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What's The Matter : A Due Diligence Report" " |
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Edited version of an address by Allan Hawke,
Secretary, Australian Department of Defence
to the Defence Watch Seminar
On 17 February 2000 at
The National Press Club, Canberra
(Source : Australian Defence Organisation ; issued Feb. 17, 2000)
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It's a pleasure to be with you today, to share some thoughts on my due
diligence diagnosis, some 100 days after having been given the privilege to
become Secretary of Defence.
I want to start with a very big bouquet by placing on the record my utmost
admiration for Defence's professional performance in East Timor, an
admiration shared by all Australians.
Defence's performance was based on good intelligence, sound implementation
and logistical support.
That's not to say our execution was perfect - we will be undertaking quite a
few lessons learned" studies and feeding them back into the system. That's
as it should be. But, we should all be impressed by the talents of our
uniformed colleagues in the field.
After six years' absence, I return to Defence to find that its greatest
strength continues to be its people - a committed, loyal bunch of
professionals with a "can do" attitude and a capacity to deliver, while
recognising the need for significant change in the way Defence business is
conducted. These strengths plus our current capability, community support
for Defence, and the US alliance provide a platform that we can build on.
The Australian Defence Organisation has been through massive change that is
often not well appreciated. Let me give you a few figures.
Fifteen years ago there were more than 70,000 people in the ADF and around
40,000 on the civilian side. Today, there's some 50,000 in the ADF and
around 16,000 in the Department.
In the last ten years, over 11,000 positions (military and civilian) in
around 100 functions have been market tested with average savings in excess
of 30%.
This is large scale change by any measure.
The reality today, however, is that there is widespread dissatisfaction with
Defence's performance in Canberra - from ministers, central agencies within
the public service, industry, and even from within the Defence organisation
itself. In essence, we have a credibility problem.
Being from Transport (and Regional Services), my "road test" of a sample of
Defence's people about our mission, vision and values demonstrates that they
are not well understood - even at senior levels within the Organisation.
Nor are all in Defence sufficiently seized with the importance of serving
the nation through its ministers and the government of the day. It is far
too inwardly focussed.
A major focus for myself and other leaders in Defence must therefore be to
restore confidence - both externally and internally. Improving our
performance will be fundamental to this.
Planning.
Some argue that the three-year electoral cycle and two-year staff postings
in the ADF combined with an annual budget leads to a short-term focus and is
not conducive to good planning. Posting turbulence needs attention in its
own right, to help combat increased turnover.
One of the first things I looked for after arriving at the end of October
last year was Defence's planning regime. I hoped to find an overarching
corporate plan, derived from government policy and objectives, setting out
our purpose, our future directions, our priorities and our values. I hoped
to find a succinct document which people in Defence were committed to and
owned - which gave direction and meaning to the work they did.
I hoped to find a business plan for each functional unit, derived from and
clearly linked to the Corporate Plan - what's to be done, by whom and by
when.
I hoped to find something like each person's "plan on a page", derived from
their group's business plan, clearly articulating what they were expected to
contribute. A cascading framework from the top down, where each of the key
people at the top level met with me to agree their objectives for the next
quarter; discuss their plans, priorities, development and aspirations; and
how they intend to go about achieving them. And, for them in turn to do the
same with their next level reports, and so on.
I hoped to find the record of achievement and progress against the
Government's policy platform and priorities.
And, I hoped to find an understanding of how we serve the Government of the
day through our Ministers, the Parliamentary Secretary and their private
offices - including what they consider the characteristics of good advice on
policy options to be, and an appreciation of the fundamental importance of
establishing and maintaining good working relationships.
I'm not saying there's no planning in Defence. Far from it. Some areas are
better than others. Some have bits of the jigsaw, but not the whole puzzle.
What I do find, is that we fail to make the mark on three fundamental
criteria:
* planning which is clearly derived from our raison d'etre;
* planning which is logically linked, and
* planning that is not only understood but owned.
