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2
Selected Navy Initiatives

The Office of the Chief of Naval Operations for Logistics (OPNAV-N4) is responsible for staff oversight for all facilities and installations of the Navy's shore establishment regardless of mission, and is the functional or mission sponsor for logistics (supply, maintenance, transportation) and base support (family housing, fire, and safety). Because this office sponsors a number of programs specifically with the aim of infrastructure cost reduction, the committee began its deliberations using this office's agenda as a roadmap. This chapter summarizes most of these initiatives and comments on progress in applying innovation in organization, technology, and management to the infrastructure as viewed in the first half of 1998.

Regionalization

Most Navy bases and facilities are clustered in a few regions around the country. Before regionalization, each facility was managed as a subordinate unit of a parent command and was supported independently of the other activities in the region, often providing all of its own infrastructure support. Over the years, the Navy has attempted to coordinate support activities in a region, but in general, these efforts have been limited. The Navy is now consolidating support in its larger U.S. regions, and it has termed that program “facility claimant consolidation” and “regionalization.”1 This section reviews regionalization and considers ways to improve the success of that initiative.

1In part this is due to base realignment and closure (BRAC).



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Page 16 2 Selected Navy Initiatives The Office of the Chief of Naval Operations for Logistics (OPNAV-N4) is responsible for staff oversight for all facilities and installations of the Navy's shore establishment regardless of mission, and is the functional or mission sponsor for logistics (supply, maintenance, transportation) and base support (family housing, fire, and safety). Because this office sponsors a number of programs specifically with the aim of infrastructure cost reduction, the committee began its deliberations using this office's agenda as a roadmap. This chapter summarizes most of these initiatives and comments on progress in applying innovation in organization, technology, and management to the infrastructure as viewed in the first half of 1998. Regionalization Most Navy bases and facilities are clustered in a few regions around the country. Before regionalization, each facility was managed as a subordinate unit of a parent command and was supported independently of the other activities in the region, often providing all of its own infrastructure support. Over the years, the Navy has attempted to coordinate support activities in a region, but in general, these efforts have been limited. The Navy is now consolidating support in its larger U.S. regions, and it has termed that program “facility claimant consolidation” and “regionalization.”1 This section reviews regionalization and considers ways to improve the success of that initiative. 1In part this is due to base realignment and closure (BRAC).

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Page 17 Current Status To understand the regionalization initiative and its implementation challenges, the committee visited San Diego naval bases reporting to the Commander in Chief, Pacific Fleet (CINCPACFLT). The San Diego region has the second largest concentration of Navy personnel and units, and it is home port to 56 ships. Given base closings elsewhere, it appears that the Navy presence in the region will increase over the next few years. Although most of the bases participating in this regionalization effort are in the immediate San Diego area, some bases, such as Fallon, Nevada, and El Centro, California, are further away. To capture this wider consolidation, the new region is called the Southwest Region, and it covers three states. As part of the regionalization process, ten San Diego bases are first being restructured into three megabases. Most of the money to operate and maintain the bases will come through one claimant (CINCPACFLT). Several other claimants have transferred money and control of property to CINCPACFLT as part of the process to simplify the flow of funds, and most of the installation support money comes to CINCPACFLT under the sponsorship of OPNAV-N4. The committee did not obtain a full understanding of all the planned savings because regionalization was still in the early stages of development and implementation. Regionalization will consolidate the support of the three new megabases. The regional command will have consolidated departments headed by program managers (or assistant chiefs of staff [ACOS]). The departments will provide a range of services to the three megabases, such as facility management, security, port operations, and air operations. There is a regional advisory board consisting of the megabase commanding officers and department managers. Based on the study of seven functional areas, the initial consolidation should save at least $20 million when fully implemented. The goal is to achieve savings of $40 million a year. Most of the savings from regionalization will come from reducing the number of middle management civil service employees and overhead features. Prior to the consolidation, bases in the region had reduced costs by $30 million. This was a 10 percent reduction in their base operating support budgets. The cuts were the result of overall budget reductions—some were met through efficiencies and others through reductions in service. From 1997–1998, 500 civilian workers were displaced by these cuts. It was very difficult to account for the total cost of the infrastructure resident in the San Diego region. Excluding personnel assigned to ships and to deployable aircraft squadrons, there are 36,000 military personnel and 20,000 Navy civilians in the region. The personnel cost alone is $2.5 billion. This estimate excludes construction costs, contractors, and utilities. As far as the committee could determine, the regional commander will have control over only $500 million. Thus the identified savings ($20 million) and the savings goal ($40 mil-

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Page 18 lion) only begin to touch on total Navy expenditures in the region. Additional savings may be forthcoming, but as yet have not been identified or targeted. The committee was also briefed on the Hampton Roads, Virginia, regionalization effort, which reports to the Commander in Chief, Atlantic Fleet (CINCLANTFLT), and has an organization and management matrix similar to those in the San Diego region. Consolidation of the Hampton Roads region, the largest naval concentration, involves 12 installations with 17 claimants, 25 property managers, and more than 500 tenants, with an inventory of $10 billion in buildings and 56 square miles of land. Although most of the examples below are drawn from the Southwest Region, the strengths and concerns with consolidation also apply to the Hampton Roads region. Figure 2.1 and Table 2.1 summarize the current status and projected annual savings for the Navy concentration areas in which regionalization and consolidation are to take place. Rationale Regionalization is a form of consolidation. In theory, consolidation can either improve or degrade the use of resources. However, there are many reasons to expect lower costs, i.e., scale economies, scope economies, redundancy elimination, and market leverage. Figure 2.1 Navy concentration areas. SOURCE: Adapted from Wennergren, David M. 1998.“Navy Concentration Areas —Host Activities,” Navy Infrastructure Cost ReductionInitiative, Office of the Chief of Naval Operations (N464), Washington, D.C., briefing to the committee, February 4.

