SPEAKERS       CONTENTS       INSERTS    
 Page 1       TOP OF DOC
98–058
2005
  
[H.A.S.C. No. 108–24]

HEARING

ON

NATIONAL DEFENSE AUTHORIZATION ACT
FOR FISCAL YEAR 2005—H.R. 4200

AND

OVERSIGHT OF PREVIOUSLY AUTHORIZED PROGRAMS

BEFORE THE

COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION
TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE HEARINGS
 Page 2       PREV PAGE       TOP OF DOC

ON
TITLE I—PROCUREMENT
TITLE II—RESEARCH, DEVELOPMENT, TEST, AND EVALUATION
TITLE III—OPERATION AND MAINTENANCE

HEARINGS HELD
MARCH 4, 11, 25, 31, APRIL 1, 2004

  
  

  

TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE

JIM SAXTON, New Jersey, Chairman
JOE WILSON, South Carolina
FRANK A. LoBIONDO, New Jersey
JOHN KLINE, Minnesota
JEFF MILLER, Florida
ROSCOE G. BARTLETT, Maryland
MAC THORNBERRY, Texas
JIM GIBBONS, Nevada
ROBIN HAYES, North Carolina
 Page 3       PREV PAGE       TOP OF DOC
JO ANN DAVIS, Virginia
W. TODD AKIN, Missouri
JOEL HEFLEY, Colorado

MARTY MEEHAN, Massachusetts
JIM TURNER, Texas
ADAM SMITH, Washington
MIKE McINTYRE, North Carolina
CIRO D. RODRIGUEZ, Texas
BARON P. HILL, Indiana
SUSAN A. DAVIS, California
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
JIM COOPER, Tennessee

Thomas Hawley, Professional Staff Member
Jean Reed, Professional Staff Member
Uyen Dinh, Professional Staff Member
William Natter, Professional Staff Member
Curtis Flood, Staff Assistant

C O N T E N T S

CHRONOLOGICAL LIST OF HEARINGS

 Page 4       PREV PAGE       TOP OF DOC
2004

HEARINGS:

    Wednesday, March 31, 2004, Fiscal Year 2005 National Defense Authorization Act—Department of Defense's Business Transformation Efforts

APPENDIXES:

    Wednesday, March 31, 2004

WEDNESDAY, MARCH 31, 2004

FISCAL YEAR 2005 NATIONAL DEFENSE AUTHORIZATION ACT—DEPARTMENT OF DEFENSE'S BUSINESS TRANSFORMATION EFFORTS

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

    Meehan, Hon. Martin T., a Representative from Massachusetts, Ranking Member, Terrorism, Unconventional Threats and Capabilities Subcommittee

    Saxton, Hon. Jim, a Representative from New Jersey, Chairman, Terrorism, Unconventional Threats and Capabilities Subcommittee

WITNESSES
 Page 5       PREV PAGE       TOP OF DOC

    Burlin, Thomas, U.S. Federal Industry and Global Government Leader at IBM

    Kutz, Gregory D., Director, Financial Management and Assurance, General Accounting Office, accompanied by Randolph C. Hite, Director, Information Technology Architecture and Systems, General Accounting Office; JoAnn R. Boutelle, Deputy Chief Financial Officer, Department of Defense; Margaret E. Myers, Principal Director for the Deputy Chief Information Officer, Department of Defense; Gary L. Winkler, Director, Enterprise Integration, CIO/G–6, Department of the Army; David M. Wennergren, Chief Information Officer, Department of the Navy; John M. Gilligan, Chief Information Officer, Department of the Air Force; and John R. Thomas, Brig. Gen., Director C4/Chief Information Officer, United States Marine Corps

    Peck, Steve, President, SAP Public Services

    Schneider, Kent R., President, Defense Enterprise Solutions, Northrop Grumman Information Systems

APPENDIX

PREPARED STATEMENTS:

[The prepared statements can be viewed in the hard copy.]

Kutz, Gregory D., joint with Randolph C. Hite

 Page 6       PREV PAGE       TOP OF DOC
Boutelle, JoAnn R.

Myers, Dr. Margaret

Winkler, Gary L.

Wennergren, David M.

Gilligan, John M.

Thomas Brig. Gen. John R.

Burlin, Thomas

Peck, Steve

Schneider, Kent R.

Saxton, Hon. Jim

DOCUMENTS SUBMITTED FOR THE RECORD:
[There were no Documents submitted.]

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD:
[There are no Questions and Answers.]
 Page 7       PREV PAGE       TOP OF DOC

FISCAL YEAR 2004 NATIONAL DEFENSE AUTHORIZATION ACT—DEPARTMENT OF DEFENSE'S BUSINESS TRANSFORMATION EFFORTS

House of Representatives,
Committee on Armed Services,
Terrorism, Unconventional Threats and Capabilities Subcommittee,
Washington, DC, Wednesday, March 31, 2004.

    The subcommittee met, pursuant to call, at 1:34 p.m. in room 2118, Rayburn House Office Building, Hon. Jim Saxton (chairman of the subcommittee) presiding.

OPENING STATEMENT OF HON. JIM SAXTON, A REPRESENTATIVE FROM NEW JERSEY, CHAIRMAN, TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE

    Mr. SAXTON. Good afternoon, ladies and gentlemen. The Subcommittee on Terrorism, Unconventional Threats and Capabilities meets this afternoon to learn more about how the Department of Defense (DOD) is modernizing its business processes and practices. Essentially, how are DOD business modernization efforts proceeding?

