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Executive Summary

The Department of the Navy wants to improve shore installation operations, readiness, and management by skillfully leveraging state-of-the-market technologies and business methods such as outsourcing, privatization, and partnerships with state and local governments, with a goal of reduced cost of infrastructure. For the Navy itself, where all forces float1 or fly, the shore establishment is synonymous with infrastructure, which includes “all activities that provide support or control of forces from fixed bases of operation.”2

In response to a Navy request, the Committee on Shore Installation Readiness and Management, operating under the auspices of the Naval Studies Board, was created to offer advice on how to accomplish the goal of providing quality infrastructure support at significantly less overall cost to the fleet. The committee was asked to (1) identify business practices (or enterprise processes) and technology applications that could materially enhance the efficiency and effectiveness of operations; (2) recommend a plan for implementing the changes needed and provide approximate estimates of the efficiencies that might be gained from implementing that plan; and (3) develop estimates of the potential Navy-wide savings that could result from extending the committee's recommendations to other areas. Against these objectives, it also was requested that the committee examine the Navy's Smart Base project.

1The term “float” includes submarines.

2Graves, T.J., D. Drake, P. Forsyth, and J.L Wilson. 1995. A Reference Manual for Defense Mission Categories, Infrastructure Categories, and Program Elements, Paper P-3133, Institute for Defense Analyses, Alexandria, Va., June.



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Page 1 Executive Summary The Department of the Navy wants to improve shore installation operations, readiness, and management by skillfully leveraging state-of-the-market technologies and business methods such as outsourcing, privatization, and partnerships with state and local governments, with a goal of reduced cost of infrastructure. For the Navy itself, where all forces float1 or fly, the shore establishment is synonymous with infrastructure, which includes “all activities that provide support or control of forces from fixed bases of operation.”2 In response to a Navy request, the Committee on Shore Installation Readiness and Management, operating under the auspices of the Naval Studies Board, was created to offer advice on how to accomplish the goal of providing quality infrastructure support at significantly less overall cost to the fleet. The committee was asked to (1) identify business practices (or enterprise processes) and technology applications that could materially enhance the efficiency and effectiveness of operations; (2) recommend a plan for implementing the changes needed and provide approximate estimates of the efficiencies that might be gained from implementing that plan; and (3) develop estimates of the potential Navy-wide savings that could result from extending the committee's recommendations to other areas. Against these objectives, it also was requested that the committee examine the Navy's Smart Base project. 1The term “float” includes submarines. 2Graves, T.J., D. Drake, P. Forsyth, and J.L Wilson. 1995. A Reference Manual for Defense Mission Categories, Infrastructure Categories, and Program Elements, Paper P-3133, Institute for Defense Analyses, Alexandria, Va., June.

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Page 2 The Challenge Facing The U.S. Navy To accommodate lower post-Cold War budget levels, the Navy significantly reduced its modernization funding. The Navy leadership now needs about an additional $3.5 billion to $5.0 billion per year to recapitalize and modernize for the future while maintaining fleet readiness, and the Department of Defense (DOD) has identified infrastructure savings as the source for funding this short-fall.3 If the Navy is to maintain its current fleet size and recent levels of peace-time deployment and peacekeeping operational activity with constant or declining budgets, the only available source of funds for modernization is the infrastructure.4 Currently, infrastructure activities account for $28 billion (or 40 percent) of the annual Navy budget of about $70 billion. This is an increase from about 37 percent in FY 1991. The Need For A Corporate Strategy And Leadership Past performance and the committee's review of ongoing initiatives indicate that reallocating $3.5 billion to $5.0 billion annually from Navy infrastructure activities for recapitalization and modernization will require a more extensive effort than is currently underway. Current initiatives such as regional consolidation of installation management functions, designation of regional maintenance coordinators, and the Smart Base project are a good start, but they will not provide the desired savings. There are two primary reasons for this conclusion: • First, ongoing initiatives are focused on only about one-third of the infrastructure and are projected to result in a maximum of about $750 million in annual infrastructure cost reductions—well short of the $3.5 billion to $5.0 billion annual goal. Thus, there is little likelihood that today's initiatives could by themselves solve the problem at hand. • Second, and perhaps more important, is the fact that the committee could not identify an overall corporate Navy strategy for solving the problem. The important changes that are underway are being led by individual staff activities and support elements that lack the authority to change the requirements for or the methods of providing goods and services to the fleet. Moreover, many of the reductions made thus far appear to be pro rata cuts rather than being based on solid research, analyses, and assessments of risk. 3U.S. General Accounting Office. 1997. Defense Infrastructure, GAO/HR-97-7, Washington, D.C., February. 4If defense and Navy budget levels were not determined in large part by domestic and political considerations, the linkage between modernization needs and infrastructure efficiencies could be broken, but that is unlikely in the current national security environment.

