The First Principles Review of the Department of Defence was released by Kevin Andrews, the Minister for Defence, on April 1. A key question is whether this review foreshadows major progress in Defence reform. My view is that the review is the most thorough assessment of Defence administration in this country in a generation. It contains six positive features and six notable surprises.
The first positive is the forensic diagnosis of the ills in Defence administration. The review doesn’t hold back. It states bluntly:
The current organisational model and processes are complicated, slow and inefficient … Waste, inefficiency and rework are palpable … Defence is suffering from a proliferation of structures, processes and systems with unclear accountabilities. These in turn cause institutionalised waste, delayed decisions, flawed execution, duplication, a change-resistant bureaucracy, over-escalation of issues for decision and low engagement levels amongst employees.
The second positive feature is that the review is clear in placing much of the blame for this state of affairs on the poor performance of Defence’s leadership:
Previous reviews, more frequent since 1997, have resulted in only incremental change … we were puzzled as to why Defence has been unable to reform itself. Organisations need to be periodically reset and reshaped by their leadership. Substantive change appears to have been too difficult for Defence leaders …
The third positive is that the review recommends substantial change in the Defence leadership—its experience, culture, focus and energy levels:
Success will only happen with strong, clear, wise and uncompromising leadership from the top (both public service and military) supported by an energetic, committed and able senior leadership team … These changes need to start quickly, be pursued with energy and be guided by new and strong leadership … The time is right to clear the decks and liberate the organisation for the future.
The fourth major positive is the breadth of change recommended for Defence administrative structures and processes. The review proposes a significant strengthening of power in the centre of the department. The responsibilities and accountabilities of the Secretary of the Department and the Chief of the Defence Force will be clarified. The Vice Chief will be given authority over the single service chiefs to plan and develop joint capability and the Associate Secretary will become the integrator for all non-military functions. The management of most derivative functions will be simplified, with named personnel carrying clear responsibility for delivering specified outputs.
Numerous committees will be abolished and many others, including the Defence Committee, thinned down. Under this new regime there will be less scope for hiding poor performance.
A fifth positive feature is the review’s insistence on reducing the number of senior and medium-level managers and markedly reducing the number of reporting layers in the organisation:
Defence has been drifting and has not been reshaped in decades. It is now poorly structured. There are up to 12 layers in some parts of the organisation, from the Secretary to his front line staff … This stifles innovation and slows down communication, decision-making and execution. No more than six or seven layers of management is common practice, even in the largest organisations.
The review recommends a substantial de-layering of the organisation, increased spans of control for middle managers and stronger standards of accountability for performance.
A sixth positive feature is the detailed implementation plan specified in the review. Noting the failure of the department to effectively implement the conclusions of numerous previous reviews, this report specifies how its recommendations are to be implemented, by whom and over what period. It also advocates the appointment of a strong external oversight board to report directly to the minister for two years in an effort to ensure that the department doesn’t drag its feet.
The first major surprise is the failure of the review to drive reform so as to achieve key outcomes. The review talks generally about the need for the organisation to reliably deliver priority outcomes but it fails to specify either the primary organisational goals themselves, or the processes by which the department is to achieve them. The reformed department will probably operate more efficiently but there can be no guarantee that it will be much better in delivering key outcomes.
The second surprise is that the review fails to specify a strategy-led process for designing, analysing and testing alternative total force structures for the future Australian Defence Force. It talks loosely about the need for greater contestability in key force development decisions. However, the wording implies that the services are expected to develop proposals for new or replacement capabilities, presumably in broad accord with the general priorities identified in the latest Defence White Paper. These proposals are then to run the gauntlet of a series of critical reviews with the resulting messily-derived mix of capabilities proceeding to acquisition.
This tactical and highly reactive processing of a never-ending procession of sub-element proposals is a recipe for continued poor performance. It is akin to a car company deciding that it will need a new car in twenty years’ time. In the first two years the drive-train engineers propose a new-generation V6 engine and attract fierce debate about whether this is the right choice at the right price. The interior designers are excited by a new-design steering wheel and in the spirit of contestability there is then an intense debate about whether the new steering wheel should be round or oval or made of carbon. The electrical engineers propose a new type of tail lights and again intense debate follows on the most cost-effective option. In the second two years the drive-train engineers debate whether the car should be front- or rear-wheel drive, the interior designers propose a new air-conditioning system and the electrical engineers propose a new digital fuse-box. Very little thought is given to the more important question—the new vehicle’s operational performance when it gets onto the road in twenty years’ time.