It is, in my view, a CEO responsibility (which I share with the Chief of the
Defence Force) to put this framework into place and to shape and share a
vision which gives meaning to the work of others. So that's another area
I'll need to spend a bit of time on.
This is an appropriate point to say something about what's called the
diarchy - the unconventional vesting of authority in two equals - Admiral
Barrie as Chief of the Defence Force and myself. While we each have
particular responsibilities our joint roles might be compared to a good
marriage - where there's synergy at the top.
Performance and the Budget.
Performance, achievement - outputs if you like, in the new jargon - should
be reported against the plan. Businesses do so through their annual report.
Interestingly, I note that the definition of Defence's outcome in the
Portfolio budget statement is not the same as the Defence mission.
Financial performance is reported in financial statements. The Auditor
General and his senior staff have left me in no doubt that Defence's
financial statements are at risk of being qualified next year in relation to
the valuation of Defence assets. This tends to focus the mind a bit!
While there are significant costs involved in the current deployment of our
defence forces, nationally and internationally, defence spending (or put
another way, what Australians spend on defence through their taxes) is
essentially focussed on conducting current operations and building a
contingent capability - the capacity of Australia's defence forces to fight
and win if called on.
I would expect to be able to report on what activities were undertaken and
what capability was in place for the $11 billion or so cash budget expended
each year in the defence of our nation.
I would expect to be able to advise the impact on that capability of an
additional investment of x% or a reduction of y%.
I would also like to be able to do this for our preparedness - that is, the
readiness of the ADF to conduct and sustain operations.
I am not in a good enough position today to do so to my satisfaction. That
must change.
My recollection is that, when the Coalition came to office, its platform
commitment was to match the previous Government's forward estimates
projection. That's what was promised - that's what was delivered!
The current state of Defence's financial situation against the Forward
Estimates might best be described as parlôus. I don't make that statement
lightly - considerable pain will be required to get us back on track. The
plain fact is that Defence has not been able to match the ends it is trying
to achieve with the means it has been given to do so.
This goes to the fiduciary duty of a Secretary - something which is
sometimes overlooked in the public sector. Not only am I responsible for
delivering the "Defence product" to the Government (Government wearing its
purchaser hat), but I am also responsible for ensuring the financial and
other sustainability of the Government's investment in the business
(Government wearing its owner/shareholder hat). In the words of the
Commonwealth's Financial Management and Accountability Act, Secretaries are
responsible for managing in a way which promotes the proper use of
Commonwealth resources - i.e. efficient, effective and ethical.
Perhaps it should come as no surprise then, that soon after I started, a
team of DOFA officials arrived in the Department to work full-time on our
financial position. They and their central agency colleagues will be
applying a wire brush to our position and our processes.
As the Minister has made abundantly clear to me, the Government will need to
be satisfied that Defence is managing its affairs properly and that they are
getting value for money before considering any increase in Defence funding.
There are many reasons why Defence is now confronted with this most
unpalatable situation.
One of these I'm told, is that over the last five years, our new investment
commitment has increased markedly (96-97 $1.4Bn; 97-98 $7Bn; 98-99 $1.8Bn;
99-00 $2.3Bn). That new projects have been approved at a rate significantly
higher than what is affordable in the long-term - and that's just in terms
of the acquisition costs.
The number of approved major capital projects has increased from around 160
in 1991 to 240 today.
Many of these projects represent either a big increase in capability or are
totally new. Airborne Early Warning & Control (AEW&C) aircraft, ANZAC
helicopters, the LPA Amphibious Transport ships, missiles, Electronic
Warfare (EW) systems, the new Coastal Minehunters, additional Light Armoured
Vehicles, and the Bushranger Infantry vehicles, to name a few.
All of these projects bring with them a big downstream liability in terms of
personnel and operating costs. Adding up all the projections is enough to
badly frighten the horses. In his speech at the recent Pacific 2000
Conference, the Minister signalled the intention to address this issue
through a proper whole-of-life capability process.
Then we need to add to this, significant bids for more support costs for
existing capability, for sorely needed corporate Information Technology
systems and the seemingly relentless growth in per capita personnel costs.
