Author: Lou

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Small Business Risks and Aerodynamics 101

I had the honor to participate on a panel recently at an event sponsored by the Reston Chamber of Commerce focused on the challenges faced by small businesses as they become “big” businesses. It was titled, “Breaking the Barrier: Launching Government Contracting Businesses Through the Small Business Threshold.” We discussed a variety of challenges faced by small businesses as they become successful and graduate into the “regular size” world of competition. LoverD a good topic for you small business owners to consider because the Small Business Administration cites unexpected growth as a major reason for small business failure. This is something that CCA has focused on as we developed our market strategy. Take a look at some of my thought on “Breaking the Barrier” on this web site in the Small Business Transition tab. I won’t rehash it here, but in a nutshell, as your business grows and is facing the loss of advantages of being small, you have to think about things differently.  That’s what “Breaking the Barrier” is all about……thinking about your business 2 or 3 years from now.  As a small business owner the temptation to remain focused on the current task order or the next deliverable is powerful, but you have to pull yourself above the fray and think about the future.  That’s hard to do!

I like analogies and being an aviator I frequently rely on my aviation experience to explain things. That’s why I think comparing the small-to-large transition as breaking the sound barrier is appropriate on several accounts.

First of all, breaking the sound barrier just doesn’t happen.  It required countless amounts of energy, money, blood, sweat and tears to get Chuck Yeager to nose through the Mach 1.0 barrier in the Bell X-1.  X1 It also took some sophistication because  we discovered that more power was not the answer in breaking the sound barrier.  Turns out something called the Area Rule is the key to supersonic flight.  The Area Rule basically states that in order to go supersonic, an airplane ‘s fuselage must be shaped like a Coke bottle.  Who knew?  I flew the venerable A-6 Intruder and no matter how hard we tried ( and believe me we tried) we could not hit “the Number.”  Breaking the small business barrier also requires more that just “more power (contracts).”  It requires the owner to look at his/her business in a different way.  How do I need to look when I become a $50 Million business? I guarantee you it’s different from how you look now.

Next, one wants to blast through the sound barrier as fast as possible. Airplanes can do screwy things in the trans-sonic phase of flight.  Controls act funny, engines sputter, sonic booms scare the bejesus out of the “earth-lubbers.”  In short, it’s not a good place to be or stay.  So when flying supersonic aircraft, pilots tend to want to blast through it and not deal with all the goofy things that happen….And guess what?  The same is true for the small business owner as the dreaded revenue limit is approached.  You don’t want to hang around at that limit….either stay below it or blast thorough it, but don’t hover around it.

Someone asked about the risks associated with transitioning from small to not-small and I think the risks can best be described as a stall in aviation terms.  When flying, stalls are bad, especially when near the ground.  Just look at what happened to Asiana Airlines Flight 214 at San Francisco….they ran out of airspeed and stalled straight into the seawall. So here’s my take:

Small businesses sometime stall when approaching the applicable revenue limits for the same reasons airplanes do:

  1. Lost of lift
  2. Loss of power
  3. Too much drag
  4. Too much turbulence

Loss of Lift.  As a newly joined member to the “not small” club you will lose some of the factors that gave your small business “lift.”  The big primes will no longer be seeking you out in order to satisfy demographic requirements or take advantage of your lower rates.  You are now on your own and must do the seeking yourself.  There are also no set-asides for formerly small businesses.  That perk has vaporized, forcing you to go toe-to-toe with the big guys.  You have to anticipate that loss of lift in your business plan as you contemplate life as a “not small” business.

Loss of Power.  Power in the business world is what drives your business forward.  That power comes from the strength of your pipeline and the relationships you have.  Small businesses tend to not pay attention to pipelines, lead qualifications and where to focus business.  As you become bigger, you have to focus your attention on what will power you through the barrier, and that means re-thinking your market strategy, tailoring a pipeline process that supports it and developing a process that allows you to focus limited resources on what matters most.  The value of relationships in the marketplace can not be over-stated.  As a small business, chances are you had a pretty small universe of contacts because you didn’t need to spend a lot of time figuring out whose team you were going to be on. Your probably have a go-to prime (perhaps even a mentor-protoge relationship) and you don’t have to go shopping around for primes.  Now you are the prime in many cases and if you don’t have a robust contact file, you just might be SOL (technical term).

Too Much Drag. There are many factors which can be a drag on your business’ profitability.  I submit the most significant ones are:

  • Doing too many things.  In my experience, many small businesses are a “mile wide and an inch deep” because they have tended to try and be all things to all people in order to avoid turning down opportunities.  At my old firm we had just a handful of NAICS codes, but many times when I look at a small business they may have a dozen or more.  That’s not going to hack it when you are no longer small.  You are going to have to figure out what three of four things you are going to focus on and let the others go.
  • Overhead increases.  As you get bigger more and more overhead begins to drag your profitability down.  You have to bring on people to handle the tasks you used to do yourself….finance people, proposal people, people people…All of these put a drag on your ability to blast through the barrier.  A wise owner will think ahead and develop a plan to accommodate theses requirement. You may not have to hire people.  Why not outsource your finance function for a while?  do you really need to buy a very expensive software bundle to handle your finances or could you go to the cloud?  These are all things you need to think about before you get to the barrier, not after.
  • People.  Another drag on your business can be having the wrong people doing the wrong things.  They were hired for one purpose, but as contracts changed they were repurposed.  This may or may not be a good thing.  Small businesses tend to hang on to people too long and as an owner you need to constantly evaluate your personnel situation.  The last thing you want is inadequate or mediocre staffing as you blast through the barrier.
  • Lack of process. The final drag can be the lack of repeatable processes within your organization to handle the transition to big business.  The pipeline discussion above applies here.

Too Much Turbulence. The final reason you might stall is too much turbulence over your lifting surfaces.  Turbulence in your business can come from many sources.  The competitive environment can overwhelm some firms if they are not expecting it.   Proposals become more difficult to write.  You are not just completing a couple of sections for some prime, you have to write it all.  That can be a real disruption if not properly managed.  Remember that you are now in the wake turbulence of the large company business development machine and that most likely, wherever you go they have already been.  I can tell you from experience that the last thing you want to do in your little airplane is to land in the wake of jumbo jet.  You will find yourself in the BD wake all the time and need to plan for it, or avoid it all together.