    The Department's information technology request for fiscal year 2005 is 28.7 billion and is intended to support both ongoing operating requirements and programs, as well as programs in development. The subcommittee is mindful that while these funds may support many important IT systems, the Department continues to spend money to update legacy systems that the new systems will soon replace. It is the subcommittee's concern that these dollars are not being applied to business and warfighting programs, especially when our soldiers, sailors, marines, airmen, and pilots are conducting military operations around the globe.
 Page 8       PREV PAGE       TOP OF DOC

    As one of the world's largest and most intricate organizations, no one doubts running the day-to-day operations at the Department is challenging. With over $1 trillion in assets, nearly 1.6 trillion in liabilities, over 3.3 million military and civilian personnel, and disbursements of over 416 billion in fiscal year 2003, it is critical that the Department exercise effective judgment over its business operations. That is why we are here today. We are interested to learn what DOD is doing to bring its numerous financial management and business information technology systems into streamlined processes.

    Many major commercial businesses have undergone significant business transformation in the past decade in order to stay profitable. Using the industry model, DOD would be wise to leverage such commercial best practices to improve its own business practices. Implementing an enterprise architecture using performance metrics to measure new system developments in breaking cultural barriers and parochial interests are a few examples of such practices.

    The subcommittee remains committed to ensuring that resources are properly allocated to IT systems that fit into the departmentwide enterprise architecture. However, we remain concerned that the Department's business system implementers are ignoring the law and the Department's leadership by continuing to develop stovepipe systems that do not conform to DOD enterprise architecture. It appears that there is widespread disregard for the law that requires procurement officials to obtain the comptroller's permission before purchasing IT equipment and services costing more than $1 million. Some IT and acquisition officials apparently believe it is easier to ask for forgiveness than to abide by the law and ask for permission first. These and other fundamental issues must be addressed as the Department handles day-to-day business functions to support military operations around the world.
 Page 9       PREV PAGE       TOP OF DOC

    [The prepared statement of Mr. Saxton can be viewed in the hard copy.]

    Mr. SAXTON. At this time I would yield to my friend Marty Meehan for any comments he may wish to make.

STATEMENT OF HON. MARTIN T. MEEHAN, A REPRESENTATIVE FROM MASSACHUSETTS, RANKING MEMBER, TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES SUBCOMMITTEE

    Mr. MEEHAN. Thank you, Mr. Chairman. And thank you for calling this hearing, and thank you for all of the witnesses appearing.

    At this critical juncture in the Department of Defense transformation, I can think of no more deserving topic that is more deserving of attention of the Department of Defense business plans and practices, especially with regard to informational technologies.

    From my perspective, the importance of prudent IT investments is self-evident. Smartly applied and employed IT systems enable and ensure the American technological advantage in military surveillance, recognizance, detection, battle management, and targeting, and it most certainly should offer similar success in the DOD business management. Ultimately IT investments are the key enabler to reforming the Pentagon and winning the war on terrorism.

    Last year this committee was faced with difficult budgetary choices, and IT accounts suffered from congressional action. In my view, much of this action resulted from unclear, inconsistent, or insufficient information provided by the Department. But most of these issues have been addressed over the past year. This year is a new year. It is my hope that our witnesses will help us gain confidence in the effort to leverage commercial best practices throughout the Department.
 Page 10       PREV PAGE       TOP OF DOC

    I am concerned when we hear reports of redundancy, inconsistency, or unauthorized spending on some accounts. It is my hope that such reports are exaggerated, for the mission is too important.

    I look forward to hearing from the witnesses and am looking forward to the witnesses responding to my concerns and the concerns voiced by the Chairman.

    Again, Mr. Chairman, I thank you for calling this hearing.

    Mr. SAXTON. Thank you.

    Mr. SAXTON. Today we are pleased to have two panels of witnesses for our proceedings, one from the government and one from industry. Both share their perspectives on the Department's businesses, transformation efforts.

    I would like to welcome our first panel of witnesses. They are Dr. Gregory D. Kutz, Director, Financial Management and Assurance, from GAO; Ms. JoAnn Boutelle, Deputy Chief Financial Officer, Department of Defense; Dr. Margaret Myers, Principal Director for the Deputy Chief Information Officer, Department of Defense; Gary L. Winkler, Director, Enterprise Integration, Department of the Army; Mr. David Wennergren, Chief Information Officer, Department of the Navy; Brigadier General John R. Thomas, Director C4/Chief Information Officer, United States Marine Corps; and Mr. John M. Gilligan, Chief Information Officer, Department of the Air Force.

 Page 11       PREV PAGE       TOP OF DOC
    At the outset, I ask unanimous consent that all Members' and witnesses' written opening statements be included in the record. Without objection, so ordered.

    Mr. SAXTON. I also ask unanimous consent that all articles, exhibits, and extraneous or tabular material referred to be included in the record. Also without objection.

    Mr. SAXTON. Mr. Kutz, the floor is yours, sir.

STATEMENTS OF GREGORY D. KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY RANDOLPH C. HITE, DIRECTOR, INFORMATION TECHNOLOGY ARCHITECTURE AND SYSTEMS, GENERAL ACCOUNTING OFFICE; JOANN BOUTELLE, DEPUTY CHIEF FINANCIAL OFFICER, DEPARTMENT OF DEFENSE; MARGARET E. MYERS, PRINCIPAL DIRECTOR FOR THE DEPUTY CHIEF INFORMATION OFFICER, DEPARTMENT OF DEFENSE; GARY L. WINKLER, DIRECTOR, ENTERPRISE INTEGRATION, CIO/G–6, DEPARTMENT OF THE ARMY; DAVID M. WENNERGREN, CHIEF INFORMATION OFFICER, DEPARTMENT OF THE NAVY; JOHN M. GILLIGAN, CHIEF INFORMATION OFFICER, DEPARTMENT OF THE AIR FORCE; AND JOHN R. THOMAS, BRIG. GEN., DIRECTOR C4/CHIEF INFORMATION OFFICER, UNITED STATES MARINE CORPS

    Mr. KUTZ. Mr. Chairman and Representative Meehan, thank you for the opportunity to discuss business transformation at the Department of Defense.