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Page 3 Major Recommendation: To achieve its recapitalization funding goal, the Navy should develop and implement a corporate-wide strategy to improve the business operations of the entire Navy infrastructure. The senior leadership of the Navy, led by the Secretary of the Navy and the Chief of Naval Operations (CNO), should establish a clear vision and a corporate-wide strategy for conducting the future operations of the entire naval system within the budget constraints projected. The strategy must be clear on what is to be achieved, in concrete terms, how it is to be achieved, with what means it is to be achieved, and when it is to be achieved. The strategy, of necessity, must address all portions of the Navy infrastructure, not just a few isolated portions thereof. A compelling case for major change in the way business is conducted must be made by the CNO and communicated to all elements of the Navy. Responsibilities and authorities to implement change must be made clear and issued by the CNO. Experience in both the public and private sector shows that such “enterprise reengineering” cannot be implemented easily. The required efforts go far beyond the authority of individual staff elements in the Office of Naval Operations (OPNAV) or the Secretariat (e.g., Shore Installation Management Division (OPNAV-N46), Deputy Chief of Naval Operations for Logistics (N4), Assistant Secretary of the Navy, Financial Management and Comptroller (ASN/FM)), as the committee understands these activities today. Additional insights and recommendations on what is needed to achieve change across the entire Navy system are provided in the body of this report. In developing its corporate-wide strategy the Navy should aggressively reexamine long-standing business practices that are deeply ingrained in its culture. The committee believes that, to provide visibility, foster innovative solutions to to-day's complex problems, and measure progress, the Navy's efforts should focus on implementing three key interrelated enablers. Navy-Wide Enablers Three enablers—performance metrics, information systems technology, and competition—are singularly important to implementing a cohesive strategy and plan that will achieve the degree of change required in this instance. Performance Measures, Cost Management, and Allocation of Resources Cost visibility and performance measurement to gauge progress toward meeting mission goals are critical to good decision making and allocation of resources. Traditionally, DOD and Navy resource allocation processes have, for the most part, focused on input cost figures that amount to planning factors. With regard to infrastructure, for example, the requirement for funding real prop-

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Page 4 erty maintenance is often expressed as a percentage of the current plant value (e.g., real property maintenance “should be funded” at 2 percent of the current plant value). Such requirements do not result from analysis of actual needs; they do not identify the consequences of funding at higher or lower levels, nor do they describe the consequences or loss in capability associated with not funding to meet the “requirement.” To improve management of the infrastructure, particularly from a business perspective, the Navy will have to develop and use performance measures that are important to the operational forces. Such measures must facilitate assessments of infrastructure support outputs as they affect force readiness to carry out fleet missions. Output measures are also essential to making more informed judgments regarding alternative infrastructure investments and the consequences of those alternatives. To facilitate implementation, the committee provides a suggested seven-step process for developing performance measures that involve both service providers and service users.5 The process will allow decision makers, from the program manager to the Chief of Naval Operations, to evaluate what is required to support the user and what level of performance should be expected by the user. The Navy Working Capital Fund (NWCF), which currently provides more than $20 billion in goods and services annually to Department of the Navy customers, lacks cost visibility and output measures for assessing performance. NWCF operations are overseen by financial managers rather than line managers, and there is no single individual or chief operating officer who is dedicated to overseeing and improving management of the total system. Major Recommendation: The Navy should establish a management information system to track support-system performance and costs. This system should be based on an integrated set of cost and performance metrics that are developed using fleet user inputs as well as those of service providers. More detailed information and recommendations related to the components of a management information system are included in Chapter 3 of this report. In addition, accurate vision statements are important when formulating long-range plans and measuring progress. The committee believes that the motto in the current 21st Century Shore Support Infrastructure: Navy Infrastructure Vision and Strategic Plan,6 “Equal to or better service at equal to or less cost,” is inconsistent with the goal of reducing the infrastructure to the minimum essential necessary to meet users' requirements. 5See Appendix C and discussion in Chapter 3. 6Hancock, VADM W.J., USN, Deputy Chief of Naval Operations for Logistics (N4). 1997. 21st Century Shore Support Infrastructure: Navy Infrastructure Vision and Strategic Plan, Washington, D.C., June 14.