Horizon that’s my pitch for the day.  Think about your business in aviation terms and anticipate  the risks that are out there just waiting for you.  They can be predicted, avoided or dealt with.  But only if you go in with eyes open and scanning on the horizon.  As the proud owner of a successful small business about to become large, your scan needs to move to the horizon of your business not right in front of your nose.  If you aren’t scanning the horizon then you are a candidate for failure.

 

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A-10 and Reality

I just reread the summary of the 2015 National Defense Authorization Act (NDAA) passed by the House on a vote of 385-98.  At the end of the day, it appears that the House was not interested in agreeing with many of the cost cutting proposals that DoD had hoped for.  Base Realignment and Closure (BRAC) is not an option (see Bric-a-BRAC) , and it looks like the Air Force can keep it’s A-10’s for now.  When all is totaled up, the bill accounts for just a shade over $600 Billion in spending.  That number is a far cry from what the sequestration number would have been, thanks to the BiPartisan Budget Agreement, but 2016 will be another story.  A-10s The Senate also affirmed its desire to keep the A-10s in the inventory in its version of the NDAA.

I happen to agree with the Air Force that it is time for the A-10 to go.  It’s expensive to maintain and operate and doesn’t really have a place in the 21st Century battlefield.  It pains me to say that, because it was a good airplane for the mission, tank killing and Close Air Support. Intruder in the Spagetti My airplane was also the victim of affordability cuts and the entire fleet was scrapped right after it had undergone an expensive and extensive rehabilitation effort.  I’m talking about the A-6 Intruder, retired in 1997.  No one came to its rescue unlike the A-10.  I’m not quite sure why the A-6 retirement didn’t kick up more dust back then except to say that times were tough, money was tight, and everyone recognized the an airplane like the A-6 was vulnerable at low levels against the threat and that with weapons improvements we just didn’t need an airplane that could carry twenty-two 500 pound Mk-82 bombs.  What’s the point?  With Tomahawks and Joint Stand Off Weapons there was just no need for the A-6.  The same is true for the A-10, in my opinion. With today’s technology, the threat environment where the A-10 would be operating would not be survivable.  The assumption is that in order to use the A-10, we would have to have Air Supremacy (meaning no enemy airplane flying) and completely neutralized the hand-held SAM threat on the ground.  That’s a tall order!

In today’s world with armed drones…..oooopppps….i meant to say Remotely Piloted Aircraft, there’s just no need to put aircrew at risk.  Add to that the expense in maintaining the A-10 and it’s just not worth it……at least not to the Air Force.  It IS apparently worth it to members on the Hill who have A-10’s flying in their districts, and the hundreds of airmen required to be in each squadron to maintain the A-10. Sometimes it’s hard to admit you are flying a dinosaur that just doesn’t have a home in the 21st Century.

 

 

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Our Money’s Worth

I always get frustrated when the members of the Joint Chiefs of Staff opine about rising healthcare costs in DoD and their assertion that us mean,ole Retirees are what’s causing costs to rise out of control.  One gets the impression from listening to their rhetoric that this is the only way to fix things.  Just make the retirees pay more…..that’ll fix it!  Of course, they say they won’t mind paying higher fees because under their retirement system they stand to make much more money in retirement than they ever made  on active duty.  Look at the pay tables for a four-star…..a four-star retiring with 41 years of active service makes a base pay of about $181,500 a year (the table actually says $237,144, but because of Federal pay cap limitations, they are held to the lower number). That’s not including various allowances.  Once they retire, let’s say with 41 years (about right for a four star) their retired pay is calculated by multiplying their uncapped pay by the appropriate multiplier, in this case 102.5%.  That means retirement pay will be $243,072 bucks a year…….not bad…..I wouldn’t mind paying those additional premiums either!  Not to mention all the high-paying board jobs that they will get………..So they have no credibility with me when they say they don’t think increased premiums for retirees will have much of an impact on the average retiree. My retirement was capped at 75%.  I propose that as a gesture of good faith, all four stars forfeit all money they get in excess of the maximum amount they made on active duty.

A recent CBO study made three recommendations on how to control DoD health care costs, yet we only hear about one of them, increasing retiree costs.  Here is the complete report but the three things CBO cites as ways to control costs are:

  1. Better management of chronic diseases
  2. More effective administration of the military health care system
  3. Increased cost sharing by retirees

How come the brass never mentions the first two?  I can guarantee you we waste a lot of money in administration, special pays, unnecessary medical procedures,  and excessive equipment, but I never hear what DoD is doing about that.  One would think that before off-loading the burden of paying for healthcare cost increases on those who faithfully served, the powers-that-be would exhaust all other possible avenues….but not so here.  Why?  Because it’s just too hard to fix the first two and it’s all too easy to point at retirees as the root of the problem.  Don’t get me wrong….I support yearly increases in TRICARE premiums that track economic indicators…..but don’t make it seem like we retiree are the only problem.  It’s time for those in charge to acknowledge that there is much more to increasing health care costs than just retiree benefits.

I was so inspired by the article in today’s WaPo concerning the Soldier who has received a double arm transplant……It’s makes me proud to be an American when I read those stores.  But that technology costs a lot of money…..and we should spend it without question.  How come one of the Joint Chiefs never points out that we have thousands of casualties from a decade of war who deserve the best we can offer and that the increased costs associated with this high quality healthcare are going to be steep.

I also think that there is no incentive within the medical community to reduce costs.  There is every specialist imaginable in military medicine and we have to keep them busy.  Take dental care for example.   Mr. and Mrs. America go to their family dentist.  When they need a filling, the dentist does it.  When they need a root canal, the dentist generally does it, when they need a tooth pulled, that same dentist does it.  Not so in military dentistry….you have to go to an endodontist to get root canals and an oral surgeon to have teeth pulled.  That care probably cost at least 3 times more than it does in civilian life. That’s just one example of why health care costs so much more in the military.