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Page 19 Table 2.1 Current Status of Regionalization Navy Concentration Area Projected Annual Savings Current Status San Diego $40 million Analysis complete; PACFLT implementation in progress. Consolidating 10 hosts with regional base operating support (BOS) service delivery Hampton Roads $83 million Analysis complete; LANTFLT implementation in progress. Consolidating 11 hosts with regional BOS service delivery Pearl Harbor $18 million Analysis complete; PACFLT implementation in progress. Consolidating 8 hosts with regional BOS service delivery Pensacola $15 million Analysis complete; CNET implementation in progress. Consolidating 4 hosts with regional BOS service delivery Pacific Northwest TBD Analysis in progress Jacksonville TBD Analysis in progress Washington, D.C. TBD Analysis in progress with N464 support Guam TBD PACFLT regionalizing as part of regional A-76 competition. Consolidating COMNAVMARIANAS and NAVACTS Guam, regionalizing BOS functions Japan TBD Analysis in progress with N464 support Port Hueneme TBD Analysis in progress; some functions being implemented New Orleans TBD Analysis in progress with N464 support South Texas TBD Analysis in progress with N464 support New England TBD Analysis in progress with N464 support SOURCE: Adapted from Wennergren, David M. 1998. “Regionalization: Current Status,” Navy Infrastructure Cost Reduction Initiative, Office of the Chief of Naval Operations (N464), Washington, D.C., briefing to the committee, February 4. TBD, to be determined. Scale economies come from consolidating common workloads. Basically, when the workload doubles, something less than double the amount of resources is needed. There could also be scale diseconomies, which would make it more costly to provide services in larger organizations. This could be caused by additional oversight to coordinate the work. For the type of work consolidated in the Southwest Region and the size of the workload, it is unlikely that there are scale diseconomies. Scope economies are efficiencies gained from merging different types of workload. For example, there are scope economies from naval aviation depots (NADEPs) working on both airframes and components. These workloads may

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Page 20 use common management or inventories. The two workloads may also complement each other. For example, warehousing and configuration management may be collectively less costly if they have a common provider of the services. When each facility has its own supporting unit, there could be redundancy in the support. As an example, a public affairs officer at each base may be responding to the same question from the same community representatives. Because smaller bases have often reported to different higher-level organizations (claimants), there was limited consideration of joint provision of these redundant services. Many apparent redundancies are probably scale economies that show an excess only after consolidation. For example, finance and accounting personnel collectively may be able to manage accounts with fewer people than the sum of the individual departments. There is no redundancy because all of the people are necessary to meet the needs of the individual bases. The point is that classifying the source of savings is somewhat arbitrary—although the gains are very real. Sometimes, consolidation can improve the purchasing power of the new unit. This is often termed market leverage. Private firms may offer discounts to larger customers, in this case the regional service providers, and this would reduce the cost to the consolidated units. The saving derives from the outside service provider's own scale economy. Regionalization need not mean that one central organization provides all the support in a geographic area. For example, it could be agreed that one base in an area would operate the bachelor quarters, another facility would handle security, and still a third facility could handle personnel and pay support services. In this case, the region would take advantage of scale economies in the individual services. However, there could be significant drawbacks to such a consolidation. First, it would be very difficult to trade off across support areas (i.e., it would be hard to move resources across support areas when there are unforeseen problems or unexpected changes in the demands for the services). Also, there would be no gain from scope economies. Any gains in consolidating management oversight across services would be lost. For the San Diego and Hampton Roads regions, the service providers would be part of a larger organization, and this should allow the shifting of funds. Some Concerns and Suggestions Understandably, some reluctance exists at local bases and facilities to participate fully in regionalization. In part, it is a feeling that commanders and department heads would lose control over the quality and level of service support.2 There are many reasons for the Navy, regional commanders, and bases to be concerned with the outcome when consolidating service delivery. The newly consolidated organization could grow over time, particularly its indirect labor 2Also, the BRAC process may not be over, and if so, further adjustments will have to be made.

