opportunity I have seen in more than 30 years of working in and with the Department of Defense.
So – what form might a reorganized business operation take? How would DOD take a function such as HR and have a whole-of-DOD approach to service delivery? There are actually some great examples of successfully doing just that and doing it within DOD. There are also some examples of doing it badly, also within DOD. Let’s take a look at two HR examples.
The unsuccessful example was DOD’s “regionalization” of HR services in the late 1990’s and early 2000’s. They tried to separate HR into customer-facing “front room” and HR-facing “back room” services, with the customer-facing work kept in HR offices that looked a lot like the HR offices they had before regionalization. The “back-room” work was moved into regional service centers. It is hard to find anyone in DOD who will argue that regionalization was a success. The cost savings were questionable and customer service suffered. It was not the fault of the HR folks that it did not work. There were a lot of very talented people working hard to make it work, but they were trying to make a flawed concept work and it could not succeed.
Among the flaws in the concept was that much of the work done on behalf of the customer was actually done in the “back-room” regional centers. Customers did not have access to those folks, so they spoke via the customer-facing HR Offices. That doesn’t work. In fact, it set up a conflict between the two types of HR offices, with the success of the front room folks partly dependent on keeping customers away from the people who were actually doing a lot of the work.
When I was HR Director for the Defense Logistics Agency, we recognized that we were providing terrible service to our customers and that it was not going to get better if we continued trying to push a flawed concept of operations. It did not matter how hard the HR folks worked, they were working against a system that would make them fail. We presented our views to the then-DOD Deputy Under Secretary of Defense (Civilian Personnel Policy) and asked for permission to do something different. She gave us complete support for changing the approach.
What we did was consolidate the work into a single HR Operations organization. Moving to that type of shared service organization was not a big leap for DLA. The agency is a shared service organization itself. It provides logistics services (spare parts, food, fuel, clothing, and more) to the services, other agencies and our allies. As a $40 billion shared service agency, DLA knew that the economies that we could achieve would be significant, because we were already saving the services a lot of money.
We reduced the size of the onsite HR offices and eliminated all pass-through work where they were talking to customers and then sending the work somewhere else to be done. On-site offices were reduced from as many as 60 – 70 people to only 5 – 7. We created to Customer Support Offices (in Columbus, OH and New Cumberland, PA) where the majority of HR work would be done. Each of those locations had a number of dedicated Customer Account Managers who were responsible for HR service delivery for their clients. We eliminated duplicate systems, implemented customer service standards and surveys, and set a goal of reducing our average time to fill positions from 111 days to 60 days (including the classification process if it was needed). We also set a goal of achieving a 1:100 servicing ratio of HR to customers and saving at least 25% of the cost of delivering HR service, while avoiding layoffs as much as we reasonably could. We implemented a customer survey to talk with customers who transacted business with us to understand how we were doing and set a customer satisfaction goal of 4.0 on a 5 point scale.
The outcome was that, in one year, we reduced the cost of HR services by 28%. We achieved a ratio of 1:102 and did so with only 3 involuntary separations (they were offered jobs but declined them). We reduced our average time to fill to 62 days. We found we had to raise our target for customer satisfaction, because we quickly blew past the 4.0 goal. DLA HR went from being reviled to being highly regarded. Our reputation improved to the point where we were turning away potential customers who wanted DLA to do their HR work. With a combination of DLA employees, other DOD organizations to whom we provided HR services, and customers we picked up because of the Base Realignment and Closure process (driven by DLA’s reputation as an HR service provider), DLA now provides HR services to about 10% of the Department of Defense. I have remained in touch with DLA in the 8 years since I left the agency, and their HR services are still excellent.
The DLA model is highly scalable and could easily work for the entire Department of Defense. Consolidating HR services using the DLA model (perhaps even within DLA) could be done with 20 or fewer HR offices that provide service for all of DOD. If they were placed under a single leader, they could standardize processes, reduce costs, and improve the quality of service. If the Department is interested in trying a mix of government and privatized services, it could outsource a few of those HR offices. If they use the same systems, the same policies, and the same performance metrics, DOD could actually find out whether it was better to do the work in house or outsource it, or whether that made any difference at all in the quality and cost of service.
I won’t pretend that making that type of change is easy, even for a shared services agency like DLA. When we did it, we made some enemies. A few senior executives and general/flag officers did not want to give up the way things were. They particularly did not want to give up control. Some of them were willing to spend more money for bad service that they controlled, rather than spending less money for good service that someone else controlled. However, I realized we had overcome those problems a year or so after we completed the transformation. One of the strongest opponents of the move came to a meeting with me and several field Deputy Commanders. He said he was going to bring “his HR guy” to the meeting. I was delighted when the Customer Account Manager who worked for me walked in with him and proceeded to strongly disagree with something we were proposing. He represented his customer and did a great job of it. He made such a good case that we changed direction. That proved that our approach worked and that the customer still had a voice. It can work for the rest of DOD as well.