Since I arrived in the Department as the Deputy Permanent Secretary two years ago, life has been dominated by preparation for the SDSR. And I took over this job just as the SDSR was published. So my time in Defence has been one of great challenges and change. I welcome that.
My own background is in Government change programmes - I came to the MOD from overseeing the creating of the UK's new Ministry of Justice. Successful change programmes embrace the opportunities that change offers. And that is what I want to talk about today – how we in the UK hope to turn the challenges that we face into opportunity to transform defence.
Before I talk about what is changing, however, let me talk briefly about one thing that is not: Britain’s commitment to operations in Afghanistan.
On my latest visit to Afghanistan, shortly before Christmas, I saw real evidence of progress in the partnership with the ANSF, but the courage and commitment which have made that progress possible will continue to be required if we are to achieve success in our mission. No nation has shown greater courage, commitment and leadership in Afghanistan than the US, and I pay tribute to the US personnel alongside whom our troops are proud to serve, and will continue to serve, including in the harsh environment of Helmand Province.
Afghanistan is our Main Effort, but our personnel also serve in many other important roles, from the continuous at sea deterrent to the personnel on standby to protect our airspace. Around the world, UK and US personnel are training and operating together in a wide range of environments.
But if the events of 9/11 that took us into Afghanistan taught us anything, it is that we have to expect the unexpected.
Some new developments are well recognised, if not fully understood – the rise of emerging powers, especially China but also India and Brazil being a case in point. Others are less tangible, such as how changes in technology can impact on how states relate to one another – for example, with the emergence of cyberspace as a possible domain of warfare. We know that such changes will bring both benefits and threats, but the one prediction that we can be sure of is that the future will surprise us.
Against this background, the fiscal challenges that Governments around the world are having to facing must be considered as national security issues. Adm Mullen has observed as much himself. For this reason the new UK coalition government has made reducing the national deficit its top priority. UK Defence Secretary Liam Fox, who also spoke here last summer, is clear that deficit reduction has to be the priority for the Government. And that without a sound economy we will not have the funds to tackle our security problems and we will not have the thriving defence industrial base on which we rely for innovation.
In the short to medium term, this is uncomfortable. Defence has been relatively protected within the British Government’s spending reductions: the Defence budget will reduce by just over 7.5% over the next 4 years and will remain above the NATO standard of 2% of GDP.
I will emphasise a few key points which underpin our approach to reform:
The US relationship remains our pre-eminent defense and security relationship. We retain our ambition to be the US's most capable ally, and to act as ‘Deputy Sheriff’ when needed.
NATO remains the bedrock of our security – but for that reason we want to see further progress on modernising and streamlining NATO structures.
Our commitment to our nuclear deterrent is also unchanged.
And, notwithstanding the difficult reductions that we are making, we still aim to invest in the capabilities that we will require in the future. For example, we will be spending more on cyber.
To achieve this we will need to achieve significant savings. In other words, as the SDSR acknowledged, success or failure will depend on our ability to do our business better. That means innovative and bold reductions in how we deliver our back office and support functions. The two big costs in defence are equipment and people and to cut our running costs by 30% we will be cutting civil service numbers by 25,000 over four years, which is almost one in every three people working in the Department. Efficiency savings will come from non-frontline parts of the armed forces too, with military reductions of around 17,000.
At this stage, I should be clear that efficiencies will not address all our entire financial challenge. We are having to make some cuts or reductions in capability. Many of you will know about some of these - the decision to take a capability gap in carrier strike, which includes the withdrawal from service of the Harrier jump jets and the cancellation of the Nimrod surveillance aircraft, for example.
Nor will our financial challenges end with the conclusion of the SDSR. Those of you who follow British newspapers, as I know some in the Washington Defence community do, will have picked up stories of further major cuts to come. These stories arise from our annual planning round, and we have a firm policy of not commenting on leaks and rumours from a process that has some way to run. However, I can be clear about two things: first, that you certainly should not believe everything that you read in newspapers. And second, any decisions that we do make will fit firmly within the policy framework set out in the SDSR.
What is important to recognise, however, is that we are now entering a critical period in which we must hold our nerve and stand by our choices. There will be people who want to reopen these debates. That is not the answer and will only make our lives more difficult.