And just take a look at how long we have been futzing around with electronic medical records and joint records with the VA.  Here’s a quote from an article in NextGov: “Worried that the Defense and Veterans Affairs departments might continue to spend years and billions of dollars in a “futile exercise” to develop their own electronic health record systems “and lose sight of the end-goal of an interoperable record,” lawmakers included funding restrictions in the 2014 Omnibus Appropriations Act the House passed Wednesday.” AMEN.  

So my point is that before trying the easy way out by radically increasing retiree health care costs, why doesn’t DoD get its own house in order.  If DoD can stand up in front of the world and say “We have done all we can to fix the way we manage chronic illnesses, streamline administrative processes, incentivize cost reductions within military medicine and there’s not another dime there,”, then I will cheerfully consider ways to increase the money I pay for my retired health care.  Until then, I ask that they stop beating that horse (the one that died when they first proposed healthcare premium hikes 10 years ago)

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Motivate me!

I just finished plowing through the 2014 Performance of the Defense Acquisition report published by Office of the Under Secretary of Defense, Acquisition, Technology, and Logistics (AT&L).  ATL Report width= I was prompted to look at it when I saw this article in the Washington Post on what motivated contractors, according to the report.  Pardon my suspicion at a report bragging about how well the current crowd at AT&L is doing, but I’m suspicious.  First….there’s a lot of statistics included and my experience is that statisticians can twist the numbers to say anything.  As evidence, I note there wasn’t much bad about the JSF (perhaps the worst performing program of all time) in the report.  Oh sure, it appears, but if one were to just glance at the charts and graphs where JSF is mentioned, you get the impression that it’s just a middle-of-the pack program…..lots of programs perform worse, a few perform better.  EXCUSE ME?  This baby is already $160 Billion behind schedule and 10 years late in delivery (and still counting by the way, especially given the disastrous fire at Eglin Air Force Base last week). How DoD can publish a report on performance of the Acquisition system without including a chapter on why the JSF program is so gooned up is beyond me.  It’s like the YouTube video when the gorilla walks through the basketball game.  Am I the only one who noticed?

Another item I thought was interesting was the conclusion that although Firm Fixed Price (FFP) contracts do perform better and generally exhibit less cost growth, the report concludes it’s because most of those contracts are lower risk anyway.  Oh by the way, the evil part of FFP contracts is that the vendors who do a good job of managing cost and performance of their programs are probably making more profit and therefore gouging the Government.  I can hear the conversation in the Pentagon now, “That darn contractor actually delivered on-cost and on-time, so we must have given him too much money!”  That substantiates my belief that the Pentagon has the uncanny ability to take from good performing programs to pay for the sins of poor performing programs, thereby dooming all programs to some level of common mediocrity.

One other point I thought was interesting….there’s no mention of contracts that were awarded on a lowest price, technically acceptable (LPTA) basis.  Some in industry contend that DoD is so bent on doing things on the cheap, that quality has suffered when contracts are awarded on an LPTA basis. I don’t know if that is just sour grapes from the expensive losers or truth.  No one seems to care…….about the quality any way.

Back to the title…..What were the conclusions?

  • Not all incentives work. In order to work they have to be used, be “significant, stable and predictable,” and they must be tied to DoD objectives.
  • Cost-Plus vs Fixed Price contract debate is a “red herring.” It’s incentive-based contracts that matter.
  • Incentive Fee contracts work best.  The big plus here is that using them allows the Government to limit contractor profits. (My personal opinion is that DoD should spend less time wringing their hands over profits and more time on getting the requirements right to begin with.)
  • FFP contracting requires knowledge of costs.  (Once again, this one refers to limiting contractor profits)
  • Programs which realize better profits in production incentivize vendors to move quickly through the development phase (Of course, this implies that the Government does not change requirements in the development phase….Good luck with that!) and saves money in the end.

So there you have it.  My little list of what incentivizes contractor to perform better goes like this:

  • Well written Requests for Proposals which are clear on requirements.
  • No requirements creep during the process.
  • Regular and reliable funding streams…none of this Continuing Resolution, furlough, of OCO stuff (Oh, how I’m tempted to use a different word here).
  • Full and Open competitions
  • Procurement professionals who spend a lot of time on improving government processes and less on monkeying around with industry processes.
  • A Government that honors multi-year procurement deals.  No canceling in mid-stream.

To be fair, I think that there have been improvements in the acquisition process and those in the driver’s seat deserve a pat on the back.  But in the end,  the fundamental problem is that the requirements process never gets it right and we spend lots of time and money recovering.  Congress doesn’t help things with its inability to pass a budget either.

 

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What to do, or what not to do. That is the question!

I received several comments after I published my last article on “Leadership in the 21st Century” and I appreciate all the comments. In that article I commented on the recent case involving a former Commanding Officer of the Navy’s elite flight demonstration team, the Blue Angels.  After consulting, conferring and otherwise hobnobbing with my  fellow former Wizards, I thought I might offer up just a few more comments on the subject before forever holding my peace on the subject of Capt. McWherter and the Blue Angels.  There was a lot going on there besides just the failure of judgement of the CO, including limited oversight by the Navy and the absence of an Executive Officer senior enough to step in and provide some advice and counsel. More on that later.

I was struck by a recent Gallup Poll which once again found the Navy as the least prestigious of the Services. I’m not sure what that means since most of what Mr. and Mrs. America think about the Services is a product of their own (the Services’) PR machines.  Wasn’t it the Navy that successfully extracted the Captain of the Maersk Alabama?  Wasn’t it the NAVY SEALS that terminated Mr. B. Laden?  Wasn’t it the Navy that was first on the scene providing relief during Hurricane Katrina, and Indonesia and Japan? Doesn’t the President always ask “Where are the carriers?” whenever something goes wrong in the world? Doesn’t the Navy run the White House mess?  Isn’t it CAPTAIN Kirk, not Colonel Kirk?  Jeez , what do you have to do to become the most prestigious Service around here?  I know……..Sponsor a race car that wins the Daytona 500!  Or make a cool commercial about killing dragons and rescuing damsels! Or lose track of a couple of nukes!