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Page 5 Major Recommendation: The Navy should change its statement of infrastructure vision to “Essential service at minimum cost.” Information Technology for Infrastructure Management Information technology, when used creatively, can enable organizations to provide services in ways not previously possible. It can also assist managers to better align lower-level responsibilities and authorities, and thus can save money by eliminating work. Numerous private-sector firms have significantly improved their global competitiveness by reengineering their business processes and management structures. Improved competitiveness in this regard has typically involved adopting a customer-oriented focus and skillfully leveraging information management and communications in order to reduce the overall costs of operations. To succeed, this approach requires an enterprise-wide perspective of “what is” and “what needs to be.” A clear vision of the desired management structure, and how it needs to function, is central to any such reengineering effort. To improve the efficiency and effectiveness of its infrastructure operations, the Navy must fully identify both the individuals and the organizations that will be responsible and accountable for specific infrastructure outputs and the content of the associated management information. A substantial effort must be made to develop and maintain networked information systems, including World Wide Web-based tools, databases, and applications that will enable integrated management of the Navy infrastructure. The basic task is to provide all essential users in the infrastructure and the fleet with desk-to-desk connectivity and sufficient bandwidth such that they will be able to share data and services as they can now share voice communication. Connectivity and access to shared information increase the value of services to users. With total connectivity, information technology has the potential for integrating ship and shore operations and enabling the infrastructure to supply services in ways not possible before. Information posted on the World Wide Web could replace most hard-copy manuals and general information materials. Providing services via a Navy-wide information space (infospace) rather than physically co-locating services and customers can effectively move the services from “down the street” to “on the desk.” The concept of a Navy-wide infospace is that of an adaptive system defined at any time by a set of performance standards for timely and effective information delivery throughout the Department of the Navy. Used well, information technology saves money by eliminating work, not by moving it or automating it. Information technology can also help to conserve physical resources by providing ways to model the consequences of alternative decisions. A simple example is the electronic tool for ship berthing and movement developed and used at Naval Base, San Diego. It is cheaper to move ships on screens than under real power. The Navy has spent billions of dollars on obtaining connectivity, but the

