"If the rate of change on the outside is faster than the rate of change on the inside. . . the end is near."
—Jack Welch, former CEO of General Electric
This insight from an experienced businessman underscores the challenge facing our Navy today: How does our organization keep up with the pace and scale of change in the world and still remain dominant, relevant, and affordable? The answer lies in making the required institutional changes that promote a more efficient and adaptive Navy.
By now, many have heard of, or contributed to, the Navy's ongoing business transformation called Sea Enterprise. Sea Enterprise is the resource enabler of Sea Power 21, and is focused on the business aspects of our Navy, on making them more effective, efficient and affordable. As is appropriate with any major change program, it is worth taking the time to conduct an in-process review; specifically, why our Navy needs to continue this transformation, what business transformation is all about, the progress that has been made to date, what we've learned, where we need to go, and what every one of us can do to help accelerate and support Sea Enterprise. Before we talk about Sea Enterprise, it is worth stepping back to review how we define "transformation" and why our Navy is transforming.
What Is Transformation?
Table 1.
Strategic Objectives Desired Behaviors
Culture Challenge
Change/Behaviors Assumptions & Costs
Improve Processes Encourage Innovation
/Structures to Maximize
Productivity
Drive Execution;
Retain Readiness
Harvest Savings Focus
Promote Enterprise
Perspective
Why We Need to Transform
The simple reality is that we cannot afford to maintain our current level of capability given our current business structure and the cost of sustaining it. The available pool of funds in the federal budget for discretionary spending is decreasing. Mandatory spending (Social Security, health care, and other fixed costs) is expected to grow significantly by 2009, exclusive of mandatory interest payments on our national debt. The impact of the ongoing Global War on Terrorism continues to demand a significant portion of the funds provided the Department of Defense. The net effect of these and similar factors require that we face the reality that Navy Total Obligational Authority is likely to decline further over the Future Years Defense Plan, which, if coupled with traditional increases in operating, support and manpower costs, will squeeze our investment accounts even further.
The end result of this cycle, unless we find a way to break it, will be a significantly smaller, less dominant, and less relevant Navy for our country. Sea Enterprise—or business transformation—is the way we will break this cycle.
Business Transformation: What It Is
Our post-World War II Navy through the 1990s was structured and organized to deliver our core capabilities of generating forces, making those forces ready, and supporting their operations very much like a large, decentralized industrial conglomerate (such as General Electric of the 1950s-60s and AT&T). We had a corporate management layer (OpNav) that performed certain functions like requirements generation, assessment, budgeting, and policy, with execution left to individual, autonomous and functionally complete business units (our Echelon II commands; both operational and shore establishments).
While this kind of structure or "business architecture" can be very effective, it is not very efficient. Duplication of common functions across individual commands results in unnecessary overhead. A lack of focus across the "white space" between organizational boundaries results in slow response times. A lack of integrated information systems frustrates the organization's ability to optimize processes as well as the flow of the material, inventories, and performance management. A "vertically dominated" business architecture can also frustrate individual customers, who have to interact with multiple business units to satisfy their needs.
True business transformation is the process of making substantial changes with no loss of net effectiveness perceived by the customer (in many cases with a net increase in effectiveness). It has been likened to changing an aircraft's airframe and engines while it is in flight in a way that the flight crew can hardly notice, and for that reason, it's not easy! It can, however, be done, and others have done so.
Progress Made to Date and Lessons Learned
We started with the belief that we can reduce costs and become more efficient. We first attacked our most entrenched beliefs about change in our Navy:
- That we are necessarily a high fixed-cost organization
- That our many internal organizations necessitate separate and independent strategies
- That our Navy is too rigid for large-scale, lasting change to occur
- That our bureaucratic culture prevents an enterprise approach toward business transformation
Over the past three years, Sea Enterprise has touched a broad spectrum of our Navy. We have made significant progress within and across the Echelon II commands. We have better aligned and streamlined our organizational structures with initiatives such as establishment of Commander Fleet Forces Command, Commander Navy Installations, the Naval Aviation Enterprise, and standing up the Assistant Chief of Naval Operations (IT). Also, initiatives such as restructuring NAVSUP and NAVFAC, Airspeed, Task Force Lean, IRCA, SHIPMAIN, NAVRIIP, etc. have already yielded significant returns and are showing great promise toward further improving the efficiency and effectiveness of our business processes. Through these innovative efforts, we have reprogrammed over $27 billion allowing us to increase funding for Sea Power 21 weapons system development, buy more capable ships and aircraft, achieve higher levels of readiness to fight the Global War on Terrorism, and invest in our workforce with better pay and benefits to attract and retain the right people for our Navy.