The notion struck me that part of the problem is that the Navy is too transparent.  We not only advertise when we relieve Commanding Officers (don’t think that the other Services don’t relieve their share of Commanders) but we also come clean when we relieve senior enlisted advisors.  You just don’t hear much about that from the other Services.  Of course it’s a big news item these days and I liken the problem the Navy finds itself in with regards to negative publicity to the problem I have on the golf course…..Once I’m in the woods, it’s almost impossible to get out. Either I schwack another tree in my current thicket, foolishly trying to thread the needle between a couple of obstructing trunks, or I wind up in the woods on the other side of the fairway because I gooned up my attempt to pitch out. Why I don’t just pick it up and take a “Snow Man” when I wind up in the woods I’ll never know.  That’s where the Navy is right now, in the trees and trying to pitch out.

This openness puts us behind the eight ball in my humble opinion….On the other hand, I think being open about our problems is not all bad.  At least it shows we are aware of the problem and attempting to deal with it.  But what exactly is The Problem?  Is it that the Navy has a crisis in leadership?  I don’t think so……in fact I know that’s not the problem. With close to 300 ships, 50 or so aviation squadrons and probably at least 100 shore commands, we actually have very few COs that break the event threshold.  In fact, you could write 100 good stories for every bad one…but that doesn’t sell papers.

I’ve commented before on abusive leaders, so I won’t beat that dead horse.  The Navy and DoD have reacted to lost nukes, out-of-control Commanding Officers and other misdeeds  by increasing  ethics training, establishing an ethics Czar ( and a very capably one I might add), and adding ethics courses to Prospective CO schools and Senior Enlisted schools.  But in the end, by then what is there to train? Someone is going to stand up in front of a class of prospective Commanding Officers and say……Don’t have sex with your XO, don’t use counterfeit casino chips, don’t fake your death to escape from your bad marriage, etc etc?  I don’t think this will have much of an impact. It’s focusing on what not to do…….not what to do.  The striking thing about almost all the heinous infractions that appear in the news is that none of them are questions on the margin. They are about personal failures by people who should know better.  No amount of training will fix that.  What we can do is:

  1. Focus training efforts of prospective COs and Senior Enlisted Advisors on how to be successful, not how to stay out of trouble.  Be positive, proactive and practical in training COs.
  2. Provide support to leaders. Conduct regular checkups of commanders by mentors who have successfully navigated the waters of command.  (Not IG-like, but as a sanity check)
  3. Improve the fitness report system to allow for a more honest appraisal of  performance and potential for command (I don’t know what the number is now, but it used to be that 70% of officers were in the top 10%…..similar to the current VA flap which found that all SES’s in VA we rated in the top 2 performance categories)
  4. Revamp the command selection process to take advantage of improved fitness reports and include 360 reviews as part of the process
  5. Continue to set the bar high for performance in command

The bottom line: Let’s spend more time on how to succeed in command,instead of how not to fail.  There’s a big difference.

 

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Leadership in the 21st Century

There has been a lot of hoopla in the press concerning the recent disciplinary action against Navy Captain Greg McWherter related to his second command tour as Commanding Officer of the Blue Angels, the Navy’s Flight Demonstration Team.  Here is a link to a recent Washington Post article on this issue.  Blue AngelsI feel compelled to add my two cents to the debate, mainly because I am distressed that so few people in the blog-o-sphere,  on Face Book and other internet forums really understand what the Blue Angels case is all about.  For background, if you haven’t heard of the Blue Angels, then I assume you have been off-planet since 1946 (Welcome back, by the way!).  Here’s all you need to know about the Blue Angels.

I suppose you could sum it up by saying the Blue Angels embody the best there is about Naval Aviation, and by association the US Navy.  As such, my assumption is that they are the penultimate squadron in Naval Aviation.  That’s a key assumption to all that follows, so if you don’t buy that argument, feel free to switch over and catch up on the latest Duck Dynasty news. So here’s a quick summary of  the Capt. McWherter/Blue Angels story in the news.  Capt. McWherter was Commanding Officer (CO) of the Blues twice.  There were no issues with his first tour as Commanding Officer in 2008-2010.  After Capt. McWherter left the Blues, the new CO had trouble adapting to the demanding flight program of the Blues and subsequently voluntarily resigned as CO.  One factor in his resignation was that the Blues pilots thought that the new CO focused too much on administrative details and not so much on flying skills.  Faced with loss of leadership in the Blue Angels, the Navy elected to bring Capt. McWherter back for a repeat performance as CO in May 2011 and he completed the rest of the performance season with the Blues. The feeling among the remaining pilots was one of relief, as Capt McWherter’s flying skills were among the best. Capt McWherter focused much of his attention to rebuilding trust among the demonstration pilots, a key consideration in the highly demanding environment in which the Blues operate.  Capt. McWherter was relieved in November of 2012 and went on to another assignment.  Sometime after the change of command, allegations surfaced that under his second command, the command atmosphere in the Blue Angels squadron was toxic.  Among these allegations were  the presence of sexual harassment, hazing, improper acceptance of gifts and other command-condoned inappropriate behavior throughout the squadron.  The Navy initiated an investigation and reassigned Capt. McWherter to administrative duties until the report could be completed.  The report (here is the link) found many of the allegations to be true and subsequently the Navy issued a Letter of Reprimand to Capt. McWherter, essentially ending his career in the Navy.

What’s been the reaction?  Not so much in the general public, but there has certainly been lots of chatter on the various blogs and other internet media that I regularly monitor.  There is one side that says “We are all doomed in an era where political correctness trumps all.”  In my opinion this is just plain wrong.  Since when is prohibiting pornographic pictures in cockpits (sigh…….I hated to use that word in this context) anything but just plain common sense?  It’s not an issue of political correctness, but one of respect for our people.  There are a variety of other problems, so I encourage you to read the report.  I dare you to find one “politically correct” statement.

I think the real issue is one of context.  Many of the bloggers are Vietnam-era veterans who lived at-sea in a different time.  Our notions of what is socially and professionally acceptable have changed over time.  Today’s 21st Century leaders have to recognize that fact.  Ready Rooms and the Sailors who support them are no longer all male, nor heterosexual. Our society no longer tolerates gender discrimination or discrimination based on sexual orientation and neither does our Navy.  It wasn’t that long ago that NCIS spent a lot of time and resources searching for homosexuals and rooting them out of the Navy. Now it’s different.