    The recent success of our forces in Iraq has clearly demonstrated that our military forces are second to none. However, that excellence is often achieved despite the enormous problems with DOD's business systems and processes. The following two examples illustrate these problems.
 Page 12       PREV PAGE       TOP OF DOC

    First, 94 percent of mobilized Army National Guard soldiers that we investigated had pay problems. These problems distracted these Special Forces and Military Police from their missions, imposed financial hardships on their families, and has had a negative impact on retention. Our soldiers deserve better.

    Second, DOD was unable to effectively recall 250,000 chemical and biological protective suits from its inventory. As a result, many congressional Members were concerned that our forces in Iraq were issued these defective suits. Thousands of these defective suits were sold to the public on the Internet, including 379 that we purchased in an undercover operation. And thousands were also improperly issued to local law enforcement agencies with no warning that use could result in death or serious injury.

    DOD still finds duplicative systems contribute to these and other problems and will cost taxpayers $19 billion in 2004. That is $52 million a day. Attempts to modernize DOD's business systems routinely cost more than planned, miss their schedules by years, and deliver only marginal improvements, or are terminated with no benefit at all.

    DOD's senior leadership is committed to successful transformation of the Department's business operations and has taken positive steps. With waste and inefficiency estimated at more than $20 billion a year, the success of DOD's efforts is critical.

    Mr. Chairman, that ends my testimony. I have Mr. Hite, who is an information technology expert, with me for questions.

 Page 13       PREV PAGE       TOP OF DOC
    Mr. SAXTON. Thank you very much.

    [The prepared statement of Mr. Kutz can be viewed in the hard copy.]

    Mr. SAXTON. Ms. Boutelle.

    Ms. BOUTELLE. Mr. Chairman and Representative Meehan, I am here to discuss the Department's business management transformation effort.

    For many years the Department's business management systems have been unable to satisfactorily interact with each other; to provide DOD decisionmakers with timely, accurate, and reliable information; to fulfill all the financial management laws, standards, and requirements; and to produce auditable financial statements.

    The primary cause of these deficiencies was that for decades we allowed the components to develop and use their own processes and systems. There was no requirement to adhere to a DOD-wide architecture or set of common standards. The Secretary created the Business Management Modernization Program, BMMP, to manage the transformation of the Department's conglomeration of complex business processes and systems. The BMMP output will be a DOD-wide business enterprise architecture of transformed processes, data requirements, and internal controls. This architecture will guide the Department to eliminate redundant and inefficient systems and processes. We are doing this with a top down incremental approach.

    We are at a critical stage in our transformation. We are off to a strong start, but much remains to be done. We face difficult challenges as we maneuver our way during the next several years. Using the architecture, we are driving the Department to transform business processes as rapidly as possible.
 Page 14       PREV PAGE       TOP OF DOC

    The transformation is a complex and difficult challenge. What is at stake is nothing less than the future quality and cost of DOD management of hundreds of billions of dollars in assets, liabilities, and appropriations. Transformation is absolutely crucial to the Department's ability to enhance American's national security in this era of terrorism and uncertainty. The speed, accuracy, interoperability, reliability, and dependability of our information resources are critical. The Department has a comprehensive program and plan to transform its business processes and systems in a sustainable way. We want and welcome Congress's support and assistance to complete this historic undertaking.

    Thank you.

    Mr. SAXTON. Thank you very much, Ms. Boutelle.

    [The prepared statement of Ms. Boutelle can be viewed in the hard copy.]

    Mr. SAXTON. Dr. Myers.

    Dr. MYERS. Mr. Chairman and members of the subcommittee, I am pleased to be here to discuss the role of the DOD Chief Information Officer in the Department's business transformation.

    I would like to start by following up on your remarks about the 28 billion information technology (IT) investment. That 28 billion over the last couple of years has remained relatively flat. Of that 28 billion, there is 5 billion in business information technology, and the trend has been going down on the business IT. Meanwhile, there is about 7 billion in warfighting IT, and the trend has been going up. And the third category is the enterprise information environment that underpins both the business and the warfighting IT, and that has remained flat also at about 16 billion.
 Page 15       PREV PAGE       TOP OF DOC

    So what you can glean from that and what the next four witnesses will address is that they have, in fact, already begun the business transformation. And the reason why they have started is because everything that they can save from the business IT and invest in the warfighting IT is a major boon to the forces that they support.

    So in that context, the Department's Business Management Modernization Program is an unprecedented effort to build a competitive advantage by transforming how the Department does business. In that context, the DOD CIO partners with the comptroller in the development of the business enterprise architecture and also in the development of a new policy for portfolio management so that we can better manage how we invest—better manage our IT investment.

    Mr. Chairman, that concludes my remarks.

    Mr. SAXTON. Thank you very much, Dr. Myers.

    [The prepared statement of Dr. Myers can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Winkler.

    Mr. WINKLER. Mr. Chairman and members of the subcommittee, thank you for the opportunity to provide testimony describing the Army's participation in support of DOD's business transformation efforts. I have submitted a longer statement for the record, but would like at this time to make a few short comments.
 Page 16       PREV PAGE       TOP OF DOC

    Today we are an expeditionary Army supporting our Nation in the global war on terrorism. Also, our Army is in the midst of a massive transformation to create a more agile, adaptable, and deployable force. Business transformation is a critical part of this effort. We are working to achieve a seamless factory to foxhole, a continuum of operations to support our deployed forces. Our processes and systems are being transformed to provide timely and accurate information to decisionmakers at all levels and all areas.

    The Army fully supports DOD's Business Management Modernization Program, BMMP. We have an Army architecture integration cell that is actively involved in the DOD business enterprise architecture, BEA, and works directly with the architects in the Army's business domains to integrate their efforts into both the BEA and LandWarNet, the Army's portion of the global information grid.

    We also have an Army enterprise integration oversight office that works closely with the DOD comptroller to guide and integrate Army BMMP efforts across our domains. Our specific BMMP efforts include piloting a general fund enterprise business system that will implement a commercial enterprise resource planning system to replace several major legacy systems. The resultant system will be a key module of BMMP.

