1

Marine Corps Business Enterprise

ASMC Washington D.C. Chapter

10 July 2006

Briefer: Mr. Dave CliftonDirector, MCBEOdavid.clifton@usmc.mil

2

Main Points

• Resource conditions are bad - getting worse – In 5 years, these will be the “good old days”

• Best Offense: Balance Resource Management– Budget Requirements

– Budget Execution

– Process Improvement

• Best Defense: DoD Continuous Process Improvement

3

Context: The Bottom Line

DoN leaders face a resource challenge very similar to most other organizations, public and private.

This condition is not temporary.

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What do others say about this resource condition?

A clear, consistent theme is reverberating across the political spectrum.

5

Things may seem fine at the moment, but when we look into the future our fiscal outlook isn’t pretty.

- David Walker, Comptroller General

Continuing on this unsustainable path will gradually erode, if not suddenly damage, our economy, our standard of living and ultimately our national security.

- GAO report February 2005

6

In 20 years, entitlements would require all non-defense discretionary programs to be eliminated if we are to balance the budget.

- Stuart Butler, Heritage Foundation

We face a demographic tsunami that will never recede… and evacuation isn’t an option.

- David Walker, Comptroller General

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To do nothing, would lead to deficits of the scale we’ve never seen in this county or any major industrialized county. We’ve seen them in Argentina. That is a chilling thought, but it would mean that.

- Stuart Butler, Head of Domestic Policy, Heritage Foundation

… the nation’s fiscal situation is out of control and could do serious damage to the economy in coming decades, sapping our national strength, making it much more difficult to respond to unforeseen contingencies, and passing on an unfair burden to future generations…

- Isabel Sawhill and Alice Rivlin, Director of Economic Studies, Brookings Institute

8

If we do nothing, our kids and grandkids will be overwhelmed by the cost of our inaction.

- Judd Gregg, Chairman Senate Budget Committee

We should avoid ungenerously throwing upon posterity the burden which we ourselves ought to bear.

- George Washington, 1st President of the United States

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We believe that a “less is more” approach means seeing our work with different eyes –

using resource restraints (less) to spur new ways of thinking (more).

- Mike Morrison, Ph.D., Dean, University of Toyota

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The campaign to improve the way we manage the business of our Corps will be among our most important initiatives …It will not be quick, easy, comfortable, or without risk

-. M.W. Hagee, Commandant of the Marine Corps

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Then, specifically, what can we do?

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There is no “one best way”

No 10-step model

No “low-hanging fruit”

No Silver Bullet

No single solution

No quick fix

No easy way

More money is not the answer.

There’s No Easy Fix

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Our Best Defense

A balanced approach to resource management.

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Elements of Balanced Resource Management

BalancedResource

Management

Budget Requirement

Process ImprovementBudget Execution

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DepSecDef: 11 May CPI Memo

• Focus .. on improving the effectiveness of support to the warfighter

• CPI is important tool … across the full range of … functions

• DoD’s policy on the capture of benefits from improvement efforts is that cost savings … can be retained by the organizations that generate them

• Effective management … should lead to reinvestment …

• … institutionalize our CPI efforts …• .. create a culture of continuous improvement ..

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SecNav Guidance: 3 May 2006

• LSS is a proven business process• .. create more readiness and assets within our budget• Personally support this initiative• Be educated …• LSS will be top-down approach• Met with top leadership on 27 June

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Waste typically consumes 75% of the activities of a typical business process.