If that's not enough, what about the block obsolescence which is predicted
to begin around 2007?
The state of Defence's financial situation may well come as a shock to you,
just as it has to the Minister and the Government.
Getting the budget/FYDP into balance is a, if not the, most critical issue
we face. We have no expectation that Defence resources will be increased in
2000-01, beyond the promised funding for the East Timor deployment.
We have, therefore, been undertaking a comprehensive review of all
expenditure and investment priorities. This will help us to provide the
Minister and Government the widest possible range of options for their
consideration.
In relation to major capital equipment projects, these considerations
include already approved projects which are not yet under contract, as well
as projects which are yet to be approved by Government.
No recommendations have, however, yet been made to Ministers and no
decisions have been taken, either in relation to particular projects or the
overall allocation of resources within Defence. The Minister's clear aim is
to maintain the maximum possible flexibility in terms of possible future
projects while seeking to minimise any resulting disruption to industry.
Providing for Australia's defence is a long-term undertaking. It is
therefore important that decisions on future defence capability and related
projects are taken within the wider policy framework which the Defence White
paper will provide. We will be seeking to consult and cooperate with
industry to maintain the necessary flexibility while the White Paper is
developed.
I also take this opportunity to mention that the $380m reduction in the
1999-2000 Defence equipment investment program effected during last year's
Additional Estimates process was designed to accommodate cost pressures at
that time, particularly in relation to increased readiness, the Y2K issue
and maintaining a Defence Force of 50000 people. Contrary to press
speculation, no projects were cancelled as part of these investment program
adjustments.
We must shift the concentration of Defence's management and decision making
from a short-term cash driven input-based approach to a focus on outputs and
financial sustainability. Accrual based output budgeting and better cost
accounting will help here, but we've still got some way to go to get our
associated systems in place and operating effectively.
The forthcoming strategic outlook, Defence White Paper and budget/FYDP
deliberations should provide a firmer base for Defence funding and the force
structure for the foreseeable future.
In my experience, organisations that perform well regularly report
performance internally; this is normally linked to their external reporting
mechanisms and some means of frequently checking "organisational health".
While such mechanisms exist in many functional areas within Defence, there
is no coherent ongoing corporate performance assessment.
Perhaps this, combined with poor communication, and the internal focus I
spoke of earlier, has contributed to Defence's capacity to deliver
"surprises" to its owners, the Government. Experience tells us that few
surprises past childhood are pleasant ones.
Planning, measurement and striving for better performance are part and
parcel of an approach that anticipates issues and problems and actively
controls them rather than being controlled by them.
Governance.
Many elements of Defence's structure are sensible, but there are issues
which need to be addressed.
The separate acquisition and logistics organisations are both engaged in
procurement. The role of the Service Chiefs must be clarified - they have
essential responsibilities. The functional split within Defence
Headquarters is not clearly understood by many within it, let alone those
outside whom it is intended to support. The so-called corporate support
groups are not seen by their customers as sufficiently responsive to their
needs.
More importantly, our top structure is not consistent with the previous 14
functional groups or with our 22 outputs. As you will have guessed, I'm not
a fan of matrix management.
When I asked our senior military and civilian staff to identify Defence's
strengths and weaknesses, one of the most significant areas identified was
lack of clarity in direction; in roles, responsibilities and structures;
together with blurred and poor performance accountability - in other words,
accountability, responsibility and authority are not aligned.
Let me quote to you from an internal minute (to me) from a senior manager.
Referring to a number of organisations, he identifies "certain
characteristics as transcending apparent differences in business types.
Each of these large, diverse and complex organisations are characterised by:
* a genuine and demonstrated commitment to strategic management, guidance
and planning;
* a business plan regime displaying rigour, discipline, documentation and
accountability;
* an integrated cascade of subordinate planning and accountability
throughout the organisation, including personal performance agreements; and
* effective, open and frequent internal communications."
My due diligence diagnosis would suggest that Defence is presently lacking
against elements of these characteristics. While in some cases, such as
purchaser-provider arrangements, a foundation has been set upon which to
build and improve the current relationships, it is fair to say that those
components that do exist are usually partial, uncoordinated and/or poorly
understood by most.