    In the human resources domain, the Army will be the first service to completely implement the Defense Military Integrated Human Resources Management System, DIMHRS, in 2006. This will result in the elimination of 33 Army human resources systems.

    Finally, BMMP is acting as a catalyst to propel Army transformation efforts. As we all know, transformation is more about people and culture than it is about technology. The governance processes associated with BMMP complement the cultural changes taking place in the Army that are necessary to achieve transformation objectives.
 Page 17       PREV PAGE       TOP OF DOC

    Thank you for this opportunity to discuss the Army's participation in and support of DOD's business transformation efforts.

    Mr. SAXTON. Thank you very much.

    [The prepared statement of Mr. Winkler can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Wennergren.

    Mr. WENNERGREN. Mr. Chairman and distinguished members of the subcommittee, thank you for the opportunity to appear before you today.

    I would like to quickly highlight for you how the Navy and Marine Corps team is leveraging the power of information technology to transform our warfighting and warfighting support processes.

    Netcentric warfare not only requires that information is exchanged between sensors and shooters, but also to logistics, maintenance, and resupply organizations, breaking down the traditional barriers between tactical and nontactical systems. The transformation of our business practices is being driven by and is inseparable from our warfighting transformation. Our efforts are integrated with the rest of the Department of Defense since the flow of information must be available to our joint allied and coalition partners. And we have been key contributors to the development of the DOD global information grid and business enterprise architecture as well as the Federal enterprise architecture.
 Page 18       PREV PAGE       TOP OF DOC

    In attaining this netcentric vision, a number of important initiatives are already delivering results. The Navy and Marine Corps Internet (NMCI) is providing our enterprise network innumerous consolidation opportunities, including the elimination of thousands of legacy applications. Standards-based commercial solutions like enterprise resource planning, or ERP, are replacing the government-developed solutions of the past. We are reengineering our processes to maximize the efficiencies gained from our application of technology.

    While we have made significant progress, much work remains to be done. The funding in our fiscal year 2005 budget is crucial to continuing this transformation. The benefits of NMCI, ERP, and convergence on the right set of Web-based applications are what will make this netcentric vision a reality. These efforts must continue so that we don't have to fall back on the stand-alone solutions of the past that were not integrated and didn't provide timely and accurate information to our warfighters. We have the leadership, guidance, and processes in place to complete this transformation, and the opportunities are tremendous.

    Thank you for your continuing support of this important work, and I will be happy to answer any questions that you have.

    [The prepared statement of Mr. Wennergren can be viewed in the hard copy.]

    Mr. SAXTON. General Thomas.

    General THOMAS. Mr. Chairman and distinguished members of the committee, thank you again for the opportunity to appear before you once again to tell the Marine Corps' story on business transformation.
 Page 19       PREV PAGE       TOP OF DOC

    Our business systems are critical to the efficient management of the Marine Corps and provide for the necessary support and welfare of our marines and sailors. As Chief Information Officer (CIO), I am working with the functional area managers as they work in the BMMP process, as well as with the other services and members of the Department.

    While BMMP is a relatively new process, there are some clear benefits to the Marine Corps. The integrated approach enables the Marine Corps to partner with the sister services, avoiding the risk of stovepipe systems and processes. It is also facilitating the early identification of best practices of business operations. In the long run, it should help reduce the amount we spend on business operations, and allow us to then apply those resources for core warfighting functions, as we have already heard. Further, it is helping us to identify strengths and weaknesses in our legacy systems, thereby helping us to expose the differences to assist in senior management decisions.

    The Marine Corps supports the BMMP process and the business enterprise architecture, but we are also mindful of the fact that in some instances one size doesn't fit all, as a system or application that is optimized to support shore-based forces may be inadequate or require significant reengineering for afloat forces and vice versa. There are numerous issues we must consider as we strive to adopt enterprisewide business solutions. Our marines and sailors depend on these business systems to support them as they deploy around the world every day in harm's way.

    Mr. Chairman, that concludes my statement, and I will be happy to take any of your questions.
 Page 20       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Thank you very much, General.

    [The prepared statement of General Thomas can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Gilligan.

    Mr. GILLIGAN. Mr. Chairman, distinguished members of the subcommittee, what I would like to do is to share with you some perspectives on what the Air Force has done in our business systems.

    First, what I would like to say is that the Air Force about 4 years ago made a conscious decision that we would not aggressively adopt commercial ERP solutions. We decided that the risk inherent in that was too great. However, we needed to improve the ability of our business systems to be able to support our warfighters, and so what we did was to leverage commercial Web-based technologies and middleware to be able to dramatically improve the ability of our legacy applications to support the warfighter.

    What we have done in a couple of examples I think is quite remarkable. For example, in our supply area we have been able to take our legacy supply system, a batch-based—batch COBAL-based system, and with a Web front end and middleware, we have been able to integrate the supply accounting information across the Air Force to make it Web-accessible-and to dramatically to reduce the number of our supply technicians by over 500 people.

 Page 21       PREV PAGE       TOP OF DOC
    So now, as a result of that, in Operations Iraqi Freedom and Enduring Freedom, what we have been able to do is have worldwide visibility, far faster processes to deal with supply shortfalls. And also, we freed up people that have now been able to go into other parts of the Air Force.

    In the personnel area, we likewise use these same technologies, and through the Air Force portal now airmen are able 24 hours a day to be able to access their personnel records to be able to make changes, to access their pay records, and to be able to do this whether they are on the job, at home, or deployed.

    What we have been able to do in leveraging these technologies is to provide a single user interface to the users and to leverage a program that is a DOD-wide program called the Global Combat Support System. We have moved our increasingly important data to an enterprise data warehouse, and we have begun to posture for the acceleration of the fielding of the BMMP program; in particular, the Air Force has undertaken the lead in a pilot program called the Defense Enterprise Accounting and Management System, which will modernize our financial enterprise.