Along the way, five key principles have emerged as lessons learned, which will guide our future efforts, and are currently being incorporated into Navy-wide leadership training. These guiding principles are:
- Senior leadership must drive transformation. Leaders define success, which can no longer be judged by the accumulation of resources or mission growth, i.e., total sorties flown, line items of inventory, size of budgets managed, etc. Navy leadership, therefore, must promote enterprise thinking, drive transformation across the enterprise and be in alignment on why we are transforming, what we are transforming, and how we are transforming.
- Leaders create the culture of continuous improvement we seek. Defining and measuring outputs associated with investment streams, challenging assumptions inherent in processes, and understanding and balancing risk are baseline ingredients to success and a primary responsibility of leaders at all levels. Establishing and sustaining a culture of continuous improvement, a willingness to consider divestiture of non-core functions and old/underused infrastructure and platforms, a focus on decreasing cycle-times, and ensuring we harvest the savings from our efforts are all components of this leadership responsibility.
- Enterprise alignment of organizations and processes. Sharing best practices, leveraging core competencies and continuous process improvement are critical components of our Sea Enterprise efforts; but the benefits of these components will not be fully realized until we extend both the boundaries and depth of collaboration across our Navy enterprise. The Navy's Corporate Business Council, chartered by the UNSECNAV and VCNO will play a key role in this area.
- Embrace best practices. We can leverage the lessons learned and best practices from both the private sector and government. Good examples abound on both sides. The OPNAV N4 staff will help identify such best practices through the Sea Enterprise website, but local command efforts are often the best source for discovering new ideas and improved processes.
- Develop business acumen at all levels. Sea Enterprise will continue providing our Navy's "corporate executives" with the education, training, and knowledge necessary to understand how to view, manage, and transform their "businesses." Business acumen must also be cultivated in all of our people, especially junior officers and CPOs, earlier in their careers.
Embracing these guiding principles is a necessary step to our continued transformation, but equally critical is leadership focus on execution. A handful of well-planned and properly resourced initiatives with solid business cases can chart the way ahead better than a hundred smaller, scatter-shot initiatives that change on a regular basis.
The Way Ahead
The Sea Enterprise way ahead is proceeding along two parallel paths. The first path is to continue and accelerate the command-specific business transformations already in progress across our enterprise. We have learned that the best way to pursue these efforts is by:
- Better understanding our business. We need to know our respective business lines, how they add value, the capabilities they provide, what they cost, what they produce and for whom, how to measure their outputs, and where they fit in the value chain of delivering combat capability to our Navy. We need to ensure all are needed and valued and must be willing to divest ourselves of business lines others can better support, particularly if they can do so more efficiently.
- Digging into our processes. We need to explore each process within our core business lines and better understand outputs and costs, set challenging but achievable productivity improvement targets, and optimize production capacity; divesting excess capacity to eliminate waste and free resources.
- Focusing on efficient delivery of value. Great strides are being made with lean, six-sigma, and theory of constraints to create efficiencies and improve productivity.
- Creating a culture of innovation. Process improvement requires fresh thinking. We must ensure we have mechanisms in place to both seek new ideas and rapidly respond to them. We don't suffer from a lack of ideas across our Navy or within our commands, we suffer in not being agile enough to respond to those ideas quickly and then carry through on their execution.
- Capturing the savings. As savings are created it becomes critically important that we discipline ourselves to bankroll savings as they are identified (not two years later in the program objective memorandum) and resist expending savings to address short-term desires.
The second major path Sea Enterprise is more "horizontally" focused (or cross-boundary) as discussed earlier. Opportunities exist to increase effectiveness and efficiency in several common business processes and structures (e.g., in acquisition, supply chain management, financial management, human capital management, and business information systems); in short, in how we manage and are structured to manage the enterprise.