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Page 21 component, and the consolidated organization would have the challenge of properly prioritizing and sizing services at individual facilities. All of these potential problems can be addressed beforehand, but they cannot be ignored. The committee identified several ways to improve the regionalization initiative, make it more responsive to the customers served, and guarantee that the savings are realized. These improvements are listed below and discussed in the following paragraphs: • Simplify the organization. • Charge fees for service. • Establish full cost visibility. • Integrate competitive sourcing. • Fully integrate all bases in a region. • Seek customer input, and measure customer satisfaction. • Establish metrics jointly with customers. • Institutionalize success. • Better train and assign shore managers. Some of the recommended changes would directly address local concerns of bases. Having customers pay for additional services would give them some control over the quality of services. Also, clearly defined metrics provide both customers and regional service providers with performance standards to identify performance problems and gaps. Simplify the Organization In the San Diego region the new organization appears to have been superimposed on the previous organization, which in turn appears to have been superimposed on previous organizations. The new program managers, or ACOSs, are base commanders or former base commanders. There are 20 proposed functional departments. Some may be merged into common departments, but a large number are still likely to report directly to the regional commander. A large regional advisory board was established to make major budget shifts across functional areas. Although all of this seemed to be necessary to achieve buy-in from the current organizations, this new organization may be hard to manage, making it difficult to make decisions and forcing customers to work with many departments to solve problems that cut across the 20 areas. Experiences of other large complex organizations indicate that with the support of higher leadership, organizations can be streamlined and made more customer friendly. The number of departments should be relatively small, preferably between five and ten. A reasonable set of departments in the region would be ship support, aircraft support, personnel support, facility support, and safety. Regionalization might be an opportunity to realign previously constructed

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Page 22 regions. Although there is no reason to believe that the optimally sized regions are the same for all types of services, having different-sized and overlapping regions is not customer friendly and may hinder future consolidations. Previously regionalized activities that should be reexamined are maintenance, personnel support detachments (PSDs), NAVFAC's Southwest division, and housing. In general, those in charge of facilities (or bases) should not run departments that are intended to serve many facilities. As currently envisioned in the Southwest Region, base commanding officers (including those at bases being merged into the larger units) will head the departments. This means that the commanding officer must allocate support across his/her base and other bases. As objective as they try to be, those in charge of facilities or bases have conflicting incentives and goals—keeping up service at their own base and properly allocating resources to other bases. This is an unnecessary tension in the system that can never be satisfactorily resolved. In some cases, such as port operations, for which only one or two bases currently perform the functions, the issue is less pressing. However, separating the jobs should be an objective. Charge Fees for Service Two methods exist for funding infrastructure-related goods and services: (1) fees for services paid by the customer, and (2) funding directly by the service provider. To control demand for support services, units could be charged for some additional services beyond those provided by existing Navy Working Capital Fund (NWCF) activities. This would enable the internal “customers” to signal which work and services are worth the costs. As currently planned in the San Diego region, only a few units will pay for facility services. This issue becomes more of a concern when a centralized unit, and not the individual facility, makes most of the decisions. As currently proposed in the San Diego region, program managers will have to petition the regional advisory board for funds. The program manager then basically becomes an advocate for his area. Each program manager can justify additional funding because customers will make requests without budgets and without paying for the services. A drawback with establishing added fee-for-service activities is that they would most probably fall under the rules of the current NWCF. The current NWCF provides a much-needed flexibility, but it has lost the confidence of many customers. In addition, charging fees for services requires added administrative and accounting processing. Thus, decisions to charge fees for services should be made only when benefits will clearly outweigh overhead costs. Establish Full Cost Visibility Payment for service is related to cost visibility, but it is not the same. A good accounting system could capture the cost even without reimbursements.

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Page 23 The costs should be visible to both service providers and internal customers. In general, these costs have not been very visible to anyone. Part of the reason is that facilities do not have all resources in their budgets and indirect costs are not captured by anybody. The costs of military personnel and construction are often left out of the cost of delivering a service. Indirect costs of a base's service probably should include the support for military personnel, such as housing, personnel offices, and the other quality-of-life features provided on a base. The regionalization plan in the San Diego region does include a program to introduce activity-based costing (ABC). When this program is put in place and maintained, it should be extended to capture all costs, including military personnel and construction. Currently, the San Diego region plans for ABC do not include the full cost of military personnel. Full cost visibility could help establish fees for service and help facilities manage their operations more efficiently. Integrate Competitive Sourcing The Navy, like all of the Department of Defense (DOD), has an aggressive initiative to open to competitive bidding many of its support services. The effort builds on the previous success of competitions over a wide range of activities and organizations. To date, the Navy has been performing these competitions at individual bases without the benefits of regionalization. Regionalization and competition are complementary because competitions for larger activities generally produce a greater percentage of savings than do smaller competitions. Moreover, regionalization should reduce the administrative cost of competition, and the new regionalized departments should be able to represent the in-house bid in a more effective manner. As suggested in Chapter 3 in the section titled “Competition,” regionalized activities should be competitively sourced. The Navy should announce competitions as soon as it decides to regionalize, or as soon as possible thereafter. This would give private firms, as well as the in-house work force, time to restructure and reengineer activities. Industry forums could improve both in-house and outside bids. If, in fact, an in-house team is successful in a competition (as has been the case in the past [General Accounting Office3 studies]), it provides direct market evidence that its organization is the most efficient. 3U.S. General Accounting Office. 1998. Public-Private Competitions; DOD's Determination to Combine Depot Workloads Is Not Adequately Supported, GAO/NSIAD-98-76, Washington, D.C., January; U.S. General Accounting Office. 1997. Privatization and Competition; Comments on H.R. 716, The Freedom from Government Competition Act, GAO/T-GGD-97-185, Washington, D.C., September 29; U.S. General Accounting Office. 1997. Defense Outsourcing; Challenges Facing DOD as It Attempts to Save Billions in Infrastructure Costs, GAO/T-NSIAD-97-110, Washington, D.C., March 12; U.S. General Accounting Office. 1996. Defense Depot Maintenance; Privatization and the Debate Over the Public-Private Mix, GAO/T-NSIAD-96-146, Washington, D.C., April 16.