History of defence reform in the UK
More recently, since 9/11, the UK defence budget has grown modestly while the defence programme has had to be transformed to fight two wars, against a backdrop the sort of cost growth which people in this town are all too familiar with. We've responded to that by reducing our running costs still further by:
going to a single joint organisation for buying and supporting all military equipment
Merging the force generation and personnel HQs for each of the three Services
Continuing to reduce the size of our core staff in our HQ in London - symbolised by the fact that we will shortly be down to working in a single building, from nearly 10 a few years ago, and 22 in the 1980's
So why is the current attempt at reform going to be different? One reason is because we are not just looking at structure and organisation but also at culture and behaviours. Our Defence Secretary set up a Defence Reform Unit - a mixed team of external business leaders and senior defence people - to oversee the reform, led by Lord Peter Levene, a former Chief of Defence Procurement.
Emerging thinking from the Levene group’s work has identified five key themes:
The starting point for reform must be the development of a new operating model for defence. When I joined the MOD two years ago I spent a lot of time asking myself whether the MOD way of doing things was more complicated than elsewhere in government because defence is intrinsically more complicated, or because defence people like to do things their own way. Defence is more complicated than other businesses, but our complex structures amplify the effect rather than reducing it. I had in mind the advice of the CEO of Unilever, a UK FTSE 100 company - "Has the board's intervention left this problem simpler or more complicated?"
Now is the chance to simplify. We will develop a new operating model with fewer people second-guessing each other. We will refocus our policy and strategy functions so that they concentrate on the strategic, and stop meddling in the detail of delivery. We will increase the transparency of information so we spend less time arguing about why ‘my numbers aren’t the same as your numbers’.
Next is structure. When reform is in the air, it is the first topic to come up - we all want to know where we will fit in the new hierarchy and how many top jobs will go.
Our current structure is highly integrated, with military officers and civilians working side by side in policy and operational roles. In London, unlike in the Pentagon, the military don't generally wear uniform at work and you can’t always tell who is military or civilian. This integration is a great strength which no one wants to lose. But it sometimes results in two of everything - or even four of everything (three Services and a civilian). Integration ensures our Defence Secretary does not have to choose between competing advice, but that should not come at the expense of unnecessary duplication, or blurring of roles and accountabilities.
Third is culture. One reason why duplication exists in defence is the culture of respecting the different perspectives and traditions of the three Services. We are clear that Defence Reform is not going to challenge the existence of the individual Services - young men and women are inspired to join the army, navy or air force, not "the armed forces" in general. But does respect for tradition mean that each Service should have it's own finance team, it's own civilian HR staff? We need to divert as many of those duplicated support resources as we can from tail to teeth.
Next is acquisition reform. Just as in the US, this is a key area where the Single Service voice is seen as both a strength and a risk.
We need acquisition experts who deeply understand how the forces will use and maintain the equipment we buy. But expertise in the management of huge, costly and complex procurement projects requires skills which are built up over years of practical project management. This sits uncomfortably with the military career pattern of moving on every two years.
The Single Service focus is also a challenge in the strategy arena. Expert teams take our top level Strategy for Defence and turn it into strategies in each of the key capability areas - ground manoeuvre, underwater capability, ISTAR and so on. Unsurprisingly, the head of capability for ground manoeuvre will be a soldier, while the undersea team will be led by a submariner. Equally unsurprisingly, each of these capability experts knows very well and probably feels passionately about the equipment priorities of his or her Service. So getting a dispassionate but also expert view is a challenge.
One solution to that problem is to develop scrutiny and assurance processes to ensure that individual equipment proposals are not only good value for money, but also represent the best way of addressing the military requirement, not a particular services view of how to meet that requirement. This is fine, but it is an expensive way of getting a single view of defence needs. The Defence Reform team will be looking hard at pressure points such as these. And at whether, above a certain level, it is more important to be a joint officer than a single Service one.
We have brought in Bernard Gray, a successful businessman and the author of a searching report on our acquisition practice, to run our Equipment and Support organization. We will look to him to lead the reform of acquisition. That includes changing the Department’s relationship with industry, with a relentless focus on value for money.
Fifth the Levene group will be looking at force generation. This is another area where different approaches within the Services lead to different outputs for what can look like similar inputs. The balance between operational tour lengths, tour intervals (the time between tours) and harmony (or nights out of bed) varies quite markedly for reasons that are not always easy to explain. Perhaps even more importantly, we need to look at how we prepare for operations (for example rebalancing between synthetic and live training). It is the intention to go beyond the classic approaches to cost reduction and examine some of the deeper drivers of cost growth. That will mark this out as a different kind of reform.