Accountability for transformation will increase and continue to be driven by senior leadership. Over the past two years, CNO Echelon II Execution Reviews played an important role in supporting Sea Enterprise transformation objectives. After nearly 40 Echelon II reviews, the following key areas have emerged as deserving focused command attention:
- Increase cost transparency. By demonstrating clear understanding of total costs, commands can focus their efforts on areas with the highest potential return.
- Develop an Initiative Portfolio Management (IPM) process. Leading organizations use a disciplined strategic IPM process to manage innovation, screen their ideas, develop a business case analysis, select the right number of initiatives, resource them properly, and drive them through execution.
- Implement a Command Business Plan (CBP). CBPs provide short-term execution focus to longer range strategic plans, and set explicit execution goals/targets in areas such as: (1) Leadership-setting and communicating vision, command contribution to Navy mission and future vision (Sea Power 21), (2) Business Areas and Outputs, (3) Performance Measurement, Analysis, and Knowledge Management, (4) Human Resource Planning, (5) Process Management and Improvement, and (6) Business Results.
- Assign ownership and monitor the results. Accountability can only be achieved if outcomes are measured and individual responsibility for results is clear.
Understanding the need for transformation, and communicating the what, why, and how of Sea Enterprise gives leaders at every level the basics to begin leading their organizations in achieving Sea Enterprise objectives. Savings naturally result from the focus on doing business better.
Your Role in Sea Enterprise
Transformation takes leadership! The role of leadership in a Sea Power 21 Navy will be different from an Industrial Age Navy. The 21st century has changed the way organizations function, and the requirement for leadership effectiveness within them.
This is not to imply that new expectations simply replace old expectations of leaders, but rather that each of us has a personal responsibility to look for ways to improve what we do, and improve what we know. Communicate the need for transformation with your superiors, co-workers, and direct reports. Engage your people, and set aside time in the normal routine to solicit and discuss innovative ideas. This builds trust, and empowers people with the chance to make a difference. When done right, everyone will feel and act like owners of our Navy.
Give your people the tools they need, including your support to “challenge all assumptions.” Empower them with accountability, resources, information, and authority to act. Set achievable productivity improvement targets and encourage change by recognizing successes. Lastly, embrace your personal role in Sea Enterprise, and the responsibility each of us has to learn to master change as a competency for effective leadership in our Sea Power 21 Navy.
Summary and Conclusion
The change mandate is clear: to make our Navy more dominant, relevant and affordable, all hands must embrace and commit to a deliberate pursuit of efficiency and cost containment. The high cost of operations and manpower reduces our ability to rapidly replace cold-war era systems with significantly more capable sensors, networks, weapons, and platforms appropriate to the security challenges we face. In order for more of the budget to be spend on investment, we have to change the way work is done in very fundamental ways. To achieve and maximize the return on the nation’s investment in our Navy, we must collectively seek new opportunities for improved effectiveness and efficiencies to reduce costs and manpower requirements across the enterprise.
The pace and scale of change in the strategic landscape demands dramatic changes to our Navy. Developing an efficient, adaptive capability that is responsive enough to any given amount of change will depend on our ability (and willingness) to promote change as opportunity.
In conclusion, Sea Enterprise is not an end-state, but rather a state-of-mind. It is about institutionalizing changes to make business transformation possible and rewarding bold action. We must have the will, the courage, and the perseverance to make changes to our institutional building blocks of policy, organizational structure, processes, and incentives. These are complex challenges that demand collaborative solutions and require engagement of leaders at all levels. Yet, ultimately, success in transformation is about changing the way most of us think, thus changing the way we behave. If we can institutionalize the required behaviors that promote ongoing renewal and reward “efficient effectiveness,” Sea Enterprise—as steam power did at the turn of the last century—will transform our Navy.
EDITOR’S NOTE: Sea Enterprise is sponsoring the Anchoring Sea Enterprise Essay Contest, which offers total prize money of $40,000 to the winning entrants. Winners will be published in a Proceedings supplement in 2006.
Vice Admiral McCarthy is Director Material, Readiness and Logistics (OpNav N4) and is the Sea Enterprise sponsor. Commander Nystrom is Sea Enterprise Team Leader (OpNav 401). Visit the Sea Enterprise website to learn more, submit your success stories, apply for the new CNO Sea Enterprise Innovation Award, view Corporate Business Council decisions, and give your inputs/ideas: http://usn.hq.navy.mil/SeaEnterprise.
right force, with the right readiness, at the right cost."