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Page 24 Fully Integrate All Bases in a Region As noted above, many of the naval bases in the San Diego region are reluctant to participate in the regionalization. In the San Diego region, the naval aviation depot (NADEP), Space and Naval Warfare Systems Command (SPAWAR) activities, and the hospital should participate fully. Some argue that regionalization should not include all activities in direct support of missions. Any attempt to separate activities on the basis of mission support reduces the merits of the consolidation. Mission-funded organizations should be directed to move as many of the support people into the consolidated organization as possible. By retaining budgets and purchasing services through a reimbursable system, mission-funded organizations would retain control over the level of services. Seek Customer Input and Measure Customer Satisfaction The current suppliers of services are basically shaping regionalization. It makes sense for functional experts in facilities, supply, air operations, and so on, to work on the design of the new organization. However, it is natural for the current providers to construct an organization that mirrors the individual, smaller organizations except for the elimination of some middle management positions. Also, there will be an inclination to continue to provide the services as they have in the past. Yet, the old organization may not have been satisfying its customers, and customers' inputs are needed to help shape and reengineer the new organization. As proposed in Chapter 3, the committee recommends that each of the new regionalized departments establish a performance work statement with output metrics based on both customer and provider inputs. These mission statements would help define the departments and the subordinates. All of these concerns will exist in a decentralized system, where each base and facility makes its individual decisions. However, when individual commands are closer to the end users (or may be the end users themselves), they would be more aware of changing needs and local priorities. Often, centralized decision makers can consider priorities among functions, but they may find it difficult to make across-base comparisons. Consideration of customer inputs and fee for service are key ingredients in any part of the reorganization and reengineering process needed to offset the bureaucratic tendency of centralized organizations. Establish Metrics Jointly with Customers A common challenge for organizations is to define meaningful metrics for judging performance and to use these measures properly. The more centralized the decision process, the more important is the role of metrics. The consolidated service providers, often headquartered away from the base, have to judge the

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Page 25 quality and adequacy of services. There are many layers and levels of metrics. The higher-level metrics reflect the overall functions and goals of the infrastructure, and the lower-level metrics are more clearly related to day-to-day resource decisions and performance measurement. The higher-level metrics provide context and direction to the organization. Regional commanders are generally not accountable for their magnitude and changes. It is the lower-level metrics on which they can be judged. The greatest challenge is to connect the lower-level metrics to the higher-level ones. Even when those connections are not well defined, and they often are not, it is still important to track both sets systematically. A “best practice” of many successful firms is to have a regular audit process that reviews metrics and publishes the results. Some examples of higher level metrics are the following: • Readiness condition of home-ported ships as they leave for deployments, • Readiness condition of home-based squadrons as they leave for deployments, • Retention rates of Service members in the region, • Percent of regional Service members requesting to stay in the Southwest Region, and • Customer satisfaction on surveys. Each individual metric has its weaknesses. Some are better applied to a base than to a region. But collectively, they present a picture of what material and personnel support should do. Since regional support is only one component of success, some trends may be unrelated to regional performance. Yet, a downward trend because of outside forces may justify increasing or shifting resources by claimant and resource sponsors. Common metrics from the CNO to base departments should focus the organization on its mission and purpose. Lower-level metrics are important for day-to-day regional management. The set of metrics selected should be constantly reviewed. The goal is to capture a reasonable set of indicators that collectively provide a picture to the regional commander. Examples of some lower-level metrics are as follows: • Number of hours an airfield is closed, • Number of nested berthings at pier, • Square-foot cost to operate and maintain buildings, • Elapsed time for repairing problems in housing, • Utility costs per square foot of space, • Crimes committed at Navy installations, • Elapsed time for remedying environmental incidents, and • Waiting time for family services.

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Page 26 After the metrics are identified, the Navy must establish benchmarks. Benchmarks could be based on historical “good periods,” the performance at the best installations, or where comparable measures can be made with private-sector performance. Institutionalize Success The Southwest regionalization effort is being built around the personalities of the region's leaders. The committee noted that they have built a partnership and a feeling of trust that allows the bases and tenants to break away from the traditional organizations. However, these relationships are fragile, and the rotation of key personnel could easily erode the gains. Over time, the regionalization may retain its form on paper, but a different set of leaders could revert to old practices and recreate their own support. The Navy must adopt policies and mechanisms of procedure and process to guarantee that successes endure and that process improvement continues. Better Train and Assign Shore Managers When organizations are stable, good general managers can come in and effectively run the operations. When rapid change is called for, leaders with a deeper understanding of how support organizations work and with enough tenure to make changes are required. The Navy must decide how to better train and assign its shore establishment leaders. These leaders must understand the component departments, needs of customers, current technologies, and modern business practices. The Southwest Region has a good share of experienced leaders, but this is unusual given current assignment policies and rotation. The Navy should consider extended tours for base commanders, require one previous base command assignment before assignment to the top position, and ensure promotion opportunities for excellent performance in shore command assignments. The executive officers could be Navy civilians with 5-year contracts. Such contracts allow for continuity and protect the Navy from poor performance. The Navy should cooperate with bases of other military departments in the same area. Joint efforts and cooperation in emergencies, safety, counterterrorism, and so on would be desirable, and likely necessary. Joint efforts in housing and environmental controls might further reduce costs for all concerned. The Future of Regionalization The Navy has made significant progress in overcoming parochial, “stove-piped” interests in favor of implementing regional cost-reduction strategies across multiple activities and major claimants. But more can be done. The Navy could expand its ongoing regionalization efforts to include other “ashore” funtional

