Public-sector entities, like many commercial ones, are increasingly undertaking large transformation programs to streamline and improve their core operations. Nowhere is this task more challenging than in the US Department of Defense (DoD), which is committed to transforming its business practices to support faster and more agile operations. This multiyear mission will touch all aspects of the DoD, which has annual net operating costs exceeding $620 billion—including more than $30 billion for technology—2.9 million people, and a supply chain involving 5.2 million items.

In 2005, the DoD established the Business Transformation Agency (BTA) to help guide transformation efforts throughout the department. The BTA’s responsibilities include deploying enterprise IT systems, publishing the Business Enterprise Architecture, and helping to carry out investment decisions. The agency, for example, oversees programs that manage pay and travel for the armed services, makes proposals to organizations such as the army and the navy (called “components” inside the Pentagon) about how they can transform themselves most effectively, and encourages standardization throughout the department.

Few people have as good a position to reflect upon the DoD’s transformation as David Fisher, the BTA’s first official director. Fisher joined the DoD from Silicon Valley, where as a consultant he helped private-sector companies to implement large enterprise systems. As a special assistant to the deputy undersecretary of defense for financial management, Fisher helped guide an enterprise-level business transformation and served on the team that launched the BTA. McKinsey’s James Kaplan and Kreg Nichols met with him in his office, in Arlington, Virginia, near Washington, DC, to discuss the differences between public- and private-sector transformations, as well as what he has learned about managing megaprojects.

David Fisher

Vital Statistics

Born in 1965, in San Francisco, California

Education

Graduated with BA in communication in 1987 from Stanford University

Earned MBA in 1998 from Leavey School of Business, Santa Clara University

Career highlights

Department of Defense

• Director of Business Transformation Agency (2006–present)
• Director, Transformation Planning and Performance (2005–06)

BearingPoint

• Managing director (2000–05)

Fast Facts

• Author of Optimize Now (or else!): How to Leverage Processes and Information to Achieve Enterprise Optimization (and Avoid Enterprise Extinction)
• Speaker on business process optimization at conferences

The Quarterly: Coming from Silicon Valley, how similar do you think the public and private sectors are?

David Fisher: While the mission may be different, many of the business challenges are the same—for example, tracking supply chains or making certain that people are paid correctly and on time. But the public sector differs in some significant ways. For example, the scale is very different. The size and scope of the Department of Defense are challenging. The best way to think about our size is to take a look at our budget. In all, last year we had gross costs of over $600 billion, more than the sum of the revenues of, say, Wal-Mart, GE, and IBM. It’s enormous, and there’s nothing comparable to it in the private sector.

Also, our leadership changes regularly—at least every eight years, when presidential administrations turn over, and generally more often. This is a challenge when you consider that huge organizations in the public and private sectors work at transformations for a long time, sometimes up to ten years, before really starting to reap the benefits. Paul Brinkley, the deputy undersecretary of defense for business transformation, reminds us that IBM was undergoing transformation for ten years before the company really started to reap the benefits of overhauling the supply chain, for example. Even in the best situations, transformations take a long time to accomplish. We look to commercial business for an indicative timeline, but you’d have to combine four or five of the Fortune 10 to get the scale of the DoD.

The Quarterly: What have you been able to use from your commercial-sector experience?

David Fisher: My experience working with large companies helped prepare me for this type of role by giving me a willingness to buck the cultural trend and to suggest new ways of doing business. The BTA has been trying to apply the best practices from the commercial world, especially about how we govern and manage IT investments. If there are processes that we can streamline to help programs deliver capabilities faster, without getting bogged down in some of the administrative activities, we try to do that.

This can be hard to do in a complex, hierarchical environment like the Department of Defense. Fortunately, many people around me, who have more experience within the government culture, have proved to be tremendously valuable at identifying constraints we face in public projects—constraints that just wouldn’t be there in the private sector.

The department has been trying to modernize the way it does business for a long time, and we still have a long way to go. Every administration tries, and I’m sure we make some progress each time. But on the whole, we’re not where we want to be—or where we need to be. We want to build on the good work that’s been done before us, but we also need to question previous actions that weren’t successful and to offer new solutions.

The Quarterly: What are the goals of your transformation efforts?

David Fisher: Our overall objective is to guide business transformation efforts at the enterprise level of the Department of Defense in order to improve the DoD’s ability to perform its mission. We do that sometimes directly, sometimes indirectly. The BTA has a combination of operational and technical roles to play—for example, we manage the systems that handle travel and payroll for about 1.5 million employees of the DoD. But a big part of our role is to identify skill sets that are scattered throughout the DoD and unite them so that its components can work better together. For example, we bring the functional people and the technical people together so that a set of data standards affecting multiple areas can be agreed on.

Successful coordination among the components doesn’t come from exercising authority but rather from exerting influence. People in the components don’t have to open the door to us, and I’m not empowered to make them open the door. But if I can demonstrate value, they’re going to open the door to me, whether I’m empowered or not. It’s all about adding value. There are certain things that we have authority for, but even in an environment where you have authority, your authority will only carry you so far in the effort to move things forward in a positive direction.

The Quarterly: What are the main challenges in deploying technology to support the transformation?

