A recent GAO report on Department of Defense business management systems found that the department has requested $17.3 billion to operate its business systems during fiscal year 2012.

It turns out the number of DoD systems in operation is rather staggering: According to the inventory information, those funds were to be used to operate 2,258 business, 335 financial management, 709 human resource management, 243 real property and installation, and 281 acquisition management systems.

In contrast, a large international retail firm with hundreds of billions in annual revenues conducts its global operations with less than 1,500 business, financial management, inventory and human resource systems.

Granted, the daily operations of DoD are much more complex; however the scale of the difference is striking.

So, the question becomes – how can DoD reduce cost and make its business management systems more effective?

The obvious answer that comes to mind would be to cut the number of systems currently in use by the department — an oversimplification of a very complex problem. However, determining which systems could be eliminated or combined is a task that, while complicated, is a necessary step for success.

The change-management process for reducing systems and rationalizing the data associated with them is the key. Moreover, DoD doesn’t have to break new ground here. There are plenty of lessons that can be learned from private sector transformations and disciplined approaches that DoD can effectively use to alter its IT investment and management strategy.

In his book “Who Says Elephants Can’t Dance?” Lou Gerstner recaps his journey as the CEO of IBM (1992-2003). When he arrived at Big Blue, it was on the verge of obsolescence in the IT industry. Gerstner found hundreds of data centers and general ledgers, thousands of software applications and an organization that was more focused on regional excellence than on the company as a whole.

During his tenure, Gerstner reshaped the company from a very decentralized organization to an enterprise, eliminating scores of data centers, labs and private networks in order to achieve significant cost reductions; and focusing the company on achieving excellence in operational processes and delivery of IT solutions to customers. He and his team executed one of the largest transformations in the history of business.

It was only after spending a considerable amount of time reviewing the system engineering of core enterprise processes that IBM really began to concentrate on its IT infrastructure.

The initial focus on core business processes was fundamental to the overall success of the transformation. It forced all IBM units and employees to achieve some level of standardization in the execution of daily company operations, thus paving the way for determining what to retain, what to combine and what to eliminate.

It was only after spending a considerable amount of time reviewing the system engineering of core enterprise processes that IBM really began to concentrate on its IT infrastructure.

In fact, I was told by one prominent IBM executive that the reason the company spent so much intellectual capital on the upfront re-engineering of the business processes was to avoid wasting additional financial resources on IT re-tooling or, as he put it, “automating chaos.”

To a large degree, the above mentioned GAO study recommended a similar approach for DoD: develop an enterprise architecture to better understand the interrelation of business processes, information needs and work flow before spending more money on IT systems that, without such an understanding, would only lead to “automating chaos.”

It’s been interesting to move from the DoD world into the private sector and to see how that approach was applied in advising a large, global retail firm to guide how invest it planned to invest more than a quarter of a billion dollars in IT infrastructure. A Strategic Information Technology Practice team at the firm I recently joined baselined the organization’s business processes, software applications and data infrastructure, and defined future business functionality needs and priorities.

Their emphasis clearly focused on business operations first before any IT infrastructure design or technical requirements discussions occurred.

This effort spanned 14 countries and literally hundreds of retail stores. After spending almost a month completing the inventory and baselining of IT systems, a full redesign of the relevant business processes and business requirements was the next step.

The key to this effort was a very detailed examination of the interaction and connection points necessary to efficiently streamline the flow of goods from producer to user. Applying particular attention to the planning, forecasting, inventory execution and tracking of different products, the team worked with leaders from all levels of the retail firm to develop an overarching enterprise architecture that covered the entire vertical hierarchy.

This led to a new organizational framework, including different staffing, roles and responsibilities. It was only after the company was realigned that significant work began to develop the IT systems and infrastructure investment strategy. It was another case of applying the classic adage “form follows function.”

While the GAO report alludes to much of the same thought process, I don’t think enough emphasis was placed on better alignment of business processes within DoD as the fundamental step to reducing wasteful spending on business modernization systems.

To its credit, DoD published its Business Enterprise Architecture (Version 8.0) on March 18, 2011, listing the 15 core end-to-end processes essential to all department business mission areas. However, the implementation of those 15 processes by the individual services is not entirely synchronized. As a result, each armed service continues to spend to automate business processes that are not completely aligned from an enterprise standpoint.

The parallels between the old IBM and DoD today are striking.

IBM was a company with global operations, regional affiliations and individual profit centers that were more focused on unit success than on the enterprise as a whole. Doesn’t that sound like DoD: global operations, regional combatant commands and individual services that fight each year for more financial resources? Given the situational similarities, DoD should take a cue from IBM or the example process realignment for the large global retail firm in the example above to fix its business model.