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Page 38 costs—that is, those incurred in periods of relative tranquility—while not creating unacceptable risks for crisis and war. The committee is of the opinion that further opportunity exists for achieving savings in the maintenance infrastructure through reengineering across existing maintenance levels (depot, intermediate, and unit) and recommends continued exploration of opportunities consistent with the level of risk that can be tolerated for crisis and war situations. Recommendations • Provide regional maintenance coordinators with more authority than just “the power of persuasion” among equals to meet the regionalization of fleet maintenance objectives (and overcome some of the parochial Navy challenges listed above). • Include the costs of the military personnel involved in maintenance and other logistics functions in information made available to decision makers at all levels. Without an understanding of true costs in the Navy, decisions will be made on the basis of intuition and incomplete facts. • Continue to push for and eliminate excess capacity where it exists. The committee acknowledges external pressures inhibiting base closure and further contracting of depot work, but overcoming these pressures should not be abandoned. Smart Base Smart Base is a specific Navy project to test and evaluate initiatives that hold promise for reducing costs and/or improving the delivery of services on naval bases. Initiatives could be built around either recently developed technology or modern business practices; however, the focus of most of the project is on the use of computers to improve base support, with a common theme that computers more quickly and accurately complete personnel, financial, and facility transactions. Some of these initiatives rely on new software for individual computers, but most of the applications require that computers be linked and pass information. As the committee notes below, this lack of connectivity among functional computers has been a major limitation of these initiatives. Other initiatives, such as Smart Card, examine innovative ways for the Navy to use evolving commercial standards in embedded-chip credit cards, much like those the commercial banking industry has attempted to provide to its customers. Essentially, the Navy's Smart Card would enable electronic access to personnel records for record keeping, security clearances, travel reimbursement, and so on. As part of its review, the committee visited the Naval Station at Pascagoula, Mississippi, and the Portsmouth Naval Shipyard in Portsmouth, New Hampshire, which are principal installations testing Smart Base initiatives. When the committee visited Pascagoula, it was home port to four ships, 1,600 military

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Page 39 personnel, and 90 civilians. Since then, the base has added a cruiser and will soon have a Coast Guard cutter. It is a modern and relatively small operational base. Portsmouth, on the other hand, is an old and large industrial facility. It is one of the four remaining public shipyards, and it is dedicated to the repair and overhaul of nuclear submarines. The facility is located on an island with four million square feet of facilities, some of which date back to the Civil War. More than 90 percent of its current labor force of 3,400 are government civilians. Although the primary activity of the base is ship maintenance, about one-sixth of the work force, more than 550 people, provide base support. Results to Data with Information Technology The Smart Base project is 2 years old. In FY 1997 and FY 1998, the Navy will spend up to $20 million on its Smart Base initiatives. The Navy uses Broad Agency Announcements, which invite private firms to submit Smart Base proposals. To date, 200 proposals have been received—the largest number dealing with the use of Smart Cards; currently, 21 different initiatives are being tested at Smart Bases. For example, Pascagoula is the testbed for systems that support distance learning and bachelor quarters' management. The major projects at Portsmouth include an environmental information management system, an energy management system, and an electronic security system. Although the project has not yet achieved any breakthroughs, it is too early to judge the merits of individual initiatives. A well-publicized failure at Pascagoula was the establishment of an automated kiosk that would have allowed personnel to check onto the base, check into the bachelor quarters, and update personnel records. Service members would use Smart Cards to carry out the transactions. The kiosk never worked and was recently removed. However, a Smart Card seems to have been used successfully on board the Navy's Smart Ship. It is noted that a version of the Smart Card has been abandoned most recently by a number of major banks,9 but a few are continuing to use the approach. This seems similar to the Navy experience overall. Lessons Learned Pilot initiatives established to demonstrate successful innovation in day-to-day operations are difficult to implement. The committee is concerned that many of the current initiatives will not succeed and meet Navy objectives. Some of the shortfalls are listed below. 9In a recent newspaper article, it was noted that “use of the cards by customers had not come up to expectations and that merchants had pressed for a simpler operating system” (Authors, John. 1998. “Lack of Interest Forces Banks to Abandon ‘Smart Card’ Plans,” The Washington Times, November 4).