CDF and I recently spent some time with our senior executives discussing the
role of the Service Chiefs and their relationship with other executives.
Issues relating to the headquarters structure and role will be resolved by
new top structure arrangements. Structure and outputs will be aligned with
the accountability /responsibility chain.
Acquisition and logistics reform are among the Minister's highest
priorities. He has sought advice on moving to a single procurement
organisation. And he is determined to engineer fundamental reform of the
way the Defence Acquisition Organisation conducts its business.
The Submarine Program remains our biggest project risk - a subject the
Minister is monitoring closely. He has also asked us to review and report
to him on the next 15 most costly acquisition projects in an endeavour to
prevent similar problems arising.
The Chief of Navy's proposals regarding a new Navy structure based around
force element groups (e.g. Major Surface Combatants, Submarines,
Minewarfare, Patrol Boats etc) have been endorsed. Army and Air Force will
test their structures against the new Navy arrangement.
Admiral Barrie and I will be putting in place a set of commissioning or
charter letters clarifying roles and responsibilities, accountabilities,
authorities and priorities for the members of the Defence Executive,
starting with the Service Chiefs.
Much of this will be settled during March.
The role of the Defence Executive needs to be clarified and we have to
review the associated committee structure and our corporate governance
framework. All of this, and much more, will be settled and in place by 1
July 2000.
People.
When one thinks of Defence, one is often tempted to think of tanks, aircraft
and ships. Yet people represent about one-third of our investment in
capability. As I mentioned earlier, one of the major strengths identified
by Defence's senior staff was our people. Our workforce is highly
committed. It's highly skilled. It's educated and developed to deliver.
We have already reviewed and refined the Defence Force career management
scheme - CDF and I are taking a keen interest with the Service Chiefs in
developing our senior uniformed people as part of succession planning. A
civilian equivalent has been introduced but needs quite a lot of development
to get it up to scratch.
People and their intellectual capital are Defence's value added. They are
our future. So it's important that we identify, attract, recruit, develop
and retain talented people. The right people with the right skills in the
right job at the right time. And, most importantly, people with the right
attitude.
Putting the budget/financial situation to one side, the most significant
organisational issue we face relates to leadership. Not to put too fine a
point on it, too many of our people lack confidence in many of Defence's
senior leaders. Justified or not, Defence's leadership is seen as lacking
coherence, as failing to accept responsibility and as reactive. Issues such
as visibility and caring arise.
Far too often, it seems that wherever one sits in the hierarchy, all the
problems besetting the organisation in terms of its management and
leadership come from higher up the ladder.
There are certainly elements of what I would call a culture of learned
helplessness among some Defence senior managers - both military and
civilian. Their perspective is one of disempowerment. This may, of course,
reflect the inadequacy of our performance framework.
Change.
As many of you will know, the defence reform program sought to transfer up
to 10% of the budget to the operational "sharp end" through cost reductions
and other efficiency measures.
It has already achieved a substantial proportion of those savings and the
resultant resources have been reinvested in improved operational capacity
including the substantial cost of providing increased readiness. At the end
of this financial year, we will have achieved recurrent annual savings of
$482m against the estimate of $403m at this stage of the game. The further
realisable savings, yet to be harvested, have already been programmed and
spent in our Five Year Defence Program. We've confirmed that we can still
achieve $730m of the original estimate of $773m.
There have also been problems here: in change management; implementation;
communicating the purpose and intended results; tracking the savings and
most especially where those savings have gone.
In the assessment of those who recently reviewed the program, it has been
less than successful as a vehicle for cultural change in the organisation as
originally envisaged by the authors of the Defence Efficiency Review. Many
in Defence continue to see the results of this review as one-off changes, to
be ridden through before things return to their normal state.
As you will gather from my earlier comments, Admiral Barrie and I are
seeking to create a more adaptable defence organisation - one which is more
effective and efficient, and one which is therefore comfortable with an
ongoing program and philosophy of continuous improvement. One which is not
so reliant on major externally-led reviews as a spur to change.
