Defence Reform Part 1: from whence it came

Dr Bill Egginton writes the first of three papers for Defence Business that traces the journey of defence reform in the UK. This journey has involved fundamental changes to how the MOD is structured and operates, drawing on project, programme and most recently, portfolio management principles in order to live within its means in delivering the defence contribution to national security. This first article displays the historical perspective of defence reform

The Defence Industrial Policy was launched in October 2002. Although it led to an improved dialogue between industry and government, practical implementation of its core principles remained ‘patchy’ years later 1. Moreover, research 2 at that time exposed a wide range of key factors affecting defence project performance on the sides of both industry and government (MOD). The Defence Industrial Strategy (DIS), published in December 2005, built on the Defence Industrial Policy. It recognised the need for greater transparency of future UK defence requirements and, for the first time, set out those industrial capabilities the UK needed to ensure continuity of operations with appropriate levels of sovereignty and freedom of action. At the same time, it highlighted again the need to address some of the causal factors of poor performance particularly around governance and how MOD engaged with the industrial base in making decisions.

Arguably for the first time, the DIS provided a strategic, sector-specific view of the defence capability requirements going forward, including new projects as well as the support and upgrade of equipment already in service. In so doing, the DIS identified the industrial capabilities that needed to be retained in the UK for defence reasons. However, and in order to realise that strategy, the DIS also pointed 3 to the need to ‘create a strong programme management environment around our projects’ that was able to ‘oversee the integration of projects and other Lines of Development 4 into military capability’.

In order to do so, the MOD would ‘invest in developing programme management capabilities and competence within acquisition’. In many respects, it was Lord Drayson’s DIS that both raised awareness of the need for a more strategic approach to investment as well as the capabilities and competencies required to deliver those investments as projects and programmes. The DIS also made reference to the need to ‘manage the overarching portfolio of projects within a capability area, including research and technology, capability upgrade and in-service capability in a coherent manner’. However, and as we shall see, the implementation of a genuine (and pan UK government) ‘portfolio approach’ was not to commence until some six years later.

The ‘portfolio approach’
In the US, however, the ‘portfolio approach’ was already happening. In March 2007, the US Government Accountability Office report (GAO-07-338) recommended that the Secretary of Defense implement an enterprise-wide portfolio management approach to making weapon system investments that integrated the assessment and determination of warfighting needs with available resources and that cut across the US armed services by functional or capability area.

In September 2008, the House of Representative’s Committee on Armed Services asked the GAO to testify on measures needed to further reform the acquisition of major weapon systems and related legislative proposals. 5 The GAO reported in April 2009 (GAO-09-663T), detailing cost growth and schedule delays in the US Department of Defense (DOD) portfolio of weapon systems and stating that whilst there can be ‘legitimate debate over which set of measures are the best explanation of the problem, there can be no debate over the fact that the problem is significant and calls for action’.

Curiously, back in the UK, and just a few months earlier in March 2008, the House of Commons Defence Committee published Defence Equipment (2008) in which it stated: “Mr Gould acknowledged that the uncertainty over the equipment programme was bound to delay investment by industry. Sir Kevin O’Donohue said that he thought industry would like to see an affordable programme and fewer projects properly funded, if that’s what it takes, rather than a lot of projects not properly funded.”

It was clear that a theme was building on both sides of the Atlantic, namely that defence was trying to do too much with the resources available. There was a growing realisation of the need to be able to identify, understand, evaluate and then make evidence based, priority led decisions aimed at supporting security strategy but doing so within the available departmental budgets.

The business of defence
In December 2008, the then Defence Secretary, John Hutton, asked Bernard Gray to undertake a review of defence acquisition. The resulting report was published in October 2009 6, and received by Hutton’s successor, Secretary of State for Defence, Bob Ainsworth. The report identified a number of areas where the business of defence could be improved including reference to more effective prioritisation, improved governance and decision making and further up skilling of civil servants and serving military in project and programme management.

The MOD response 7, published just a matter of weeks later, did not agree with everything in the report, but it did accept most of its recommendations and in particular its two central thrusts: (a) the need to adjust the so-called ‘over-heated equipment programme’ to bring into balance with available resources; and (b) the need to make significant improvements in the management of defence through closing the business skills gap and strengthening the interfaces between defence customer and supplier organisations.

Following their coming to power five months later in March 2010, the coalition government immediately commissioned a Strategic Defence and Security Review (SDSR) and a Comprehensive Spending Review (CSR). In August, Dr Liam Fox, the newly appointed Defence Secretary, publicly launched Defence Reform. This was to be a ‘root and branch’ review of the way defence worked, albeit on a different time frame to that of the SDSR itself. The aim was to develop a new model for departmental management which was simpler and more cost-effective, with clear allocation of responsibility, authority and accountability. A Steering Group was set up, chaired by Lord Levene, with a mandate to fundamentally examine how the MOD was structured and managed and to make recommendations to improve its overall performance.