Was Capt McWherter all bad?  Certainly not. He had a long and distinguished career, but Navy did not do a lot to help out the good Captain in his new leadership challenges the second time around.  There is a great leadership piece by Dean Ludwig and Clinton Longenecker entitled The Bathsheba Syndrome: The Ethical Failure of Successful Leaders.  This paper is copyrighted so you will have to spend 5 bucks to read it, but if you are a leader, it will be the best $5 you ever spent.  Here’s a quick synopsis.   A great number of leadership failures can be explained by the Bathsheba Syndrome, many of those within the Navy.  The Captain was ripe for this sort of problem. Basically the Bathsheba Syndrome is this:

  • Ethical failures in leaders is a product of success, not pressure to perform
  • Success may cause leaders to shift focus from those things that made them successful to less important issues
  • Success leads to access to privileged information that may be abused
  • Success leads to unrestrained control of an organization
  • Success leads to inflated ego, leading one to believe they can fix anything

Do any of these traits sound familiar in recent leadership meltdowns?

One example of where the Navy may have prevented this leadership failure is that in the Blue Angels squadron, there is no Executive Officer(XO), a near-peer to the CO and usually next in line for command.  I relied heavily on my XO daily to keep me grounded.  He could take me aside and tell me that I might be doing something kooky.  He was a key element in my successful command.  Given that being in the Blues is  apparently a continuous popularity contest, the Captain was in little danger of having anyone question his actions.

I will let  you read the report and decide for yourself about rather or not Capt McWherter upheld the highest traditions of the US Navy and the United States. But I submit that in this case, given the nature of the Blue Angels, someone decided that all the leadership lessons we have learned since Lord Nelson was a Midshipman didn’t apply.  I know of nothing which gives the Blues a pass to any principle of leadership.  This squadron, above all, should embody all we strive for in Command and should be exemplary in every aspect.  If it turns out that I’m not right, that the nature of the Blues indeed makes them special and exempt from tried and true leadership lessons, then I submit they are not worth having in the United States Navy.

 

 

 

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DoD Audit: Is the Cure Worse Than the Disease?

I can’t let the recent articles in the press regarding DoD audits go by without commenting.  The headline on the Federal Times web site was “DoD falls behind audit goals – again”.  Again is the operative word here.  Some of the reasons cited for the slide (paraphrasing here): two wars in the last decade, overwhelming size and complexity, furloughs, shut-downs and the general “drain” brought on by an infectious STD in DoD (That’s Sequestration Transmitted Disease).  Preparing for audits has been on the DoD leadership’s plate for over a decade as is regularly cited as the reason for many fits and starts in DoD:  Lean Six Sigma, ERPs, Business Transformation, cost initiatives, process standardization, etc..

But in truth, there has been some progress.  Let’s not forget the US Marine Corp’s efforts in that regard (not mentioned in the article).  I have commented on the USMC progress a few months back in the Hall of Heroes and Auditors article. As of today, the USMC is the only Service to complete an audit of its Statement of Budgetary Activity (SBA), even if it’s only for one year.  We are still awaiting the results of the latest audit of the USMC SBA.  There is every reason to expect that it too will be “clean” and thus the USMC will have two successive years of clean opinions on their SBA.  This was done on purpose, because the previous years were so gooned up that it was pointless to spend the amount of time and money necessary to get things up to speed for water already under the budget bridge.  The SBA can be thought of as that part of the SBR that covers most appropriations and transactions, but not prior-year appropriations and therefore not affected too much by prior-year sins.  It is also accurate to say that DoD is focused on achieving an audit on only one part for the Department’s financials, the Statement of Budgetary Resources (SBR).

In many areas audit readiness is being achieved by manual work-arounds and other non-sustainable means instead of actually simplifying and consolidating the rat’s nest of kludged together systems and processes that have evolved over the ages.  The result of this type of preparation will be continued costly audits, with each one being just as costly as the next.  The only way to save costs is to move to reliance on internal controls instead of conducting on-site, manual inspection of paperwork, digital or otherwise.  (Most private sector audits move rapidly to reliance on internal controls because it’s cheaper and faster).  Reliable internal controls are a result of standard processes, interoperable systems, standardized data and legacy reduction, so the more we focus on the audit (at the expense of fixing internal controls) the more money we will spend.  This means that the 2018 audit is likely to be just as costly as the 2015 audit.  That, my friends, is unsustainable.

We haven’t  gotten around to auditing property records and equipment inventories (existence and completeness), for example. The plan is to do that later, after tackling the SBR.  The problem I have with all the DoD audit rumpus is that no one really understands DoD financial ops and the statements behind them outside a few budgetary monks within DoD.  Contrary to just about any commercial company, no one…not management, not customers, not investors, no one but a few accountant types at GAO and OMB look at these things.  We don’t measure the success of DoD or the desirability of investment in it by its financials.  In the real world, when a company releases its financial reports, stock prices either surge or shrink, depends on the results.  Not so in DoD. DoD Financial Statements do not reflect its performance or effectiveness.   If (almost) no one uses them, then why all the hype?

First things, first.  What the heck is a Statement of Budgetary Resources anyway?  Here’s the definition from GAO’s Financial Audit Guide, Auditing the Statement of Budgetary Resources, dated December 2001:

The SBR and related disclosures provide information about budgetary resources made available to an agency as well as the status of those resources at the end of the fiscal year. The SBR and related note disclosures serve as a tool to link budget execution data in an agency’s financial statements to information reported in the “actual” column of the Program and Financing (P&F) Schedules in the Appendix of the Budget of the United States Government (hereafter referred to as the “President’s Budget”). Coupled with the analysis of other budgetary data, the SBR’s linkage to the President’s Budget provides a means to help assess the reliability of budgetary data reported in the President’s Budget. 

