The Department of Defense (DoD) must “more efficiently match our resources to our most important national security requirements,” Secretary of Defense Chuck Hagel told the Global Security Forum sponsored by the Center for Strategic and International Studies.

In his speech, Hagel defined the U.S. military’s role in meeting today’s security challenges and set his priorities for the budget and strategic planning efforts now underway in DoD.

When Hagel was sworn in as Secretary he cautioned that DoD faced some hard choices ahead. He ordered a Strategic Choices and Management Review to identify options for reshaping U.S. forces and institutions under different budget scenarios. These options provide a framework for DoD civilian and military leaders in the Quadrennial Defense Review to develop a long-term strategy and budget, including a realignment of missions and resources.

To guide this effort, Hagel identified six areas of focus to “help determine the shape of our defense institutions for years to come.”

Focus on institutional reform. After more than a decade of war and faced with declining resources, DoD must “reform and reshape our entire defense enterprise,” Hagel said. The first step was to initiate a 20 percent cut in headquarters staff and budgets. The goal is to redirect more resources to military capabilities and readiness and to flatten organizations and make them more responsive, he said.

Re-evaluate the military’s force planning construct. Hagel directed the services to evaluate the current and past assumptions on how they organize, train, and equip the force. The goal is to ensure the assumptions reflect the changing strategic environment, the changing capacity of our allies, and the new military capabilities of U.S. and adversarial forces, he said.

Prepare for a long military readiness challenge. Sequestration and resource challenges have already caused readiness problems in non-deployed forces, and a continuation of resource reductions and constraints could produce a readiness crisis, Hagel stressed. “We may have to accept the reality that not every unit will be at maximum readiness, and some kind of tiered readiness system is, perhaps, inevitable,” he said.

Protect investment in emerging military capabilities. Maintaining a decisive U.S. technological advantage is imperative, Hagel emphasized. He said DoD must continue to invest in emerging military capabilities.  He cited space, cyber, special operations, forces and intelligence, surveillance, and reconnaissance as particularly important.

Maintain balance. DOD must reconsider the “mix between capacity and capability, between active and reserve forces, between forward-stationed and home-based forces, and between conventional and unconventional warfighting capabilities,” Hagel said. In doing so, he said DoD may, in some cases, prioritize a smaller more capable force over a larger force using older equipment or better leverage the reserve components.

Reform personnel and compensation policy. Unless DOD can achieve savings in this area, which consumes about half of the budget, Hagel warned the force will become unbalanced: “One that is well-compensated, but poorly trained and equipped, with limited readiness and capability.” He recognized the potential difficulties in pursuing reform of compensation policy. Nevertheless, he urged Congress to become a “willing partner in making the tough choices to bend the cost curve on personnel, while meeting all our responsibilities to all of our people.”

Hagel cited sequestration and the continuing budget uncertainty as undermining DoD’s ability to maintain the capabilities to meet security challenges. If these are not resolved or mitigated, they “will cause an unnecessary, strategically unsound, and dangerous degradation in military readiness and capability,” he said. DoD was cut by $37 billion in FY2013 and faces another $52 billion cut in FY2013 if Congress does not agree on an alternative to the requirement for across-the board cuts. Perhaps recognizing the Congress may not be able to reach an agreement, Hagel urged Congress to give DoD “the time and flexibility to implement spending reductions more strategically.”