David Fisher: We spend about $2 billion each year on IT business transformation, half of it on enterprise resource planning systems throughout the Department of Defense. Much of the work for these ERP systems focuses on deciding what should be centralized, at the DoD enterprise level, and what should be managed by components—the military services, defense agencies, combatant commands, and military health services. As in any large organization, the people at the enterprise level are consumers of information. As long as information in different systems can be aggregated in a standard way, these people can do their jobs. On the other hand, some decision making is distributed, occurring within organizations that make up the DoD. The challenge lies in the gray area. Where is it more effective to have a single system at the center as opposed to multiple versions that adhere to common standards?

We have 27 systems in our enterprise portfolio today, and many of these are centralized only because the components did not have the ability to run their own when these systems were implemented years ago. As the capabilities of the components mature, we must ask if there are more efficient and effective ways to complete those transactions while still providing the members of our cross-component community with the information they need to do their jobs.

The Quarterly: How do you manage such a large-scale transformation?

David Fisher: Much depends on governance and on discipline in setting and implementing standards. Consider our experience implementing a set of standards for financial data. Initially, the reaction in the field was that this would cost too much to embed in individual IT systems, so we came up with a two-pronged approach.

In the short term, we agreed to create a bridge system to the components’ legacy accounting systems, to save costs. It wasn’t a perfect solution, but it moved us toward interoperable data at a relatively low cost in a short time frame. Our longer-term challenge involved integrating these standards into various ERP systems. It was critical to get this right, from the beginning. Again, the components’ managers were concerned that this would be expensive and difficult to integrate with their SAP and Oracle systems. So we deployed ERP experts among the components who worked with teams there to identify ways to configure the ERP systems so they could work with standardized data. It’s been very successful.

The Quarterly: How do you keep people motivated and set performance measures?

David Fisher: When I left the commercial environment, I thought one of the great things about leaving was putting behind me the need to meet quarterly profit-and-loss targets and to deal with the short-term decision making that results from a quarterly focus. But now that I don’t have those constraints, I miss having the motivation to hit quarterly numbers. So you have to look for different kinds of motivators to keep projects on time.

The people who go into public service are unbelievably passionate about what they do. There is a tangible internal motivation about doing public service that is different from what you find in the commercial marketplace. It’s not something you can necessarily put your finger on, but it’s real. We appreciate that. It’s very important. That said, we have to find ways to measure accountability. In the commercial world, there’s the P&L—you’re held accountable for the numbers. We are always in search of ways to hold people accountable, not least because if you succeed at something, you want to be recognized for it.

We and the rest of the Defense Department have recently begun to move away from an old tenure-based performance model to a new system—the National Security Personnel System—that is closer to pay for performance. This is the type of system that’s familiar to commercial enterprises, but it’s new to this public environment, so we had to spend some time explaining that the goals had to be objective, measurable, time constrained. It’s been somewhat controversial because not everyone likes this shift. But as a manager, I have found it a positive shift, especially in terms of getting people to think about time. Sometimes, impatience is exactly right because within the public sector, things do tend to run on for a while. We need to build in that internal motivator that makes people ask, what did I get done today?

In the end, however, while people care about their compensation, just as they should, it’s a small part of what motivates people here. It’s about the contribution to public service. One of the things that rallies the passion of these folks is seeing that they’re making a difference on a national security–related issue that helps the people on the ground.

The Quarterly: With such large-scale technology deployments, what have you learned about managing megaprojects?

David Fisher: Many of the things that would portend a successful ERP implementation of small to medium size would portend success for the large programs at the DoD. We’ve looked at the top reasons ERP implementations fail. Many failures come down to governance, change management, requirements management, customization, the skill sets of the people involved, and testing. Those concepts are immutable, regardless of size and scale. Our challenge with these immense projects is that implementation takes such a long time, spanning several generations of IT development. That can be problematic and leave an opportunity for endless analysis and debate.

It’s also important to clarify what we’re trying to optimize, since one person’s definition of the enterprise may be different from another’s. From my perspective, the enterprise is the Department of Defense. But if I go to the army or navy, they might define the enterprise differently; if they’re trying to optimize the army or navy as opposed to the DoD, we end up with different solutions.

Let me give you one example of how the BTA’s involvement helped the army reexamine the scope of some of its systems to good effect. The army had three big ERP systems—one that handled finance and two for logistics (a more tactical system for the front end and a more wholesale system for the back end). All three systems were operating fairly independently. Our observation was that, although these independent systems may be optimizing the parts, they were suboptimizing the whole in terms of business processes, management, and the utilization of technology.

Through some pretty heavy engagements—some well received, others not—we were able to demonstrate that there was a better way to use technology to reduce risks the army would face in the way the systems communicated, reconciled data, and otherwise performed together. We recommended that the army connect the three systems more closely because, for example, each of the logistics transactions was eventually going to be a financial transaction. If you look at things that way from the beginning, it fosters an environment where you look at the business from end to end. The army has now adopted some of those concepts and has a cross-domain governance model. So we got the conversation going and it’s had this positive impact. We weren’t empowered to do any of that by our authority. We were passionate about it, and we were able to convince the army to let us in on the dialogue and help them come to decisions that represented a change for the better.

The Quarterly: Any other big lessons to pass along?

David Fisher: Question every assumption. We often assume that we have to do something in a certain way because it’s the policy or the way we’ve done it before. Question that assumption, and if it doesn’t make sense, find out who owns the policy or who owns the way it was done before. Even laws change. Sometimes the answer is no, and that’s it. But if you have a case that helps everyone to agree that the old way doesn’t make sense and that there’s a better way, a transformational way, of doing things, question the old way.