Whew!  How about them apples?  Let me decode for you: The SBR makes it easier for OMB to aggregate the budget numbers.  For the “Show and Tell” crowd, here’s a copy of the Navy’s 2013 SBR.  By the way, don’t go looking for it because it is buried so far down in the paper stack that it’s impossible to find by mere mortals.
Navy 2013 SBR
WoW!  For you purists out there, here is the link to the complete set of Navy’s 2013 Financial Statements along with the accompanying footnotes. I suggest putting it in the bottom of your parrot’s cage so it can memorize the numbers and amaze your accountant friends when they visit.

This is what the little red guy with a pointy tail on my left shoulder says:  So far the Services have spent hundreds of millions of dollars to get this statement correct (Audit Readiness, financial system modernization, ERPs, etc).  But take a look at it.  Is this what really matters?  Our benefactor, the US Congress has never thought we do that bad of a job in accounting for the money.  The money just keeps coming and we are in little danger of Congress withholding the bucks because the SBRs don’t balance.  When we told them we spent $800 on a toilet seat, no one said, “Your accounting practices must be flawed.”  Nope, they believed us.  Why we spent the $800 is far more important than accuracy of the number.   DoD knows to the required degree of accuracy (you engineers will remember the significant digits drill) where the money is.  When you are dealing with half a Trillion dollars, what’s a few million among friends?  Is it worth paying the King’s Treasure to get to the finite level of detail demanded by auditors?  In my previous life as the Navy’s budget guy, I would have declared this a “Science Project for the Green Eye Shades.” There is no doubt that DoD can do a better job at managing the money, but is it really worth the Billions we will ultimately spend to get it THAT right? Maybe DoD audit is too big of a bite to make it worth the cost.  Why not focus on specific processes and make them right.  Get pay and allowance correct, get inter-service transactions right, get contract payments right, etc.  If the individual parts are good, why waste a lot of time and money messing around with trying to combine them.  Let’s spend that money somewhere else.

On the other shoulder, the little guy with the nightgown and halo says: Even if the financial processes in DoD are off by one-tenth of one percent, that’s a lot of money.  Anything we can do to increase confidence in the management of our national treasure is worth the effort.  If these things weren’t valued, why have a GAO?  Obviously the American people have made a judgment that accurate accounting is important.  Why should the DoD be exempt from the requirements levied on every other part of our government year after year after year?  Oh by the way, it’s the law of the land that all federal agencies will have auditable financial statements.  The DoD is not above the law, therefore they must do it (Never mind that DoD has ignored the CFO Act for many years, or at least failed to comply with no consequences!).  Finally, audits can save money.  In the case of the Marine Corps, correcting errors in accounting systems and procedures found during the audit resulted in identifying additional funds it could use.  It’s interesting that the Department almost never spends more money that it has been appropriated because the system is set to err on the side of caution.  Anti-Deficiency Act violations are low.  Just look at the amount of unobligated balances at the end of each year.  If our accounting procedures were better, we could spend that money.

So who’s right….left shoulder or right shoulder?  Hard to say, but the answer to this question falls squarely into the “Tough Decision” category and our leadership should seriously consider what to do.  I would not  push the “Audit” button just because it sounds like a good idea.   A lot of money rides on this decision.  It’s easy to say “It’s good business to spend money on audits,” but others will say, “At what cost?.  At the macro level DoD does an adequate job managing the money, so spend those resources on combating Cyberterrorism, readiness, R&D investments to ensure our dominance on the battlefield or on taking care of Wounded Warriors.”

In the end, I say we should focus less on the obsession with a clean audit opinion, and more on fixing the processes and systems, once and for all, that we use to manage the money.  I don’t think it’s nearly as good as it could be, but it’s certainly not as bad as some assert.

Thanks to BG Roger Scearce USA (Ret.) and Deb Delmar of Vanguard Advisors LLC  for their assistance on this article.

Disclaimer:  I’m sure I may not  have gotten some of the technical terms exactly right, but for the intended audience (non- DoD Budget Monks and Scribes) it’s close enough!

 

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Neglected Nightmares and Forgotten Dreams

I know.  I know.  You are asking what can this article possibly be about? Well, it’s all about the DoD budget (the Dream) and sequestration (the Nightmare).  I’ve been talking to a few budget folks over the past week and asking how is this year compared to others in terms of pain.  The universal answer has been “Not so bad this year.”  But soon all our dreams of finally getting some sanity in the budget process will give way to the nightmarish and forgotten process known as Sequestration.  It’s been quite a journey to get to where the DoD budget is today.  Despite all the dire warning about sequestration, all seems to be well for now.  There’s some squeaking from the fringes about cuts to force structure, BRAC, pay and benefit cuts, rising health care costs,  etc.  There are still some struggles going in within the Navy about how many carriers and other combatants the Navy can afford.  The Air Force is struggling to make ends meet by removing the A-10 from the battlefield, and the Army and Marine Corps are wrestling with end-strength reductions.  Seems like a normal day in DC.  I mentioned it’s been quite a journey to get here, and an improbable one at that.  Let’s just review the history in case visiting Aliens would like a quick briefing (Do you think they would believe it?) or you want to explain it to your grandchildren.

August  2011.  The President signed the Budget Control Act of 2011.  The debt ceiling debate was in full swing but the BCA saved the day ( or so we thought).  It did a few things:

  • Raised the debt ceiling to $14.694 Trillion (bumped up another $500 Billion in Oct 2011)
  • Cut spending for 10 years by about $917 Billion, roughly half for DoD
  • Set up the Congressional “Super Committee” to find another $1.2 Trillion in cuts over 10 years.  If they were unable to do so by December 2011, than a series of mandatory cuts would kick in.
  • Required a vote on a Balanced Budget Amendment (which failed)
  • Monkeyed around with graduate and professional student loans, although it increased funding for Pell Grants

December 2011.  Oooops.  The “Super Committee flopped” so the arbitrary cuts demanded by sequestration loomed for next year’s budget.

February 2012.  DoD Budget for 2013 ignores sequestration.

December 2012.  DoD finally starts planning for possible 2013 spending reductions demanded by sequestration.

January 1, 2013.  The American Taxpayer Relief Act of 2012 delays sequestration to March 1, 2013, and cuts some of the sequestration caps.

