By James Hasik
September 24, 2015
On Monday, I wrote of how Carly Fiorina, the former CEO of Hewlett Packard, who is running for president, wants a bigger Army, Navy, and Marine Corps. A large part of the solution involves cutting staff at headquarters, and in streamlining management. The corporate parallel is indicated at HP with Fiorina’s successor, Meg Whitman, who is not running for president, but who plans to dismiss 33,300 staff over the next three years, mostly out of the old Electronic Data Systems (EDS) unit. Cloud computing is crushing that business. EDS, of course, was founded in 1962 by H. Ross Perot, who twice ran for president. Perot built that company from scratch when he failed to convince IBM that running computers could be as lucrative as making them. After making a few billion dollars, he sold the company off to General Motors in 1984, around the same time that the car market acquired the Hughes Aircraft Company, in a dream of putting computers and heads-up displays in Oldsmobiles. If that seemed a little ahead of schedule for the 1980s, it says a lot about what’s wrong with the structure of the US armed forces today.
While later (albeit briefly) a board member at GM, Perot clashed with management over the future of the iconic company, but neither his efforts at reform nor the corporate marriages went far. EDS was spun out in 1996, and Hughes was sold to Raytheon in 1997. As Bob Lutz argued in his book Car Guys versus Bean Counters: The Battle for the Soul of American Business (Portfolio, 2011), all the problems of that industry were well-understood by the 1970s. The management of the largest companies and the leadership of United Auto Workers just couldn’t bring themselves to drive towards the solutions they knew they needed. Lutz might know what he knew; he worked as a top executive at Ford and Chrysler, and retired in 2010 as vice-chairman of GM. One problem, as Devin Leonard summarized in his review of the book for Bloomberg Business, was that around 1977 the balance of power across the automotive business began shifting from the car guys to the number crunchers. As a consequence, product planners determined which customers to target with a new sedan or wagon; engineers fretted over inexpensive assembly; and managers fretted about cheap mass production. Only at the end were designers summoned to wrap a steel body around a nearly completed vehicle. The results, Lutz laments, were the not-so-fondly remembered Cadillac Cimarron, GMC Envoy XUV, Pontiac Aztek, and others.
In between there were enough years flush with cash from sport utility sales that the problems could be ignored. But by 2008, both Chrysler and GM—companies that just couldn’t shake their heritage or their labor costs—had been run into bankruptcy. Ominously, there’s a notion afoot that the American military-aerospace industry today is in a position analogous to that of the American automotive industry forty years ago. Think of the problem in terms of products. Lockheed Martin's F-35 JSF is something of a Lincoln Blackwood of a fighter-bomber: an impressive piece of engineering, but an awfully expensive way to haul iron. Fairly, Boeing’s X-32 idea for the JSF was a Pontiac Aztek of an airplane—all that and hideous too.
But as several Lockheed engineers have confided to me, this wasn’t their idea. They wanted to build a sleeker, more maneuverable airplane, just in case air-to-air combat wouldn’t all be from beyond visual range. The requirements-writers, however, demanded internal carriage of two 2000-pound bombs—for a single (classified) target type—and that miracle of a lift-fan, aft of the cockpit, for the jump-jet version. On the viewgraphs, this probably made sense at one point. Along the way, the purchasing power of the Defense Department dropped such that half a trillion dollars annually is buying half the force structure of the 1980s.
I was thinking about the issue at COMDEF, as I heard Under Secretary Frank Kendall complain that he was getting "out-invested” by the Chinese military. Through this year, the US Defense Department will have spent just short of $100 billion on the JSF, and mostly for development. On paper, that’s not out-invested. But when you put the product planners (requirements-writers) in charge, by the time the engineers get it, there’s only so much that they can do to keep the costs in line. The Department winds up pouring money into massive sinks, and the bean counters are left trying to figure out how to restrain the cost growth, when they should be tasked with finding ways to cut the costs in half. The accountants can only work on the margins; they can’t dream up new systems from whole cloth.
Just don’t entirely blame the elected politicians for the mess. Blame that tribe of generals and admirals and high officials, which spends a lot of time confusing hope for an expanding budget with resource-constrainted strategy. Former Defense Secretary Robert Gates recounted one of the more memorable moments in his memoir Duty: Memoirs of a Secretary at War (Knopf, 2014). The chairman of the Joint Chiefs, the Navy and Air Force secretaries, and the Army chief of staff together insisted to him in 2008 that they had “no margin to accept additional risk in traditional capabilities to invest in other capability areas” (p. 144). Gentlemen, if you’re getting out-invested, that’s why. Or as Lord Rutherford famously remarked, when you have run out of money, it’s time to start thinking. Ignoring the top line is thus critical to fixing the Pentagon.
Back in April, Defense Secretary Carter notably reappointed Michael Bayer as chairman of the Defense Business Board (DBB). Bayer is known around Washington for tough talk on just how badly broken the Pentagon’s business model really is. Bayer had also chaired the DBB from 2007 through 2011; he was recruited by the reform-minded Gates, and for much of that time, Carter had Kendall’s current job. Bayer is thought-provoking, and the current secretary probably had some material intent in recruiting him back. Around town, Bayer emphasizes the need to prioritize the maintenance of and investment in those things which are the most affordable to keep, and to cut heads in non-value-added activities. Fiorina also spent some time on the DBB, and chaired the CIA’s External Advisory Board, so she may be thinking in similar terms.
Frankly, it may be time to put the bean-counters more firmly in charge. It may be time to put the designers and engineers need in charge. It’s probably time that the troops in the field got a bigger say. If so, we might get more cost-effective solutions like JDAMs and MRAPs and Predator drones, and fewer follow-on imperatives for just a few billion more.
James Hasík is a senior fellow at the Brent Scowcroft Center on International Security.
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