Macro change can be awfully seductive. In my opinion, enabling people
throughout an organisation to improve the processes in which they are
intimately involved is far more powerful.
Most of you will recall the publicity earlier this year surrounding
Defence's use of consultants - $16.8m in 1998-99. We do seem to have had
more reviews than Gone with the Wind and Defence has been a lucrative
hunting ground for consultants.
One of the great management gurus, Deming, considered that only about 4 per
cent of people in any particular organisation were likely to be brain-dead.
The vast majority want to give a fair day's work for a fair day's pay. The
ingredients to create this environment are, of course, often missing. But
there are lots and lots of bad systems and processes that we can simplify,
make more efficient and effective, and less costly. Involving the front
line people in this is a key step, as Defence's market testing program has
demonstrated.
We are establishing two small units to help address this:
* an organisational effectiveness unit led by a one star military officer;
and
* an organisational renewal unit led by a SES Band 1 civilian.
Communication.
Defence is probably the biggest and most complex organisation in Australia -
second only to Coles Myer as Australia's largest employer. Historically,
we've been a little secretive, due to the nature of some of our business.
In areas like intelligence, high levels of security continue to be
important, but in a modern democratic society, an overall approach of
secrecy can no longer be used as an 'easy way out'.
There is no doubt that the Government - and taxpayers - should know what
Defence is doing, where it is heading, and where their money is being spent.
This transparency is a vital ingredient to inform decisions about priorities
and the balance between competing resource demands - it's also essential to
maintain community trust and backing so that we can fulfill our crucial
responsibility of defending Australia's security.
In these days of instant global communications, successful military
operations rely fundamentally on the ability to communicate. It's not good
enough to have exemplary military plans, if they are not complemented by a
coordinated whole-of-government plan that carries our -and the international
- community with us.
As Australia's strategic environment becomes increasingly dynamic - as we
come to crunch time on some crucial decisions about the future role and
shape of Australia's Defence Organisation - this becomes even more
important.
With the many, and sometimes vociferous, competing demands on Government and
our people, Defence can no longer take for granted that the community it
serves understands why they need a Defence Organisation. And having to
'sell' ourselves in a modern society is not something we are used to doing.
Defence has a mixed track record with its communications, borne out by the
wide range of perceptions held by both the Government and our community. On
the one hand, perceptions about the operational record and professionalism
of the Australian Defence Force have never been higher, both at home and
internationally - while on the other, Defence's reputation continues to be
degraded by stories of poor project management and isolated but unacceptable
behaviour by some of our people.
We are addressing the communications issue by implementing the findings and
recommendations of a report that found shortcomings in our strategic
approach, our communication focus, and the structures we employ to support
our communications activities.
Conclusions.
Defence is a great place. It has so much to commend it. It is fair dinkum
about wanting to improve its performance.
But, we need to devote much more energy and effort to getting our corporate
processes and systems right - that will enable and sustain a substantial
improvement.
We need to focus on communication - both outside and within the
organisation, on planning, on performance, on governance and especially on
people, particularly leadership. At the end of the day, it's all about
getting results through people - a simple phrase that reflects my leadership
philosophy.
In a book called "On leadership" John Gardner writing about change, says:
"Institutions that have lost their capacity to adapt pay a heavy price.
Continual renewal is necessary. Leaders must know how the processes of
renewal may be set in motion."
That's the essential task for Defence leadership - fundamental renewal of
our organisation from within.
I have been pretty candid with you in my necessarily short study of these
issues and the potential solutions.
How do I know that these are the key issues, I hear you ask? I know because
the people in the organisation and other stakeholders have told me so. And,
I know from my own observation and analysis at the end of nearly four months
back in the place.
Many things have changed for the better in the six years I've been away.
The issues identified today are capable of resolution and I believe there's
a head of steam, a will and the capacity within the staff to do so. I will
not be walking alone. I know there's a substantial constituency which seeks
change - a constituency that is eager to be part of the process.
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