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Page 6 primary focus is on the operational users, while the needs of infrastructure users are not being fully addressed. The result is that the benefits of full Navy-wide connectivity are not being realized even though the major portion of the costs are being incurred. Major Recommendation: The Navy should define and implement the concept of a Department of the Navy-wide information space (infospace) using a set of standards—some of which are now being partially implemented by the Information Technology for the 21st Century (IT-21) initiative—to serve both shore and afloat activities. The infospace should be defined by performance standards for timely and effective delivery of information and services throughout the Department of the Navy, including the fleet and its support. It should include a network infrastructure and a standard information workstation for every responsible information worker in the Navy, not just those in the operating forces. The infospace should be used as the primary vehicle for delivery and integration of information about the entire Navy infrastructure to include the following functions: acquisition, central logistics, central personnel, communications, force management, installations, medical functions, quality of life, science and technology, and training. Funding for this effort, including funding for essential technology upgrades and related training, should be identified and protected within the Department of the Navy. More detailed information and recommendations related to the components of a future Navy-wide infospace, with specific discussion of its importance for reducing infrastructure costs, are included in Chapter 3 of this report. Competition Competition can reduce the costs of providing services. In addition to achieving greater efficiencies, there are numerous advantages to competition.7 From 1978 to 1994, the DOD held more than 2,000 public-private competitions that resulted in an average savings of 30 percent, or about $1.5 billion annually.8 Within the Department of the Navy, competitive sourcing (i.e., competitive bidding among service providers) following Office of Management and Budget Circular A-76 procedures was used to conduct large numbers of detailed bottom- 7(1) Competition forces public (or private) monopolies to respond to the needs of their customers; (2) competition rewards innovation—monopoly stifles it; (3) competition boosts the pride and morale of public employees (Osborne, David, and Ted Gaebler. 1992. Reinventing Government, Addison-Wesley Longman, Inc., Reading, Mass., pp. 80–84). 8Trunkey, R. Derek, Benjamin P. Scafidi, Francis P. Clark, Cheryl Kandaras, Andrew M. Seamans, LCDR Carolyn M. Kresek, USN, Robert P. Trost, Angela L. King, Christine H. Baxter, Kerensa E. Riordan, Steven Smith, and Michael Ye. 1998. Moving Forward with A-76 in the Navy, Research Memorandum 98-9.10, Center for Naval Analyses, Alexandria, Va., May.

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Page 7 up reviews, with each competition involving small numbers of positions. The A-76 procedures, in and of themselves, discouraged managers from taking action. In addition to this constraint, competition for many infrastructure functions was also limited by Navy policies, particularly those regarding the definition of positions as inherently governmental and those reserved for sea-shore rotation. The end result of these constraints and policies is that competitive sourcing, as it has been implemented, is not likely to be a major contributor to reducing infrastructure costs. This is unfortunate because the committee's review clearly suggests that the Navy could reduce its future infrastructure costs considerably by adopting a top-down rather than a bottom-up approach, and by readdressing long-standing management practices and policies with regard to an objective definition of billets suitable for competition (civilian and military), given the costs of infrastructure personnel. The rotation of the career enlisted force between sea and shore billets is an integral part of the Navy's overall personnel management system. The sea-shore rotation policy has fundamentally been implemented by reserving many shore jobs for military personnel. In recent years, however, sea-shore rotation objectives increasingly have come into conflict with Navy objectives to reduce the number of support personnel ashore. The metric used by the Navy to monitor sea-shore rotation is the sea-shore ratio. This ratio is based primarily on considerations of morale and retention, with planning factors based on “past experience” and conventional wisdom—rather than any direct cause-and-effect relationships—used as a guide. The ratio is not based on the kinds of analyses that major modern enterprises use to maximize the efficiency and effectiveness of their personnel management. Major Recommendation: The Navy should use competitive sourcing as a preferred approach to selecting the best providers of all support. In this regard, the Navy should establish a cross-functional team under the Assistant Secretary of the Navy/Installation and Environment (ASN/I&E) and the Assistant Secretary of the Navy/Research, Development, and Acquisition (ASN/RDA) to be responsible for overseeing the execution of competitive sourcing in business operation areas approved by Navy leadership. In addition, the Navy should address all existing constraints on sea-shore rotation. The CNO should broaden the objective to managing seagoing personnel as a part of total naval personnel management and should direct relevant elements of the Office of Naval Operations (OPNAV) and second-echelon commands to search for innovative ways to satisfy the morale and retention needs that allow greater flexibility in reducing the cost of the infrastructure. More detailed information and recommendations related to competition are included in Chapter 3 of this report.

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Page 8 Closing Comment In seeking to prepare now for the future, the Navy must assume that its budgets will at best remain nearly flat in constant-dollar terms. Thus, in order to free resources to fund essential modernization requirements, the Navy should aggressively seek to significantly reduce the cost of infrastructure operations, because closing additional bases is an option that the Congress will not support at this juncture. Failure to act quickly and comprehensively will most likely result in an inability to acquire sufficient combat platforms, weapons, and supporting systems to maintain the current force structure and keep the Navy preeminent in the future.