    In addition, however, we provide very rigorous oversight of our business investments. Since 2002, our investments in business systems have been capped at about $600 million a year. As a percentage, however, the investments have decreased from about 12 percent of our IT budget to about 9 percent of our IT budget is now business systems. In a parallel fashion, however, our warfighting expenditures have increased from 27 percent of our IT budget to now 48 percent of our IT budget. The bottom line is we are spending our IT dollars on increasing our warfighting capability.
 Page 22       PREV PAGE       TOP OF DOC

    We have used processes such as portfolio management and business cases to provide rigorous oversight. I will deliver to the committee staff all of our business cases. It amounts to about 19,000 pages of documentation on each of our 222 investment programs. Internal to the Air Force, not only do we develop these documents, but we score them, and based on the scoring we will decide whether the programs will continue to receive funding.

    The bottom line, what we have done is we have leveraged our legacy systems to provide improved capabilities to the warfighter, we have applied a rigorous management oversight to our business systems and capped the investments as we prepare for the modernization, and we have continued to leverage our IT to support our warfighters.

    That concludes my statement. I look forward to your questions.

    Mr. SAXTON. Thank you very much.

    [The prepared statement of Mr. Gilligan can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Kutz, you gave us two examples that seem to be examples of IT gone awry. One was that 94 percent of the Army National Guard folks had pay problems. That is almost everybody. And the bio/chem biosuits that were defective and not recalled is another fairly serious problem. You referred to these things as waste and inefficiency. Others would refer to them as fraud, waste, and abuse. Were you being polite, or is it fraud, waste, and abuse, or waste inefficiency? How would you characterize this?

 Page 23       PREV PAGE       TOP OF DOC
    Mr. KUTZ. Well, we characterized it in the other hearings we have had on this as abuse. But the unfortunate abuse was of the soldiers and their families in this case, and how the soldiers and families went through numerous hardships and challenges as a result of the numerous errors in their pay. And these were case study examples of Special Forces and Military Police across the country. And there was actually a seventh unit that was deployed to Iraq when we did the work.

    But the abuse was of the soldiers. There were improper payments made to the soldiers, so that would be potentially wasteful spending, but there were just as many underpayments of the soldiers as there were overpayments of them.

    Mr. SAXTON. Let us talk about the Army National Guard problem. Did your investigation or studies go far enough to determine what it was that caused this significant problem?

    Mr. KUTZ. Yes. We did a systematic look it. It was a combination of human capital and processes and the automated systems. With respect to human capital, we found issues such as poor customer service. Some of the mobilization and demobilization sites did not have enough people to process the volume going through. There was confusion as to who was responsible in many cases for the pay, such as the Army National Guard versus the Army. And with respect to automated systems, we found that the nonintegration of those systems was a major factor in the pay errors.

    For example, an order would be written from the order writing system, and instead of that system interfacing and automatically making sure a soldier got paid, someone would have to go in and manually input into the pay system to make sure that that soldier was paid. So the lack of interface or integration between personnel and the pay and the order-writing systems caused a lot of the errors. And I know Defense Integrated Military Human Resurces System (DIMHRS) was mentioned here earlier as one of the solutions to that. Certainly in the long run there is going to have to be complete reengineering of this to fix it.
 Page 24       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Let us take these problems, these underneath issues, one at a time.

    On the issue of not having enough personnel, is that because we are into a situation that we have never been in before, and the volume was more than was ever expected, and, therefore, we had to fix this process as we went along simply because we haven't done this before?

    Mr. KUTZ. I believe there was some of that. There was also some backlogs of soldiers at various sites, because I believe when there was negotiation before the war in Afghanistan for our soldiers to go to Turkey, there were people that backed up at some of the bases. But there was in some of the early stages of some of the activities a lack of planning and insufficient people to process the volume. I believe that some of that has been dealt with, and I guess the DOD witnesses may be able to answer as to what actions have been taken there. But that is still somewhat of a problem.

    Mr. SAXTON. In the world of IT—let me put it this way. The world of IT is not the only place where we have found that we need to make adjustments to our processes. There is another hearing going on in town that is focusing on did we do enough before 9/11? And I am wondering, are any of these issues issues that we should have been ready to take care of, or was it just an overwhelming set of circumstances that caused our system to break down?

    Mr. KUTZ. No. I think that the Department has been attempting to modernize its personnel and pay systems for years, possibly decades, and they have been unsuccessful to date in doing so. The DIMHRS system that was mentioned earlier was supposed to originally be deployed 3 or 4 years ago. So that has slipped in its schedule by a number of years, and that has had real consequences on the soldiers on the ground. They need that new system to be paid timely and accurately.
 Page 25       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Okay. Let us move on to another issue that you mentioned. You said that the waste, inefficiency, or words to this effect, cost about $20 billion a year. That seems to me to be a very significant problem. Can you discuss maybe some examples of things that happened because of the inappropriateness of our capabilities?

    Mr. KUTZ. Yeah. The $20 billion or more, that is actually Secretary Rumsfeld, when he first launched the business modernization program, estimated that 5 percent or more of the Department's budget could be saved through successful transformation. Let me give you a few examples of that. The first one would be the business systems. I think everyone at the table here could probably agree that if we are successful in modernizing the systems and going from the thousands of systems that we have today to possibly hundreds of systems in the future, that billions of dollars could be freed up and better used.

    We have got other issues where we are buying inventory we don't need or selling inventory that we actually do need. And I can give you an example of that where we were able to purchase on the Internet—the Department had accidentally excessed some of the GAS list or the newer chem/biosuits, and we bought them on the Internet for $3 a set at the same time the Department was buying them for $200 a set. So they were effectively giving them away at the same time that they were buying them, and they were short these suits. So that happens again in part because of systems, but also processes and human capital weigh into that.

    I mean, we have looked at the supply chain management at organizations like Wal-Mart and found that the Department is years behind the Wal-Mart type of an analogy or situation. Although the Department is more complex than a Wal-Mart, some of those same technologies could help the Department have asset visibility throughout its supply chain. And, again, I believe they are attempting to implement many of those technologies, and there has been some successes; in other places, like the chemical and biological suits, they have not been successful.
 Page 26       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Can we just kind of go across the board here now on this subject of this $20 billion? Comment on it; tell us what steps are being taken to fix the problems that Mr. Kutz and his GAO organization have identified.

