A War On Fat At Pentagon Inc.

Can Bill Cohen run the military efficiently?

It has been nearly 40 years and dozens of whiz kids since Pentagon management was fundamentally overhauled. But now, Defense Secretary William S. Cohen, a military reform specialist when he served in the Senate, is staking his reputation on a plan to put the Pentagon on a more businesslike footing. His model: IBM and other corporate giants that were forced to reinvent themselves to face the rigors of competition.

Unlike Louis Gerstner, IBM's reigning turnaround artist, Cohen has to worry about unique competitive challenges such as a potential military confrontation between the U.S. and Iraq--not to mention political minefields inside the Beltway. But with no hope of raising his department's $250 billion budget, the Defense chief worries he'll lack the funds needed to maintain a modern arsenal. "We need to get the money to pay for the revolution in military affairs," says Cohen.

BLOATED. One answer: free up $6 billion a year by slashing the home office's bloated overhead costs. The strategy, unveiled on Nov. 10, would cut 31,000 jobs, replace many paper transactions with electronic commerce, outsource work, and launch a new round of military base closings.

Base closings will face congressional flak, but Cohen can adopt other changes on his own--and may have lawmakers' support. Indeed, House National Security Committee Chairman Floyd D. Spence (R-S.C.) praised Cohen for "acknowledging that Pentagon reform is long overdue."

There's little doubt about that. The last management overhaul was engineered by President Kennedy's Defense chief, Robert S. McNamara, who adopted ideas based on his experience as Ford Motor Co. president. Today, those results would produce guffaws in a B-school management course. For every $1 spent on travel, the military shells out an additional 30 cents on trip-related paperwork. A just-in-case logistics mentality has produced $103 billion in inventory, but Cohen thinks a just-in-time system can slice that in half.

"REVOLUTION." Before becoming the sole Republican in the Clinton Cabinet, Cohen had penned several government acquisition-reform laws during his three terms as a senator from Maine. Now that he has the chance to act on those ideas, he's moving ahead with what he says is nothing short of a "revolution" in how the Pentagon does business.

Even so, critics gripe that Cohen is too timid. Lawrence J. Korb, a former Pentagon official now at the Brookings Institution, says Cohen should eliminate the civilian heads of the individual uniformed services and put all procurement powers under one roof. "Those steps would be significant," he says.

Others question whether Cohen will take seriously the new CEO mantra: focus on core competencies. Unlike his counterparts in Corporate America, Cohen's is fighting wars. Retired Lieutenant General Thomas G. McInerney, head of Washington advocacy group Business Executives for National Security, thinks Cohen should divest entirely such commercial functions as business travel, data processing, and housing. "You don't need people doing things that are in the Yellow Pages," he says.

But Cohen has decided to allow the units to compete against private companies for many of those services. Why? Congress would balk at the military job losses. "It would be desirable to outsource as much as we can, but that isn't the way this company can function," he acknowledges.

As a student of the Pentagon, Cohen is also keenly aware that his is just the latest of several reform plans over the decades. Most sit on shelves gathering dust. But the Defense chief insists his plans for such reforms as paperless contracting will succeed. CEOs get the job done, he says, by conveying a "unified vision." Now the question is whether his determination can subdue a system that has shot past reform efforts down in flames.

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