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Page 40 Lack of Connectivity Lack of information connectivity and networking among functions is a problem throughout the Navy—and the Smart Base experiments suffer as a consequence. One of the initiatives is to develop Internet access. Other initiatives basically assume, rely heavily on, or have limited value without the connectivity of computers. As a simple example, Pascagoula's consolidated bachelor quarters has five computers in its front desk area, each doing part of the room management function. Information cannot be passed between the computers, and all of the information cannot be displayed on a common screen. Another example: a particular software project allowed the purchase of office supplies electronically, but its design did not recognize that the task is normally done by clerks without Internet access. Failure to Truly Use the Private Sector An unspoken principle underlying the Smart Base project is that inefficiencies result from the lack of applying current private-sector technology. The thought is that putting this technology on bases will bring efficiency and service quality closer to that used in the private sector. Unfortunately, this approach could fail because what the Navy lacks in many areas is more than technology; it lacks the private sector's ability to integrate systems in order to solve business problems. The private sector sharpens these skills continually in a competitive environment. By acquiring only the technology, the Navy is underutilizing the private sector. For every new hardware or software feature acquired, the Navy will have to solve new problems to make the new technology work. Poor Planning for Phasing Out Legacy Systems The committee was told that essential data are still stored and transactions still processed on old (legacy) systems. Interacting with different functions and old systems requires people familiar with the operations and maintenance of those systems. One example cited was the recent arrival of a UNIX machine at Pascagoula for the maintenance of personnel records. The base had no support and training for the system, and there was no connectivity provided with other systems on the base. Lack of Fleet Support OPNAV sponsors and Washington program managers appear to work directly with the base, bypassing both the fleet commander and the regional commander. This practice has made the claimant leadership somewhat indifferent to the program because they have no stake in its success.

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Page 41 Poor Metrics Like other public organizations, the Navy lacks profitability as a metric to motivate the best introduction and use of technology. That does not mean that it cannot focus on reducing costs and improving performance. However, with the new technology, there has been little or no attempt to introduce cost visibility to track the costs, or to introduce and track performance metrics. Although there is an initial analysis of return on investment, the Navy does not appear to have a follow-up program. Lack of a Transition Plan for Successful Innovations Overall, the Smart Base project is evaluating many innovative ideas. However, the committee believes that the project will have only a small impact on infrastructure costs because there is no overall plan to extend successful Smart Base initiatives across the Navy shore installations. Other Efficiency Projects at Pascagoula Pascagoula appears leaner than other bases, but this result has little to do with the formal programs because the base was originally set up without many support activities. For example, the base does not have family housing, commissary, club, library, or chapel—these services are provided in the community. The base is very modern; it employs fiber cable throughout, permitting connectivity for most purposes. The base management has also contained, reduced, and avoided costs in a number of ways, and three projects are worth mentioning. Electric Steam Plant One of the most impressive technological introductions on the base is the steam plant on the pier. The modern plant was built by Mississippi Power at far less than the Navy's planned cost, employing sensors throughout, with the monitoring and regulating of the system highly automated. The system does not require an operator. This plant and the way it was acquired involved discussions with the private sector, which had the incentives to integrate several technologies into a modern and efficient plant. The base management estimates that this approach has saved the Navy $1.3 million in construction costs ($2.3 million spent instead of $3.6 million) and $500,000 annually in operation and maintenance costs. Galley Another action that is saving money is the elimination of the base galley. The bachelors now receive a basic allowance for subsistence (BAS) and have

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Page 42 small refrigerators and microwaves in their rooms. According to the base commander, this arrangement appears to be well accepted. Also provided is a Navy Exchange and a small McDonalds restaurant, and negotiations are underway with the Subway fast-food chain. The galley had cost $700,000 a year to operate, whereas the BAS cost is $200,000 a year. Grocery Store Discounts The base at Pascagoula does not have a commissary. The base management asked local grocery chains to provide discounts to active and retired military families, and two chains offer these discounts. The committee notes that there are hidden savings here. DOD currently provides a 20 percent subsidy to the commissaries, which in turn provide only a 10 percent discount to sailors. The private grocery stores are providing a 6 to 7 percent discount at no cost to DOD. Although Navy management has been unsuccessful to date in having the state waive sales tax on grocery sales to military personnel, the initiative is noteworthy. Recommendation Both the Office of the Chief of Naval Operations (OPNAV) sponsors and individual participants associated with Smart Base initiatives need to have regional commanders assess the likely importance of these technology demonstrations, and have them support transition mechanisms for those deemed to have high payoff. Information Technology For The 21st Century And Smart Link Currently, there are two rather separate information technology (IT) initiatives in the Navy: (1) IT-21 is primarily for the fleet, and (2) Smart Link is for shore installations. While conclusions are offered in this section, recommendations within this area are given in the next chapter in the context of the committee's vision of a Navy-wide information plan. Background Information and Technology for the 21st Century (IT-21) is both a new concept and a set of commercial standards providing the framework for the evolution of IT in the Navy. The Space and Naval Warfare Systems Command (SPAWAR) has been designated the lead organization to move the Navy's current IT resources from a set of disparate information assets to a fully integrated system providing connectivity across the entire Navy. IT-21 includes the underlying foundational elements of electronic communication—among them metro-