After twenty years of this tribal contestability the end result would probably look like a clumsily-designed and poorly integrated Corolla. However, if serious thought had been given to the design of an optimal total vehicle for the demanding times ahead, a decision might have been made at the outset to build something like a Land Cruiser that can handle sustained travel on rough tracks and deep river crossings. Once that decision is taken the specification and acquisition of components is far simpler and the end result after twenty years will be a much better integrated and higher performing vehicle for undertaking the priority tasks.
The type of tactical contestability described in the review will suffer from precisely the same flaws. It will not produce a rigorously-analysed total defence force strategy and structure for the future. Nor will it provide a robust means of convincing ministers that Defence knows what the country needs for the more challenging security environment that is developing. In consequence it will not win the sustained support of ministers for budgetary priority. In order for these benefits to be won by the reformed department envisaged by this review, the newly-empowered Vice Chief will need to design, develop and drive a completely new total force strategy and structure development process, probably against the fierce resistance of the single-service chiefs and others. Unfortunately, this review will not help him greatly in this critical task.
The third major surprise is that while the review recognises the need to align strategy, plans and resource allocations, the structural and process changes recommended are unlikely to achieve this. The primary changes proposed in this context are to draw together all policy functions into a single organisational unit, to encourage strategic, technical and cost contestability of individual proposals, and for the minister to meet the Defence Committee twice yearly to review strategy, capability and funding alignment.
The fourth major surprise is that while the review acknowledges the need for deep cultural change in Defence, it doesn’t discuss in detail how this huge change is to occur:
Defence lacks a service delivery culture. This manifests itself in providers and customers not appropriately negotiating with each other, enabling functions not providing responsive services and customers duplicating functions as they do not believe they will get the required services.
The weaknesses in Defence culture are also reflected in the extended tolerance of the current loosely federated structure, the excessive layering of management, the weak and inconsistent system of performance management and numerous other problems noted in the report. While the review addresses some of the structural and process aspects of these challenges, it fails to spell out how the deep cultural flaws are to be remedied. Most notably, there is no discussion of the reforms needed to the training, education and development systems to encourage and force the changes required. More detailed planning and a broader listing of remedial measures will be required before a major program of transformational change can be launched successfully.
The fifth major surprise is that while the review notes that Defence tends to be inward-looking, it does not propose any remedy. The review notes that Defence’s public servants are the most likely of those in all Commonwealth agencies to have only ever worked in one agency. Moreover, a quarter of all Defence public servants are retired ADF personnel. In order to reduce this insularity the review recommends increased use of external personnel to assist with key analytical tasks and proposes that the Defence Science and Technology Organisation outsource elements to industry and academia. However, the review does not recommend significant increases in links to other government agencies, to commercial entities or to not-for-profit organisations.
A sixth surprise is the failure of the review to propose a workable mechanism for refreshing the department’s leadership, the current weaknesses of which are highlighted in many parts of the report. For instance, the review states that:
Failures of leadership are confirmed by recent survey data that show Defence’s public service leadership trailing that of the Services and the broader Public Service in key areas … Defence staff reported little confidence in their senior leadership. The leadership was seen as not very effective at leading and managing change and did not appear to be held accountable for their performance.
The review is silent on how this central problem is to be overcome. Indeed, in an amazing conclusion on the final page of the review, it states:
To prevent continuing drift and to provide the greatest chance of implementation success there should be, as much as realistically possible, minimal leadership turnover. The leadership team needs constancy and unity in order to tackle Defence’s problem of inertia and make the bulk of the changes within two years. We recommend stability in the key leadership positions, particularly over the next two years to provide consistency of direction and ownership of change.
So in order to undertake the myriad fundamental reforms that the review argues are urgent, it places trust in the current Defence leadership that the review argues at length has failed to drive efficiency and effectiveness for many years. This recommendation directly contradicts the calls for leadership change earlier in the report and seriously undermines the review’s credibility.
So what is to be made of the First Principles Review? Does it portend great improvements in Defence efficiency and effectiveness?
This report is the most important review of Defence administration in thirty years. Its primary strengths are its frank assessment of the present state of the Defence Department and its detailed implementation plan for important structural and process improvements.
However, the review does not clarify the department’s key outputs and outcomes and it does not direct how the organisation is to design and deliver a fully integrated future defence force. Nor does the review address in a convincing manner how the department is to achieve the deep cultural changes it says are needed.
So while the review’s recommendations deserve to be implemented in full, they are unlikely to result in a Defence administration that is fully effective and approaches world’s best practice. In consequence, the review’s plea that Defence be spared from any further reviews for some years may prove to be a forlorn hope.
Ross Babbage is a former senior Defence official, a former Head of the Strategic and Defence Studies Centre at ANU, Founder of the Kokoda Foundation, Managing Director of Strategy International (ACT) Pty Ltd and a member of the Academic Advisory Council of the Menzies Research Centre.