Having spent a number of years within DoD, I can readily attest to the fact that change is a long, involved process that usually takes more time than most political appointees or senior military leaders can accept.

Yet, the success of any change is directly proportional to the level of support from the senior leadership team: they must determine, focus and actively drive change each and every single day to have any impact at all.

While DoD business management systems may never be perfect, they can be significantly improved through a rigorous review and alignment to become more like commercial models. Only after ensuring these elements are in place would it be prudent for DoD to invest more aggressively in IT business management solutions.

In addition to those absolutes, there are a few other things that can be drawn from the IBM story as well as similar work done by our team:

First and foremost, concentrate on the alignment of the business processes throughout the enterprise. In the case of IBM, they initially focused on seven key processes to ensure that they were able to make the transition from decentralization to standardization throughout the company. Similarly, our team initiated the IT strategy realignment of the international retail firm by first completing a baseline of current business processes and then engaging leaders from across the company to help determine how to make those processes more efficient.

In both cases, the companies didn’t just shut their doors, take a few years off, develop a revised plan and then implement the changes. Rather, they put groups together staffed with the best and brightest from within to determine how to change the business processes and to oversee the final implementation of those changes – all this, while day-to-day operations continued.

For DoD, however, the change management function was largely assigned to an external organization called the Business Transformation Agency (BTA). With the recent demise of the BTA, the Chief Management Officer, which was legislated by Congress, has begun to play a more active role in realigning business processes. Applying a “best practice” approach, DoD needs to go a step further and emulate some lessons learned from the private sector model: assign folks from across the organization to realign business processes rather than relying on forming an internal agency or staff that may lack the depth of understanding of daily operations necessary to make business processes more efficient. As well, working with independent organizations that have experience with realigning large IT enterprises is another best business practice that will accelerate the change management process.

DoD also must allow the change process to be completed before embarking on major IT investments. In the two commercial cases cited above, the business process redesign and thus the IT investment hiatus lasted two to three years. Each company spent considerable up-front intellectual capital modifying and reorganizing its business processes, and several more years revamping their internal culture and behavior to institutionalize the changes among the unknowing, unable and unwilling. Their changes were hard, and one could anticipate that given the size and diverse cultures within DoD, the degree of difficulty undoubtedly will be greater than usual.

Nonetheless the analyses suggest that if DoD invests the intellectual capital and time necessary to detail a long-term roadmap to revamp its business operations, the follow-on realignment of IT systems and infrastructure to support the seamless functioning of end-to-end processes will occur much more rapidly.

Overall business process realignment is only part of the task.

DoD is a perfect example of a public agency that needs to think about aligning its business processes more with those of the commercial sector. The commercial sector drives the development of applications, especially enterprise resource planning systems that integrate financial, operational and human resource information. The private-sector customer base for these systems is huge in comparison to DoD. Yet, because ERP (Enterprise Resource Planning) systems are built more for commercial business operations, DoD tailors them to its unique business processes, creating multiple complications when new versions of the ERP systems are released.

This results in further tailoring of the ERP software, which is usually completed just in time for the next release, and the update process starts anew – a hugely inefficient and unending cycle. Granted, some of DoD’s business processes are unique, but others, such as human resource and financial management, have strong similarities with the commercial sector. It would be prudent to spend some intellectual capital modeling as many of DoD’s processes as possible to be more like those of the private sector in order avoid the inherent complexities of continuous ERP customization.

Yogi Berra once said, “If the world were perfect, it wouldn’t be.” In a perfect world, all business operations would be streamlined and efficient. But, they just don’t get there because you want them to be that way. Examples like IBM, the major retail company and other firms we have engaged point to success stories of large global organizations that, like DoD, suffered from duplicative business management systems that were unwieldy and inefficient.

However, each of their IT transformations demonstrated that focusing solely on IT technical solutions was not sufficient to fix the problem — cultural and behavioral changes were also instrumental to success.

While DoD business management systems may never be perfect, they can be significantly improved through a rigorous review and alignment to become more like commercial models, thus avoiding costly ERP customization, and instituting realistic cultural transformation. Only after ensuring these elements are in place would it be prudent for DoD to invest more aggressively in IT business management solutions.

Lt. Gen. Jeff Sorenson (Ret.) is a partner in A.T. Kearney’s Aerospace and Defense Practice. His 37-year military career included more than 20 years in senior executive positions in Army financial and program management, including his final assignment as the Chief Information Officer for the Department of the Army. He can be reached at [email protected]