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A Hostile Takeover of the Pentagon?

When Donald H. Rumsfeld returned to the Pentagon for a second tour of duty as Defense Secretary, he acted like a corporate executive directing a hostile takeover. The former G.D. Searle & Co. CEO huddled with the military equivalent of outside management consultants while largely shunning the brass and Congress. As in other unfriendly bids, the new boss was shocked by the size of the problems--although at a $315 billion-a-year enterprise, even molehills are mountains. Rumsfeld found himself faced with run-down housing, lengthy product-development cycles, hidebound personnel policies, and inefficient delivery of services from payroll to day care. "Things were worse than I had been led to believe," Rumsfeld allows.

The 68-year-old businessman decided that private-sector sense and sensibilities were needed to fix the unwieldy and often intractable Defense Dept. bureaucracy. So he has drafted a cadre of corporate heavyweights. "It's a turnaround opportunity," says Gordon R. England, the former General Dynamics exec brought in as Navy Secretary.

"WHEEZE KIDS." If Vietnam-era Defense Chief Robert S. McNamara had his "Whiz Kids," Rumsfeld has his "Wheeze Kids"--corporate veterans who may be in the twilight of their careers but who have proven track records. When England, 63, worked at the plant that makes F-16 fighters, he cut the plane's cost even as orders declined. Army Secretary Thomas E. White, 57, helped transform Enron from a stodgy pipeline company into a dynamic energy concern while slashing his unit's workforce by 40%. And Air Force Secretary James G. Roche, 61, was an architect of Northrop Grumman's conversion from an airframe maker into an electronics powerhouse. With Rumsfeld, Deputy Defense Secretary Paul D. Wolfowitz, and acquisition czar Edward C. Aldridge Jr., they form Rumsfeld's Senior Executive Committee, which serves as a personal board of directors.

Among the bottom-line goals of Rumsfeld Inc.: adopting normal business-accounting practices to track the flow of money so that the system doesn't routinely lose billions of dollars and actually can be audited. Rumsfeld also wants to shorten the product-development cycle, which has increased while the commercial world's has shrunk. And the team is mulling outsourcing many functions that aren't core competencies, such as travel, housing, and health care. Such nonmilitary missions account for a staggering 70% of the Pentagon budget, by some estimates.

Without paring those costs, budget constraints keep Rumsfeld from bankrolling his weapons-buying plans. That's the incentive for the armed services to reform: They could keep their cost savings and use the cash for pay, benefits, or weapons. Rumsfeld frets, however, that the traditional rotation of personnel, who don't stay in a job more than three years, could ruin that strategy. "If you ran a business this way, you'd go broke awful fast," he says.

Previous Administrations have tried and failed to tame the Pentagon beast. Rumsfeld has his work cut out for him: No company has a meddlesome, 535-member board of directors quite like Congress. Instead of looking at the bottom line, many lawmakers see the Pentagon as a job bank for constituents. "A lot of Republicans are not going to see closing places like the Oklahoma City Air Logistics center as progress," notes defense consultant Loren B. Thompson.

Rumsfeld expects that kind of resistance from pork-crazed lawmakers and entrenched bureaucrats. But if he has his way, business concepts like downsizing and restructuring will find a place next to nukes and missiles in Pentagon strategic thinking. On June 19, Defense Secretary Donald H. Rumsfeld sat down with Pentagon Correspondent Stan Crock to talk about the toughest challenges he faces.

On tackling Pentagon bureaucracy:

I've asked dozens and dozens of people how something moves through this process. And a lot of our people can't explain it. The process is so snarled, confused, and overlapping that it doesn't lend itself to [action].

On aging military hardware:

We have underinvested in weapons systems. We're looking at an average age of aircraft rising over the past decade to the point where we now have to spend a great deal more on spare parts and repairs and downtime. It's as if you had cars that were 20 years old instead of 3 or 5 years old.

On incentives to save money:

Talk to the skipper at the base. He's got no incentive to save a nickel. He just loses it for next year.

On the policy of rotating personnel frequently:

How can you run people through every 10, 12, 18 months at a job and expect them to know anything about the job? All they do is skip along the top of the waves...

On the enormity of the task ahead:

You don't spin anything on a dime, let alone a place this big. And we have an enormous task. There is resistance at every corner to change. The important thing is: It's the taxpayers' money. We have an obligation to them.

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