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Page 43 politan area networks (MANs), local area networks (LANs), personal computers (PCs), and backbone and related assets—that will advance the Navy's objective to function as a single, highly efficient enterprise. In a larger DOD-wide framework, IT-21 will contribute to the information superiority envisioned in Joint Vision 2010.10 Coordination of interfaces with other Armed Services and joint programs will be a continuing challenge. Within OPNAV, the Director for Space, Information Warfare, Command and Control (N6) is the resource sponsor and is responsible for implementing the IT-21 Naval Virtual Intranet (NVI). Under the current plan, these funds will be applied first to support fleet claimants, numbering some 120,000 personnel. Selected portions of the shore establishment will be upgraded as part of this initial endeavor. If this approach proves successful, then other Navy shore elements will be brought into the upgraded IT structure. A dialogue with industry is underway on IT-21 architecture. In particular, the concepts for the NVI have been disclosed to industry, and industry has communicated back to the Navy its view for implementation. The NVI process is planned to result in major acquisitions, with an emphasis on maximum use of commercial off-the-shelf (COTS) products, use of commercial standards, and the use of desired performance rather than detailed Navy design specifications. Similar efforts by other Services have a similar emphasis on COTS products, which can facilitate efficiencies in linkages that will have to be made. The Navy has also been evolving, separately from the other Services, the socalled Smart Link. Smart Link is a demonstration program, and some parts of the Navy have a vision that it should encompass many of the intended features of IT-21. Smart Link is designed to provide long-haul communications, linking shore installations throughout the country, operating across a commercial asynchronous transfer mode (ATM) backbone on the public switched (unprotected) network. Smart Link could also grow at a later point to provide support services afloat. The relationships between Smart Link and IT-21 are unclear to the committee, and the issue of transitioning legacy systems, in general, will require high-level Navy attention. Information Technology Responsibilities and Authorities The recent Navy focus on electronic connectivity, and particularly connectivity for the fleet, places SPAWAR in charge. However, the responsibilities for infrastructure connectivity are less clear. Moreover, control of information content, integration, collaboration, and sharing of infrastructure information are important functions, but it is not clear to the committee that any one individual, or any designated set of individuals, is in charge of them. 10 Chairman, Joint Chiefs of Staff. 1997. Joint Vision 2010. Washington, D.C., July 26. Available online at <http://www.dtic.mil/doctrine/jv2010/jvpub.htm>.

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Page 44 The shore establishment employs numerous IT systems, supporting diverse functions and commands; these systems are not compatible with one another and are costly to maintain. Smart new software systems are being introduced under the new base regionalization concept, but there is no clear process in place to ensure that all bases will benefit from these regional developments. High-data-rate service exists, to a large degree, at Navy bases throughout the country with emphasis now placed on the LANs, MANs with associated servers, and PCs, which still need to be funded and installed. If regional IT “islands” are substituted for functional local IT “stovepipes,” the problem of redundancy and lack of interoperability will remain. Information Technology Standards A number of organizations and functional groups are active in addressing Navy IT issues; chief among them the Chief Information Officer (CIO) of the Navy. The CIO is a critical element of the Navy's hierarchy in establishing IT policy and providing Navy-wide leadership. The CIO chairs the Department of the Navy Board of Representatives, composed of senior IT representatives from throughout the Navy, and speaks with authority in furthering IT interests. The committee notes that in the highly important area of standards, the CIO recently issued a new IT standards document that is now being reviewed by industry. Industry comments will be considered before this document is issued formally. The committee believes that there is no more important area than standards if the Navy is to maintain the necessary discipline to avoid redundancies and to achieve interoperability throughout its emerging IT infrastructure. Understanding Information Technology Costs From an industry perspective, the GartnerGroup says that the total cost of ownership for a personal computer is $10,000.11 During its review, the committee was unable to obtain reasonable estimates of Navy IT costs. The Navy's IT, and the overall DOD IT for the defense infrastructure, have evolved over decades, with no architect responsible for pulling them all together into a coherent integrated system. The Bandwidth Baseline Assessment Memorandum (BAM) study,12 done for the Navy fleet, has no known counterpart to document the 11GartnerGroup Total Cost of Ownership Research Team. 1998. TCO (Total Cost of Ownership) 1: A Business Yardstick, conference presentation, GartnerGroup, Stamford, Conn.; Redman, B., W. Kirwin, and T. Berg. 1998. Managing Distributed Computing, R-06-1697, GartnerGroup, Stamford, Conn. 12Cebrowski, VADM Arthur K., USN, Director of Space-Information Warfare. 1998. Memorandum for RADM Jay Yakeley, USN, Director of Programming Division (N80), re: POM-00 C4I Bandwidth Baseline Assessment Memorandum (BAM), Office of the Chief of Naval Operations, Washington, D.C., March 18.