March 2013.  Continuing Resolution funds Government till end of September 2013

October 1-16, 2013.  Government Shuts down.

October 16, 2013.  Congress passes the Continuing Appropriations Act, 2014 which funded the Government through February 2014 (actually it extended the debt ceiling limit)

December 26, 2013.  President signs the Bipartisan Budget Act of 2013 which restored $45 Billion of sequestration cuts in 2014 and $11 Billion in 2015 by adding sequestration cuts to 2022 and 2023.

It this any way to run a railroad?  No wonder nothing works right and everything the government does costs more.  There’s no stability to allow for any sort of long-range plan.  But you all know that.  The point of all this is that through a series of improbable event, we have managed to kludge together funding to keep the US in business (such as it is).  But there’s nothing in the works that I know of to fix 2016, the budget that being build right now in the Pentagon.  And just like a scene out of Ground Hog Day, DoD is putting together a budget that ignores sequestration.  Here’s a chart right out of the DoD 2015 Budget Briefing.  Notice that there is no mention of sequestration (except to exclude it). DoD FY15 Budget Proposal Summary   Now here’s a rough chart (I’m sure the numbers are off slightly) of what sequestration funding levels are relative to the DoD budget.  Notice it’s $115 Billion out of round through 2019.  That’s how much money the Pentagon is stuffing into the budget over sequestration spending levels. DoD_Sequester_Comparison The only point of this little tale is to impress upon you how important it is that we get this fixed.  We can’t keep grinding our people into the dirt with endless budget drills which make no sense.  There are three possible strategies to deal with the situation IMHO:

  1. Business as usual. The politicians will fix it just like last time.  (The Hope gambit and our current vector)
  2. Force DoD to plan for Sequestration in 2016 and beyond. (The Defeatist gambit)
  3. 1 and 2 (The “Probably what’s happening in the Pentagon, but no one will admit it” gambit)

Where do I come down?…..What the heck….let’s go for number 1.  It worked last time and the politicians always fix it in the end, no matter how much pain gets inflicted in the process. And so it goes………..

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Power Counter-Point

Breaking News
  SECDEF Power Point Guidance.  Looks like he reads my blog!

 

Who loves Power Point?  Let’s see a show of hands….What?  No hands?big pp

Like just about anyone in government, Lord knows I’ve seen my share of Power Point presentations.  I remember the Granddaddy of them all from my first year as the Navy’s money guy.  It was time for the requirements folks to brief the Chief of Naval Operations on their budget proposal.  I should have suspected something when the calendar was blocked for three days, but what the heck?  I was a new guy and thought this was normal. We sat down in the PEC ( I can’t remember what that stood for, but it was the big CNO conference room where we discussed such matters) and girded our loins for the fireworks.  Now those of you who have ever attended a meeting in the Pentagon where money is being discussed know that there is literally no conference room in the Pentagon big enough to accommodate all of the Importants, the not-so-Importants, the strap-hangars and even one or two people who actually know what’s going on.  The 20 person conference table had 40 people around it.  The walls were thick with one and two stars and their civilian counterparts sitting in hard, folding chairs taken from the WWII surplus locker.  The EA’s, aides and Navy Hospital Corpsmen (in case someone had a heart attack after seeing the numbers) were standing wherever there was room.  Of course, being the junior Three Star, I had the honor of sitting right next to the projector….hot air blowing in my face and the fan so loud I could not hear what was being said (I always suspected they put me there to break me down so that I would agree to anything just to get out of the room!).  Nonetheless, I felt pretty good.  After all, I was BIG!  I had the $130 Billion checkbook……and I was sitting at the table!!!DoD Chart=

Then the first slide went up.  There was a collective groan when all eyes focused on the very small, 8-point numbers at the bottom right of the first slide:” 1 of 1329.” I remember the N4 leaning over to me and whispering YGTBSM!  “Maybe we’ll just zip right through them,” I naively said.  ” After all, if we look at each slide for just 10 seconds it will only take three hours and forty-seven minutes.”  Around 11 AM, I realized just how wrong I was as I heard the presenter say, “Next Slide” and my eyes were drawn to the lower right side of the slide—“6 of 1329.”  I did a quick calculation (after all, I used to be King of Ops Analysis for the Navy) and realized that at this pace it would take roughly a month to get through all the slides (not counting breaks).  What were they thinking?  How did they possible hope to get through all those slides? By the way, there were over 4000 back-up slides, just in case one of the 1329 didn’t cover all the bases.

That’s why over the years I’ve relied less and less on Power Point and more and more on one, well-designed visual aid whenever I have an important presentation to make (Don’t pay any attention to those PP presentations on my web site.  They don’t really exist). I am one of the original Power Point Rangers.  I remember when the presentation software suite of choice was Harvard Graphics (Whatever happened to HG?). As a newly-minted action officer on the Joint Staff I was sent to a one week course on the new software in use on the Joint Staff….Power Point.  It was certainly a step up from HG, but like all IT improvements, the Bosses expected miracles and demanded more and more sophistication.  Back then, in order to make a PP slide you had to first make it on the “Wang Computer”, then print it out on the ONE color printer in the Joint Staff on special, clear acetate sheets.  They were forever sticking to the hot parts of the printer and in general a pain to work with.  Once you got all that done, you still needed to tape the sheet to a cardboard holder that you could slap on the overhead projector.  My office was just down the passageway from the Tank (where the Joint Chiefs met) and our boss was always changing the slides at the last minute.  So I can remember a “bucket brigade” of PP slides moving from the office to the backdoor of the Tank just as the Boss was saying “Next Slide.”  No wonder I hate Power Point.

Of course, nowadays it’s a piece of cake.. Hook up the laptop and off you go!  Except there are always the inevitable “What button do I press?”, “Which way do I point this thing?”, “Can someone find my slides?” questions that the briefers always wind up asking.  (this is where your audience checks out and begins to check e-mail, write the grocery list, and go to the bathroom) So I’m not sure we are that much better of now than back in the day!  I guess my point is why detract from your presentation with slides and all the hiccups that come with them?  Pick one good  visual aid and go with it.  Give people copies of slides (best done after your brief) but don’t rely on them.