The SDSR was published in October 2010 and made clear the need for significant change to address the ‘over-heated defence programme’ and to prevent such a financial crisis ever happening again by addressing the underlying problems. The ‘Levene report’ was to follow eight months later, in June 2011, and as this paper will go on to discuss, its recommendations were to have a profound impact on MOD.

Still in 2010, the new administration had also inherited something resembling a ‘portfolio’ approach to investment 8 in public sector projects and programmes. The so-called Major Project Portfolio (MPP) comprised about 40 of the largest public investments in change across all government departments – including the Olympics (Culture, Media and Sport), Crossrail (Transport), Pandemic Flu (Health) and Strategic Deterrent (Defence). These changes essentially comprised high value, pan-departmental, national interest and / or manifesto related initiatives and as such, were required to report on a quarterly basis to Treasury, and by exception, to No.10.

Defence decision making
In January 2011, and no doubt in response to the SDSR, CSR and ongoing austerity measures, David Cameron issued a letter that announced the creation of a new function, the Major Projects Authority (MPA), within the Cabinet Office under the auspices of Francis Maude. The letter provided the MPA with a mandate to build on the presence and principles of the MPP with the objective of improving government’s record of delivering projects and so ensuring (and assuring) tax-payer value for money. The MPP was re-badged the Government Major Project Portfolio (GMPP) and as a ‘first cut’ comprised around 200 publically funded projects and programmes from across all government departments. The letter, signed by Cameron and dated 25 January 2011, effectively legitimised the use of the word ‘portfolio’ within government and essentially began the process of embedding a project, programme and portfolio management (P3M) approach to investment in change across UK government.

As mentioned earlier, in June 2011, the Levene Report 9 was published. Amongst its recommendations was the need to strengthen top level decision making, establish a smaller, stronger and more strategic Head Office, provide clearer responsibilities and establish genuine individual accountability with empowered service chiefs that had greater freedom to flex but within a regime of stronger financial and performance management. These recommendations essentially provided the agenda for what followed: Defence transformation and the introduction of a new defence operating model. At the end of July, the 2nd Permanent Under Secretary (PUS), Jon Day, and the vice chief of the Defence Staff (VCDS), General Sir Nick Houghton, issued a letter that set out the way forward.

To complete the perfect storm that was 2011, and in addition to the letter from Cameron, the Report of Levene and the directive from 2nd PUS and VCDS, there are two further developments worthy of note. Firstly, the publication of UK government guidance titled Management of Portfolios (MoP). The US equivalent 10 had been published in 2008, evidence again of the US lead in this area. With a Forward by David Pitchford, then executive director of the Major Projects Directorate in the Cabinet Office, MoP described portfolio management as ‘a discipline whose time has come’. To paraphrase the guidance, if project and programme management was about doing things right, then portfolio management was all about doing the right things.

Finally, the issuing of a ‘P3M mandate’ by 2nd PUS and DG Finance Jon Thompson. Issued as letter on 3 November 2011, and signed by both, the mandate reflected MOD ambition ‘to ensure that the Department both develops and promotes its ability to carry out effective P3M’. The new operating model (essentially an output of Levene) was issued for consultation in September, its implementation started in April 2012 and substantially completed one year later – a topic we will return to in the next issue.

Dr Bill Egginton is senior lecturer in Defence Management & Leadership at Cranfield University.

[1]Defence Procurement, House of Commons Report, July 2004.
[2] Driving successful delivery of major defence projects: drawing on wider practice in tracking the progress of major projects, PA Consulting (2004)
[3] Defence Industrial Strategy, Defence White Paper, December 2005, Page 135
[4] Lines of Development comprise Training, Equipment, People, Information, Doctrine, Organisation, Infrastructure and Logistics (TEPIDOIL) and collectively deliver up a complete military capability.
[5] Mr Gould was the then serving Chief Operating Officer of the Defence Equipment and Support organisation and Sir Kevin O’Donoghue its 4* Chief of Defence Materiel.
[6] Independent Review of Defence Acquisition (Gray, 2009)
[7] Defence Information Bulletin, 15 October 2009
[8] The UK Association for Project Management provides the following definition for portfolio management: The selection, prioritisation and control of an organisation’s projects and programmes in line with its strategic objectives and capacity to deliver. The goal is to balance change initiatives and business-as-usual while optimising return on investment (APM, 2012).
[9] Defence Reform: an independent report into the structure and management of the Ministry of Defence, June 2011.
[10] The standard for Portfolio Management, PMI, 2008.