    Ms. BOUTELLE. Yes, sir. In regards to the $20 billion of savings that we could possibly reclaim if we improve our processes, I think that is one of the things that we are working towards. If we can build the architecture and then implement it and then have end-to-end business rules in place, that we are—we have the integration of the systems instead of the hand-offs that are going on in the current processes. We have had a lot of success in the Department, say, over the last 10 years. You know, if I look at our finance and accounting area, they have gone from about 320-some systems back in 1991 back to about 80 systems. They have gone from 27,000 employees to about 15,000. And they have done this through implementing electronic commerce and other process improvements. However, there is still a problem with the systems that we have and trying to integrate them. The more integration, the more electronic commerce that we get in place, the more that we can drive these costs down and improve the savings that we can pass on to be used in other parts of the Department to support the warfighting mission.

    Mr. SAXTON. Now, Mr. Kutz, you have been involved in this for a while, and you have been studying on these same issues. What do you think of that?

    Mr. KUTZ. Well, we think that the business enterprise architecture and the requisite management controls in place that are needed are essential to reforming. And that is where a lot of the—the savings from business systems modernization won't just come from the lower cost of the systems; it will come from the improved operations across the all the Department's business lines. So I would concur with what she said with respect to that.
 Page 27       PREV PAGE       TOP OF DOC

    Mr. SAXTON. And are we making—do you think we are making significant—no. Let me put it this way. Do you think we are making satisfactory progress?

    Mr. KUTZ. Well, the progress has been more on paper than in reality. The reality of the situation is not that different than what it was several years ago, in our view. There has been some incremental progress, certain progress such as the purchase card program, the travel card program, and other more narrow types of programs that did not require major systems modernization have been improved through management focus and improved human capital.

    Mr. SAXTON. Okay. Thank you.

    Dr. Myers, would you comment on this also? Give us your view of how good or bad we are doing in solving this problem of inefficiency and waste.

    Dr. MYERS. Certainly. I think it is important to recognize that the 20 billion is not just—in fact, most of it is not in information technology costs.

    Mr. SAXTON. I understand.

    Dr. MYERS. We have a phrase we often use in the Department called paving cowpaths. And if we are not careful, we can build the IT to do the same old thing we have always done, only faster. That doesn't mean that it is the right thing.

 Page 28       PREV PAGE       TOP OF DOC
    There is a very good example in the medical logistics community where a few years back, instead of setting out to build a new system to manage the inventory in their warehouses, they figured out that they didn't even need the warehouses. So it is that kind of business transformation, business process reengineering, that must take place before we can get the kinds of savings that the Secretary mentioned.

    Mr. SAXTON. Do you think we are making progress?

    Dr. MYERS. Yes, I think we are. I think that is why the business enterprise architecture is so important, because it provides us for the first time with an enterprisewide blueprint for how to begin to make those transformations.

    Mr. SAXTON. Now, you talk about enterprisewide blueprints. I think we all agree that that is where we want to go. It seems as though there is still a number too many stovepipe systems in the way of all that. Would you agree?

    Dr. MYERS. In the short run, yes.

    Mr. SAXTON. When do we find our way through this morass or what seems to be a morass of stovepipe systems? When do we see the light at the end of the cowpath?

    Dr. MYERS. It is already beginning to happen. But I think what we are finding is we have a high-level architecture. We need to extend it down. There are, in fact, instances, many instances, where the services have unique business processes; so we need to be careful that we do not in some cases implement the wrong process. We need to make sure that, across the Department, we have correctly reengineered the right processes. And, frankly, that will probably take 2 to 3 years before we start seeing a significant reduction.
 Page 29       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Mr. Kutz, would you comment?

    Mr. KUTZ. They don't have exact milestones as to when the transformation will be completely done. I think there are some interim goals, and they are working to have more milestone-driven architectural metrics in place, and we certainly support that. We believe this needs to be measured as they go, and there needs to be—because it is a long-term project, there needs to be interim milestones that you and others can use to measure that they are indeed making the progress that they say.

    Mr. SAXTON. Do we have milestones? Do we have interim goals? I guess that is what you are talking about, right?

    Mr. KUTZ. Yes.

    Ms. BOUTELLE. What we have is we have the transition plan that was delivered in April, May of last year, and that is very high level. As we work through the processes and we know where we are going, we first have to know what the ''to be'' is. Then it enables our business areas to figure out how to take the current systems that they have and when they will be able to shut them down so they can build that transition plan with better dates and better costs for us.

    So, it is still high level. They are working toward figuring out where we are going with our transformed business process, and then they will be working to improve on the dates and the costs.
 Page 30       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Okay. So we want to complete our big vision, right, our vision of where we want to be?

    Ms. BOUTELLE. Yes.

    Mr. SAXTON. Okay. And how much—let me ask you this: How much resistance do you get because people who have stovepipe systems like them don't want to change?

    Ms. BOUTELLE. Umm.

    Mr. SAXTON. Mr. Kutz is smiling. Now, make this a good answer.

    Ms. BOUTELLE. Well, I mean, Greg and I talk a lot. You know, any time you try to implement a change of this magnitude, there are going to be the people who buy into it, and they see that this is the right thing for the Department, that this is the process that we have needed for years and years. But then there are always going to be those others that are comfortable where they are, and that they don't want to change, and they are hoping that this administration fades out and another administration comes in with a different set of rules.

    And we are—those of us that believe in it strongly are hoping that we have the support through GAO, through Congress to help continue driving us where we need to go. Right now we have senior management support within the Secretaries, principal staff assistants, within the CIOs, within the service Secretaries, we have support. You drive down through that, I can't tell you that it is all there. It is a challenge every day to convince people that this is the right way to go.
 Page 31       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Ms. Boutelle, to date the information that we have is that you have spent $257 million on the Business Management Modernization Program to solve some of these—to try to solve some of these problems. But your request for 2005 is 188 million more. Can you kind of help justify that request?