But, sadly, “we will always have Power Point “(apologies to Bogart), so I thought I would put out a few “Points about Power Point” (Damn, I’m clever!)

  • Keep them simple.  Pictures and graphs are best.  Use few words.  Remember people will be reading the slides and not listening to you if there are words on the them.
  • Make sure the words are spelled correctly.  Most Admirals and Generals spend more time checking the spelling on slides than either reading what the words say or listening to you. One misspelling and you are labeled an Idiot For Life and all future slides are null and void!
  • Have a time budget for your slides.  It’s hard to spend less than 5 minutes on a slide.  If you have to spend less that that, then you probably don’t need it.
  • DON”T READ THE SLIDES!! Guess what?  Everyone in the room can read.
  • Speaking of reading, make sure the material on the slide is large enough that it can be seen in the back.  I hate it when someone flashes up a slide with a 50 element spreadsheet and says, ” You probably can’t see this, but……..”  Why waste my time with something I can’t see?
  • Don’t read the slides!! (Did I already say that?  It’s worth repeating…..Don’t read the slides)
  • Don’t use Power Point.  I have found that speaking from a placemat-sized piece of card stock is far more effective that using slides.  Put the things you want your target to know on the placemat.  Force them to look at you and to listen to you by having nothing else for them to do.  If you need Power Point slides to be effective, look for another line of work.

OK.  Hope this helps.  Remember the source… A professional and seasoned Power Point Ranger, and someone who had suffered though more bad PP briefs than Carter has pills.

Oh Yeah, one final point: Don’t Read The Slides!

 

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Command Performance

I attended a two day session put on by The Performance Institute and Association of Government Accountants this week on the subject of performance management in government.  It was a great session ( and I managed to knock out 14 CPEs) with some interesting insights on measuring performance in Federal, State and Local agencies.  We heard from David Walker (former Comptroller General), Mark Reger (Acting Comptroller at OMB), Lisa Danzig (Associate Director for Personnel and Performance at OMB) and a host of other performance gurus.  I came away thinking that although there has been a lot of progress made in measuring performance of agencies, we probably still have along way to go.

So what performance is being measured?  Is it the performance of the organization or the performance of its people.  I suppose one could say it’s both.  Most of the conference was focused on the performance of the organization as far as I could tell.  As you might think, some organizations are more easily measured than others.  Take US Patent and Trademark Office for example.  It’s fairly easy to put into place metrics that not only are easily measured, but reflect the actual performance of the organization…..number of patents issued, length of time to issue, etc.  But other organizations are not so easy.. Take DoD for example.  So what do we measure to evaluate the performance of the Defense Department?  Here’s a possible list:

  • Number of wars won
  • Casualty exchange rates
  • Ratio of  of wars deterred/wars fought
  • Number of Humanitarian Responses and lives saved
  • Number of successful defenses of the Homeland
  • Numbers of allies gained vs. lost
  • Number of states which have a military base

The list could go on and on.  The problem is none of these things can be easily measured. So the Department must use metrics which are all about input, not output.

  • Topline Budget number
  • Amount of allocated budget spent
  • Numbers of ships, airplanes, vehicles purchased
  • Number of people
  • Number of audited financial statements
  • Amount of money allocated to anything

In the Navy, we were pretty good at the input part.  I had all sorts of models to help me figure out how much money I needed to ask for…Flying Hour Model, Steaming Day Model, Installation Service Level Model, etc.   But none of the models actually reflected reality.  We never went back to check and see if we modeled for 26 flying hours per month per pilot, that they actually flew 26 hours per month.  In fact, we discovered that instead of relying on a hugely complex flying hour model for the budget, in the end it’s just as simple as multiplying the number of airplanes in the inventory by average flight hour per model the previous year.  In the end it didn’t matter how many pilots we had, you could only get so many hours with a fixed number of airplanes.  The Chief of Naval Operations frequently uses number of ships deployed, number of sailors deployed and percentage of the fleet deployed as a metric.  Here’s a link to the current data.

A few years back, then Secretary Rumsfeld tried to put a pay for performance-based personnel evaluation system in place….the National Security Personnel System.  In the end, it failed because we were horrible at trying to link what Pentagon workers did to measurable performance criteria.  This turned out to be an impossible task.  How do you  measure the performance of a budget analyst, for example? Do you link the funding level given by Congress to the analyst’s work?  If his or her particular program is cancelled does that mean they failed?  The truth is most in the Pentagon work their tails off, but on things over which they have little or no control.  I remember the classic example of why the system was flawed.  The dialogue went something like this:

Boss: Joe, you just won a performance bonus of $10,000.  Tell us what you did to earn it.

Joe:  I was in charge of  XYZ grants to the field.  The goal was to deliver grants to the field elements by July 1st.  In the last 6 years the best we have ever been able to do is get them out by July 15th.  I set a goal this year to get them out by June 15th.  In fact, we got them out on June 10th, not only 5 days earlier that the goal, but almost a month better than we’ve ever been able to do.  For that I got the big bonus.

Boss:  That’s great work.  What did you do that made the difference.

Joe: Nothing,  In fact, the dates we get the grants out is solely dependent on when the Congress gives us the money.  This year we got it early! Thanks for the bonus!

The moral of this story is make sure that  your people have clear goals and that they are measured on things that they can control.  NSPS was a good idea.  Who can criticize paying people for performance?  The problem is in figuring out exactly what people do and how to measure it. Performance management is a great tool, but only to the extent that you can measure performance.  Think about the people who work for you.  What do they do all day?  Who uses their outputs?  Where do they really make a difference?  Set up your metrics around those questions and you will be well on the way to having an effective performance management system.

One Final Thought

Don’t let your infatuation with metrics become so great that you lose sight of your outputs or mission.  In the case of the VA it appears that people were so focused on making the metrics look good that they forgot why they exist…..to serve Veterans. People do funny and unpredictable things when they perceive their jobs are at risk.  In this case, people were tweaking something over which they had no control.  They would have been heroes had they pointed out that wait times at VA hospitals are not meeting the metrics, instead they are zeros for putting self above service to our Veterans.  Time for a change at VA!