- Toyota North America

Approximately 30-50% of the cost in a service organization is caused by costs related to slow speed or

performing rework to satisfy customer needs.- The George Group

Private Sector Perspective

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Organizational Opportunities

• Continue to – Articulate requirements– Improve execution

• Enable the workforce– Training– Information

• Concentrate on process improvements– Look for variance using business information (ABC Models)

– Use benchmarks to establish targets for improvement– Use strategic plan discipline

• Strategic plan goals and targets• Monitoring performance

– Scorecard– Internal Management Controls

• Assign accountability– Annual personnel plans– Contract deliverables

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Corps Business Model

USMC 9 Business Skills

Results:Right performance and readiness

At the right costDelivered at the right place & time

Marine Corps Heritage USMC 9 Business Skills Change Leadership Lean Thinking Principles

Knowledge Proficiencies

Process Improvement Facilitation Consultation Presentation and training Team building Critical thinking

Support the Warfighter Be Effective and Efficient Respect People

Continuously Improve our People and Processes

MCBEO CPI Experts/ Mentors Master Black Belts (9-15)

MCBE/ BPO CPI LeadersBlack Belts (75-150)Green Belts (many)

Managers and team leadersGreen Belts (many)

Roles/Certifications

Constancy of Purpose Teamwork Action Learning Systems Thinking Business Intelligence

Core Methodology

Extended Enterprise - Performance Management - Process Improvement - Target Costing – Strategic Planning - Activity Based Costing - Capacity Management - Project Management –

Balanced Resource Management

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Variance Analysis: Identifying Opportunities

• Use business information to identify variance – Over time in same business units– Among similar business units, in same time period

• Use variance to establish targets for improvement– Benchmarks– Best practice analysis

• Establish accountability to meet targets– Based on strategic planning and scorecards to – Annual personnel plans– Contract deliverables– Internal Management Controls

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Ass

essm

ent

Variance Over TimeDifferent Time, Same Activity, Same organization

USMC Installation FY01-04 General and Administratative Costs

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

2001 2002 2003 2004

Finance

Personnel

Comd Supt

Comm Rel

BPO

Legal

Chaplain

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Variance Among Like Activities Same Time, Same Activity, Different Organizations

Ass

essm

ent

USMC Bases (East and West) FY 2004 O&M

-100%

-50%

0%

50%

100%

150%

Lega

l

Religio

n

Com R

el

Cmd

Supt

Perso

nnel

Fina

nce

Bus P

rac

Command and Staff Support

% a

bo

ve

/be

low

no

rm

USMC Recruit Depots FY 2004 O&M

-100%

-50%

0%

50%

100%

150%

Lega

l

Religion

Com Rel

Cmd

Supt

Perso

nnel

Finance

Bus P

rac

Command and Staff Support

% a

bo

ve/b

elo

w n

orm

USMC Logistics Bases FY 2004 O&M

-100%

-50%

0%

50%

100%

150%

Legal Religion Com Rel Cmd Supt Personnel Finance Bus Prac

Command and Staff Support

% a

bove

/bel

ow n

orm

USMC Air Stations (East and West) FY 2004 O&M

-100%

-50%

0%

50%

100%

Lega

l

Religion

Com Rel

Cmd

Supt

Perso

nnel

Finance

Bus P

rac

Command & Staff Support

% a

bo

ve/b

elo

w n

orm

Installation Overhead Processes Installation Overhead Processes

Installation Overhead Processes Installation Overhead Processes

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Benchmarks through Variance Analysis

0

1

2

3

4

5

6

7

8

9

10

$ 3.5 $ 3.0 $ 2.5 $ 2.0 $ 1.5 $ 1.0 $ 0.5

A1

A2

A3

A4

A5

A6

A7

A8

A9

•A10A11•A12A13

A14

A15

A16

•A17

A18

A19

A20

A21

A22

A23

A24

A25

•A26

A27

A28

A29

A30

A31

A32

A33

A34

•A35

A36•A37

•A38

A39 A40A42

A43

A44A45

A46A47

A48

What: Best Performers(Effectiveness & Efficiency)

Output

Performance Drivers 1. Process 2. People/organization 3. Technology 4. Partnering 5. Strategy

Base x Best Performer

AVG

Cost & Service Level

Cost

Busine

ss

Stra

tegy

How: Best Practice Analysis

Benchmarking Performance and Cost

Performer X

Lower Cost

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Align the Value Chain

COST AND PERFORMANCE INFORMATIONCOST AND PERFORMANCE INFORMATION(Provides basis for variance analysis/target setting)(Provides basis for variance analysis/target setting)

Functional/Business

Plans

Balanced Scorecard

Commanders use strategic plans

to directand align activities

of installation

Supporting commanders/functional managers

accountable to achievetargets established

in strategic plan

Commanders usescorecard to

regularly monitorProgress.

