The Department of Defense (DoD) should prepare for changes in every aspect of its operations, according to Defense Secretary Chuck Hagel.

Speaking yesterday at the National Defense University, Hagel said severe fiscal pressures and “a gridlocked political process” have produced much larger budget cuts than were expected or planned.  The challenges DoD faces will require decisionmakers to consider “big choices,” not just “chipping away at existing structures and practices,” he said.

Hagel noted that DoD has been involved in change for some time.  He said former Secretary Gates, understanding that the budget increases after 9/11 were ending, worked to reduce overhead costs and cut funding on programs that were not performing or effective.  Former Secretary Panetta continued efforts to cut unnecessary defense spending, while preparing a new defense strategy, Hagel said.  Panetta lowered planned defense budgets by almost $500 billion.

Now, Hagel said, the sequestration order cut $41 billion this year and, if unchanged, sequestration will continue into the next decade resulting in an additional $500 billion cut to defense budgets.

The decisions the department is making to implement this year’s sequestration (cutting travel and facilities maintenance, stopping nonessential activities, and furloughing civilian employees) will not be enough to meet future budget challenges, Hagel warned.  “We will have to do more,” he said.

The secretary said he is determined to get ahead of these budget challenges.  He has ordered a Strategic Choices and Management Review, led by Deputy Secretary Ashton Carter with Joint Chiefs Chairman Gen. Martin Dempsey, to make sure that DoD realistically confronts “both our strategic and fiscal challenges.”  This review will enable the department to “understand the challenges and uncertainties, plan for the risks, and recognize the opportunities inherent in budget constraints and more efficient and effective restructuring,” he said.

This effort will require matching missions with resources, Hagel said.  “We need to challenge all past assumptions, and we need to put everything on the table.” 

DoD will look at what Hagel called the principal drivers of growth in DoD’s budget:  acquisition, personnel costs, and overhead.  If not addressed, increasing costs to sustain existing infrastructure, provide personnel benefits, and replace aging weapons systems will “crowd out” funding needed to sustain a well-equipped and ready force, he said.

Hagel mentioned several areas that require “difficult decisions and strategic prioritizing.”  DoD needs to continue improving its acquisition system to ensure that it “responds more efficiently, effectively, and quickly” to meet the needs of commanders in the field, he said.

Fiscal realities require a harder look at how many military and civilian personnel DoD has, how many it needs, what is the right mix, and how they are compensated, Hagel said.  “The appropriate distribution of troops performing combat, support and administrative duties” should also be addressed, he said.

Hagel called for a hard look at DoD’s organizational chart and command structures, many of which date back to the Cold War.  He pointed out a seeming imbalance between the “three and four star command and support structure” and operational forces “that have shrunk dramatically since the Cold War.”

DoD should also look at itssupport structure or what Hagel called “the world’s largest back-office.”  Reducing “layers of upper and middle management not only reduces costs and micromanagement, but it also leads to more agile and effective organizations,” he said.

Hagel said the strategic review should determine if the force structure is aligned with the strategy including how DoD defines and measures risk.  An examination of the size and shape of the force should address the balance between active and reserve forces, general purpose and special operations forces, and conventional and unconventional capabilities, he stressed.

Successfully meeting DoD’s severe fiscal challenges requires the “support and partnership of Congress,” Hagel stressed.  He called for long-term budget certainty, flexibility, and the time needed to “address acquisition, personnel, and overhead costs in smart ways."