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Page 45 current installed IT systems on land. The Navy does have a five-phase plan to identify the approximately 40 percent of IT needs for shoreside activities, but it will not include items bought with Navy operations and maintenance (O&M) funds. The committee could not find a good baseline inventory of machines, software applications and software systems, and connections to LANs and wide area networks (WANs). Without a blueprint for existing Navy IT infrastructure and a comparable plan or statement of needs for the future, the committee could not make an intelligent assessment of the overall costs for the Navy IT infrastructure, or projected IT budget needs. Parenthetically, this lack of information on total available IT assets also has caused a problem in assessing the extent of the year 2000 (Y2K) problem. Navy Culture, Values, and Resource Allocation There is a perception that when resources are scarce, the Navy places its priorities on platforms and weapons systems. Traditionally, IT capabilities and IT skills have not been valued highly. Programming large sums of money for IT often results in the funds being a target for budget reallocation. The payoff from IT is not well understood. Moreover, with no central management of IT, there are limited or no perceived incentives to share, use best business practices, learn from each other, keep track of what hardware and software configurations are used, track how much is spent on personal computers, or obtain the total cost of ownership. There is limited insight into the costs of doing work (e.g., military personnel are viewed as cost-free in many infrastructure areas), and the value of additional shared information for management is not fully appreciated. The Navy now is showing its understanding of the need to share fleet information as it changes from platform-centric to network-centric warfare. However, this need to share information to improve effectiveness has not yet permeated the Navy infrastructure. Connectivity and Content In the IT world, connectivity is the highway, sufficient bandwidth makes it a superhighway, and the hardware and software are the enablers. Information content is the essence of the value in the product—getting the right information to the right people at the right time. Metcalfe's law asserts that the power of a network is proportional to the square of the number of nodes in the network. Connectivity and access to shared information increase the value of the product to the customer. To date, the Navy has focused on laying the highway and increasing the bandwidth to address the issues of the fleet—the fighting force of the Navy. As the committee studied the essential non-deploying shore support

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Page 46 to the fleet, it found that in the Navy IT world, the shore support has not had high priority. Lessons from Industry In industry, once the highway is laid, getting the right product to market ahead of the competition becomes the issue. Time is an important metric or measure of success. To reduce time from the process, non-value-added work and transactions have to be eliminated. Thus, management needs to understand what work is being done, by whom, and where. In large organizations, most of the information on what and how work is done is hidden. The costs of getting work done are also not transparent. The transformation of U.S. industry, which has reestablished its strength in the global marketplace, is due to restructuring the way work is done and how information is shared. IT has been a major enabler of this change. Tedious and time-consuming tasks have been reduced, or made easier to perform. With the advent and broad use of the World Wide Web (WWW), order and delivery processes have been revolutionized. Paperless acquisition and electronic commerce are thriving. The facility maintenance for millions of square feet can be managed by a handful of people, centrally located, using an intelligent database and decision support tools. Adult training and education are being transformed by sophisticated, engaging, multimedia courses designed for learning. Universities are now managing their operations online. The Western Governors University is a collaboration among 16 states to provide learning opportunities online—shared and run across state boundaries. The University of Phoenix has no campus; all communications take place online, and non-Web courses are given in rented warehouses or storefronts. Business is being done differently. Making IT pay off in industry has been possible because of process engineering, collaboration, and sharing of information. Conclusions As in the private sector, information technology will become integral to the Navy's infrastructure. A culture shift for the Navy involves moving from a position of information control to one emphasizing the rapid sharing of information to enhance mission accomplishment. Specifically: • The Navy has pockets of excellence in information technology, and applications thereof, but the knowledge is not shared well. Many separate IT initiatives are not working in concert. • Information systems used in business and in the Navy infrastructure do not in themselves reduce costs (i.e., they rarely result in an overall net reduction

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Page 47 of personnel simply by automating capabilities). Information systems can be a lever for reducing costs by enhancing access to and accountability for services. • For the infrastructure and shore support areas it is not well understood by those in the Navy, or clear to the committee, who is responsible for providing desk-to-desk connectivity. • The Navy has not fully identified the means for or funded the complete desk-to-desk connectivity, including access to sufficient bandwidth, needed to enable essential users to share data as they can now share voice communication. The result is that the benefits of full connectivity are not being realized even though a major portion of the costs are being incurred. • Funding Y2K solutions “out of hide” will divert funds and attention from achieving the cost-effective benefits of full connectivity across the Navy infrastructure. • In the area of infrastructure information content, there is not a clear delineation of responsibilities, authorities, and accountability in the Navy. • Output measures of performance for infrastructure business areas are lacking, and they will be key to defining the content of the information system needed for integrated management of the Navy infrastructure. • As the Navy changes its warfighting focus from platform-centric to network-centric warfare, it may also be appropriate to modify its management of the manning, training, and equipping of its forces (i.e., realign assignments of responsibility and accountability for portions of the infrastructure) to better match what fleet commanders need from the shore support establishment and to improve the cost-effectiveness of the infrastructure. • A precondition to achieving the full benefits of IT across the Navy, and particularly across the Navy infrastructure, is visible and committed leadership from the top. The Chief Information Officer (CIO) and the Director for Space, Information Warfare, Command and Control (OPNAV-N6), for example, have only the power of persuasion to influence Navy IT evolution. Closing Comment The magnitude of the cost savings needed to recapitalize the Navy at levels of $3.5 billion to $5.0 billion annually cannot be obtained simply by “working harder and smarter” on the $13.5 billion portion of the infrastructure focused on by N4 (i.e., base operations, installations, central logistics, and quality-of-life activities) and discussed in this chapter. Moreover, Navy information technology initiatives are focused predominantly on fleet rather than infrastructure activities. Therefore, information technology currently is not being utilized to its full potential across the entire Navy. The committee could not find within the Navy a bottom-up process for achieving the 10 to 20 percent or greater infrastructure cost savings required because of the factors enumerated herein. Although progress made at individual

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Page 48 units and commands shows that considerable savings are possible when cultural resistance and parochialism give way to modern business reengineering processes, such action has not been seen across the entire infrastructure. The next chapters treat the implications in greater detail.