Measures, Targets,

and Actions

Measures, Targets,

and Actions

Tact

ical

Pla

nsTa

ctic

al P

lans

G-8G-8G-6G-6G-4G-4G-1G-1 MCCSMCCSFEOFEOG-3G-3

Enterprise-plans

Mission/Vision

Mission/Vision

GoalsGoals

StrategiesStrategies

MeasuresMeasures TargetsTargets

ActionsActionsLo

cal

Stra

tegi

c/C

ampa

ign

Plan

Loca

l St

rate

gic/

Cam

paig

n Pl

an

ValuesValues

POM and Budget

POM and Budget

Commanders use

benchmarksto establish

targets/results.

Targets are linked to budgets,

individual performance plans, and contract deliverables

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Business Processes Exist in the Extended Enterprise

Diversity of the total force compels good process and performance management skills – which are

different, in most cases, than hierarchical

command and control.

Marines177K Active39K Reserve

Civilian Marines13K APF11K NAF Contractors

~26KOGO’s

(e.g.,NavFac)

FN3,200

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Learn to Manage a Shadow Pyramid OrganizationP

artn

ersh

ips/

Join

t Ven

ture

s

Par

tner

ship

s/A

llian

ces O

utsourced and Operating

Partners

Core Competenciesand

Capabilities

© 2004, Vicere Associates, Inc. All Rights Reserved.

Leaders no longer manage by control: they manage by relationships, trust,

and communication … effective leaders in a shadow pyramid must

combine exceptional technical knowledge with superior influence skills to develop a unique blend of

relationship-focused leadership capability … the most successful

organizations, and the most successful leaders within them, are those that are best able to manage the “interfaces’

- A. Vicere

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An Enduring Corps Business Culture

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Extended Enterprise Opportunities

• CPI or LSS

• Commodity Councils

• Service Acquisition Improvements– Framing and maintaining relations with

external service providers

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CPI or Lean Six Sigma

• Delight the customer

• Improve the processes

• Work together for maximum gain

• Base decisions on data and facts

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Example: Commodity Council Opportunities

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Example: Cell Phone Results – Before / After

DATA FROM CELL PHONE CONTRACTS  Before (Jun ’04) After (Jan ’05) Comments

# Contracts 233 3 Increased efficiency

Service Providers 17 3 AT&T, Nextel, Verizon

# Phones > 10,300 < 9,300 10% reduction

Average Cost $50/month $27/month 47% reduction

Contract Type Annual Month-to-Month Increased flexibility

Invoicing Decentralized Centralized Increased efficiency

Payment Decentralized Centralized Increased efficiency

Pooling Regional Enterprise-wide Increased flexibility

Increased capability; reduced cost!

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Example: Cell Phone Sample

$55,596.28 $48,305.73$60,521.54

$21,163.20 $27,751.19

$31,309.74

$131,350.83$143,772.43

$146,288.17

$0.00

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

Jul-05 Aug-05 Sep-05

Basic Plan Met

Overages

Zero Usage

• A sampling of cellular service during the Fall 05 revealed:– A significant amount of money was spent on phones for overuse and – An even greater amount was spent on phones that were NEVER used.

• The following chart graphically illustrates the dollars wasted.

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Dramatically Improve Acquisition of Services

3 Elements of Service Acquisition

Requirement Articulation

Contracting

Post Award Management

Acquisition of goods/services touches virtually all our business processes.More typically spent on services than materiel – but using lower skills.A set of organizational capabilities is badly needed – and not just with RCO.Poorly thought out supplier/provider relationships can be detrimental.