    Ms. BOUTELLE. What we have put together so far—again, you know, if you stop and think about the Department and all the business areas that are in the Department, there is probably one of just about anything that you can think of that is in the corporate world. It is huge. And so if you take those processes, and then what we are trying to do is to build end-to-end process flows to where we—so that we don't take the output of one process and input it into another process. We are trying to build these end-to-end processes to where we identify the controls, the data that we need for management information. That is hard, and it is huge.

    And so what we have done so far with the 200-some million dollars is we have built the high-level architecture that says here are the activities of the Department. We have identified the systems that go with those. We have started some transition plans. We have captured certain data requirements. We have captured constraints, you know, whether they are laws or whatever the constraints are that are governing us. And now we are starting to work through doing the process reengineering. And we are taking that in an incremental approach as we tackle the hundreds, probably thousands, of business processes in the Department. And that is what we need the money for is to continue this effort to lay out the architecture in a way that we can implement it and make sure that we have one baseline with our rules in it, our requirements in it, and one interpretation, and that we can test against that architecture as we go through and implement these systems.
 Page 32       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Thank you. That last question was a bit of a detour. I apologize to my colleagues.

    I have one more question that I want to ask to the service representatives, and it is the same question that I asked Ms. Boutelle: How much of these problems are being caused by organizations or individuals that don't want to change systems because they like what they have got and don't want to become part of the broader program in your services? Mr. Winkler.

    Mr. WINKLER. Mr. Chairman, thank you.

    I think certainly there is a contributor to the problem along those lines of individuals who like doing things the way they used to do them, and it is about culture change. And we all know that change is hard.

    The way we are wrestling with it in the Army is we have got an IT registry that tracks all the Army IT systems, warfighting, business, all of them. And we are doing portfolio management as we are supposed to. And we are dovetailing that in with the domain portfolio management of BMMP. That, combined with acquisition decision reviews and the JCETS process for requirements reviews. We are hitting these people at all angles that don't want to change, and that is how we are forcing the change in the Army. And it is working. It takes time. We are chipping away at it. I don't think we are on a linear progression; I think it is more of an exponential curve. But I think we are making it.

 Page 33       PREV PAGE       TOP OF DOC
    Mr. WENNERGREN. Cultural change is a very big issue, sir, And we see it across the organization. And two big things have changed in recent years that have helped us to deal with it, Because if you really look into it, the people at the local commands were trying to do the right thing. They were building innovative solutions that worked for them, but the Internet came along, and now we have the ability to do Web-based solutions that can be a solution for all. That and we moved ourselves to an enterprise network, NMCI. As we did that, we were able to get visibility into all the things that were being built at the local level. Then you can truly do portfolio management. Then the cultural changes should become easier because the leadership team can see what you have.

    And so functional area by functional area we are working through. Hey, it was great that you wanted a small purchase solution at base A, but now you need to become part of the small purchase solution for the entire Department so we can share those best practices and not keep building it over and over again.

    So cultural change is always something you have to deal with, because somebody was really proud of what they did. But we are working through it, sir, and the leadership team of the entire Department is behind this.

    Mr. SAXTON. General Thomas, the Marines don't have a problem with cultural change, do they?

    General THOMAS. Absolutely not, sir.

    Mr. SAXTON. That is good.
 Page 34       PREV PAGE       TOP OF DOC

    General THOMAS. As I have testified many times before here, sir, the Marine Corps has adopted an enterprise approach, and I think at one of the other hearings I had made the statement that the less money you have, you know, you can't afford to be stupid. So we have been very smart in how we have expended our resources through this enterprise approach.

    To give you one example, the Marine Corps has an integrated, fully integrated, manpower and pay system today, one that supports both our Active Force and our Reserve Force. So the question that was raised at the other end of the table during the beginning of this conversation is, you know, who is resistant to change?

    I have got one—I have got one application that supports the Active and Reserve Force of over 200,000 folks. And so if we change, then that means I change my whole process.

    So those are the kinds of situations you run into and the resistance that you run into, I suspect, if we don't do this smartly, which is why I made the comment in my opening statement that in the case of enterprise solution, one size does not necessarily fit all. And so we have got to be smart about that.

    Some of the things that we have done, I have talked before, before the committee, about our savings. You know, we have turned over 4,200 marines through the operating forces through our activity-based costing efforts. We reduced our legacy applications from over 8,000 by 80 percent. And I can go on with a number of examples of where we are employing this enterprise approach, and we are employing it in the business arena as well, and we think we are doing it smartly.
 Page 35       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Thank you.

    Mr. Gilligan.

    Mr. GILLIGAN. I think conventional wisdom of the experts is that this type of transformation, the problem really has three components. One is hardware and software; and it is about a third of the complexity. A second is process change. And a third is culture change.

    Clearly within the Department of Defense culture is a big factor, both positive and negative, in trying to achieve the objectives that we have achieved. For example, within the Air Force the culture is that we are trying to support our warfighting mission, and our members treat that very sacrosanct. So anything that potentially gets in the way, they resist.

    On the other hand, the military by its very nature, when we tell them, the leadership said this is what we want you to do, they do it, and they follow.

    So we leverage both of those cultures. The scale of what we are trying to do, though, is candidly—it is unprecedented. And so trying to come up with processes that are common, trying to address the cultural issues is something that is going to be complex. But I think, as was mentioned by the other witnesses, we have made progress. We have made progress in our individual services. And I think the initial progress at the DOD level gives us some hope that, in fact, we will be able to achieve this.

 Page 36       PREV PAGE       TOP OF DOC
    Mr. SAXTON. Thank you. Marty this is absolutely my last question. Back to Mr. Kutz.

