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Rust Belt Lessons for the Defense Department

May 2007
By Cmdr. Gregory E. Glaros, USN (Ret.)

The rise of an industrial threat has its equivalent in the military.

Last month I toured an industrial site once famous for its manufacturing proficiency. In its heyday, this steel and shipbuilding facility dominated the industrial world. Sparrows Point, in Baltimore’s harbor, was a symbol of U.S. manufacturing might. But, it also has a special personal connection. This former world-class facility of Bethlehem Steel—my hometown’s namesake—was responsible for building the USS Saratoga, which was the post-World-War-II aircraft carrier on which I embarked for a nine-month nugget cruise as an Intruder pilot during operation Desert Storm.

As I walked the 30 acres of shoreline and between the decaying buildings of the former industrial giant, I wondered how such a successful corporation could have failed. It was evident from the remaining structures and equipment, acquired in the past few years by several different owners and operating at a fraction of former capacity, that no significant capital investment had been made in 30 years. Little deference was paid to the global competition that would later engulf the company. The disruptive innovation by steel minimills that made this site irrelevant is well known. In this case, U.S. steel’s failure to recognize disruptive innovation ensured insolvency, but its arrogance doomed it to irrelevance. How could this have happened?

While MBA case studies give ample reasons for this failure, few explore the strategic implications. The cause was not just the lower cost of offshore manufacturing, corporate incompetence or the immovable demands by labor. The fact is that while U.S. global export virulence opened new markets, it also gave birth to a hungry pack of smart, faster moving, lean multinationals from poorer nations who provide greater value—measured by both price and quality. A running joke in Shanghai is that they “can copy everything except your mother.” CD and DVD piracy is not new. However, now there are “replicars”—knockoff copies of the BMW X-5—exported to Europe from China at half the price and that reach the market six months faster than the original.

The barriers to competition not only have fallen, they virtually have disappeared. With borderless trade came the ability to create, produce and field systems faster than affluent merchants of the industrialized West. Speed to market simply means more to them than money does.

And these consequences have direct implications for the defense community. Given current failures in defense acquisition, the high cost of complex systems and the time it takes to field such systems, does U.S. defense leadership wistfully hope that simple “reforms” will fix its issues? Does the Defense Department even address the right primary concerns? Does it have the proper strategy? Has it addressed what it will take to execute its initiatives successfully?

The answers to these questions run deeper than mere process concerns. One of the disturbing messages in The Innovators Dilemma, written by a professor at HarvardBusinessSchool, Clayton M. Christensen, is that if efficient management—based on existing incentives, driven by historical data—is the root cause of failure, then how can Defense Department leaders prevent the inevitable cycle of disruption and subsequent annihilation? What are the principles of success, and how can products be built that can both endure and disrupt at the same time? While the Defense Department wrangles with defense contractors to compete with each other, Christensen focuses instead on global threats. The ability of an adversary to launch satellites, make nuclear weapons and develop technology that can defeat our financially glutinous system is no longer rocket science.

The United States suffers from “affluenza,” a Western disease in which arrogance trumps reality. While this nation believes that no other nation can compete on scale or complexity, Toyota rightly drapes “Made in America” banners across its pickup trucks and Wall Street relegates General Motors and Ford to junk bond status. The spotty response from these businesses is lackluster de rigueur quality improvement programs. Fortunately, recent efforts to incorporate Toyota-style lean manufacturing into some defense processes are a step in the right direction. But as more senior defense leaders gain their “green belts” and dutifully apply lessons to paper-shuffle problems inside the Pentagon, these lean methods must permeate the rank and file in order to work. The current veneer appliqué is too little too late.

All organizations share a common imperative of effective execution to achieve strategic and organizational plans. However, value is created only when a plan is executed well. Systematic and effective execution at every stage of the value creation process is paramount. The pace of change in today’s competitive environment leaves little room for error, and it demands a continual process of reinvention of both the organization and the organization’s products.

But be forewarned: The strategies, organizational design and processes successful today may be the recipe for disaster tomorrow because sustained effective execution is not easily achievable. Without new methods and sustainable processes in place to build an affordable future, the Defense Department could end up as dilapidated as Sparrows Point. John Paul Jones stated more than two centuries ago that “men mean more than guns in the rating of a ship.” In other aspects of defense, the same is no less true. Investing in people means more than processes for sustained effective execution. It is too late for half measures.