    Mr. KUTZ. Can I make one point on that though before you go on? There also are external factors involved in this with respect to—if you think about this, there are substantial number of contractors and jobs involved with all of these different systems. So when you pull the plug on a system, you are going to have one or more contractors that are involved to either go out of business or lose a significant chunk of business. That is a very important factor to consider in all of this modernization.

    Mr. SAXTON. Okay. My question is related to this last series of questions. Is there anything that this panel should be thinking about doing to help facilitate the change that is maybe being held back by cultural factors?

    Mr. KUTZ. Well, these people are change agents here, and they are some of the people who can actually make this happen, so I think that the statements that they have made and the kinds of views they have got are positive and the ones that they need to have.

    Mr. SAXTON. When I said ''this panel,'' I meant us.

    Mr. KUTZ. Okay. You.

    Mr. SAXTON. We are responsible too.

    Mr. KUTZ. I thought you meant this panel here. Well, certainly think oversight hearings like the one today are very, very important, along with some of the support the Department might need as they try to downsize some of these systems, because you are going to get letters to members from these contractors or whoever is going to have their system eliminated that is going to create different issues. So it is an important factor.
 Page 37       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Mr. Meehan thanks for your patience and——

    Mr. MEEHAN. Thank you, Mr. Chairman.

    Mr. SAXTON. And the time is yours.

    Mr. MEEHAN. Thank you for that very thorough line of questioning. I can't imagine what question I could ask at this point. But I will give it a try.

    Mr. Gilligan, the Air Force has acknowledged failed attempts to leverage commercial software in the late 1990's. What is the Air Force strategy to avoid similar problems as it modernizes now?

    Mr. GILLIGAN. As I mentioned in my comments, it is true the Air Force in the late 1990's tried to field a number of commercial based systems. They were the early Enterprise Resource Planning (ERP), and in some cases, MRP, Manufacturing Resources Planning. And we found that the systems were not mature enough for our DOD scale problems and our processes. And so what we did was we decided to leverage the technology that was becoming available and mature, Web-based technology, Internet-based middle ware tools and capabilities. And what we have been able to do is leverage those tools to improve the performance of our legacy systems to deliver improved capabilities to the war fighters, I mentioned the example of our supply client has now moved from a supply client that exists at each base to regional supply, freed up 500 people and a better supply system, using the legacy software. We now have a portal that provides access to many of our legacy systems, but now in a self-service mode.
 Page 38       PREV PAGE       TOP OF DOC

    And so what we have done is basically leveraged the technology, but it is also postured us to move to the business modernization program. We have moved our data into an enterprise data warehouse, such that when we go to transition to an ERP as the ERPs are now fielded, that will be a much easier step for us. And then I think somewhat in line with the chairman's questions, we think we are better postured to address the process and the culture change issues which candidly, we didn't do a very good job of in the past.

    We have had some successes on small scale in some of the process and culture change that has gotten some confidence among the Air Force that this is something we can do and we are ready to take on now bigger challenges.

    Mr. MEEHAN. Mr. Gilligan, as you may know, Massachusetts is home to the Electronic Systems Control at Hanscom Air Force base, which plays a critical role in the command, control, communications, computers and intelligence (C4I) and acquisition management and the value of those resulting systems to the warfighter. As the Air Force's CIO, I am sure that you understand better than anyone, how important it will be for the Department of Defense to continue to have access to this Nation's technological capability. As we move forward in the next BRAC round, it seems to me that it is imperative that those evaluating technical facilities like Hanscom can truly have a full understanding of their value.

    Can you tell me what, if any, role that you will play in the BRAC process in your position as the Air Force CIO?

    Mr. GILLIGAN. Yeah. My position really does not directly involve me in the BRAC process. And so what—my job is to articulate what are our needs and requirements, and I endorse your observations. Our Electronic Systems Center at Hanscom is an enormously valuable part of the Air Force as we move in to the netcentric operations and capabilities.
 Page 39       PREV PAGE       TOP OF DOC

    But with regard to my specific role, I am more an observer than one who is contributing.

    Mr. MEEHAN. Well, I certainly will pass your perspective along to everyone who I speak to. Thank you very much and thank you to the panelists.

    Mr. SAXTON. Ms. Davis.

    Ms. DAVIS OF CALIFORNIA. Thank you. Thank you, Mr. Chairman. Thank you to all of you for your hard work. I wanted to focus for a second on NMCI, and I know there are a lot of challenges involved. We are still seeing them. Do you think some of those perhaps weren't anticipated by the Navy or by the contractor?

    Mr. WENNERGREN. Yes, ma'am. Whenever you embark upon something this large there are a lot of unforeseen circumstances that will come to bear. And as we embarked upon an enterprise solution, that was one of the things we realized, that we had hundreds of local area networks, many unique circumstances, differing security levels, all of the things that made it very hard for us to have this transformation process be successful. So that is why it has been so important us to. To actually move ourselves now to a place where we have over 300,000 seats that are on the network is showing the dividends of what actually happens as you move to a single enterprise network where your operational forces can actually do the collaboration sharing across the organization.

    So yes, in the early days there was a lot of discovery that had to been done on both parts as we worked through what all do we own and how do we move it into a better process. And that is why NMCI has been such a good, I often refer to it as a forcing function, because it has given us that visibility into what we actually own, what was bought by the local commands with their local dollars, and now we have visibility into it; where were all the applications so we could begin to do these tremendous reductions in legacy systems, and also to do things like training of our military folks and better reconstitution and the kind of spillover and fillover we have now if a fire takes place in California, or a hurricane on the east coast, how we can maintain the network better.
 Page 40       PREV PAGE       TOP OF DOC

    Ms. DAVIS OF CALIFORNIA. Do we—I think I guess if there is a criticism at all that I have heard is that a lot of the folks who are on the front line, so to speak, who worked with the lot of these systems in the past, weren't really asked what they thought about the way things proceeded. Is that a fair criticism?

    Mr. WENNERGREN. Well, it is one of those challenges that we talked about a little earlier about, you feel a great sense of ownership for the thing that you have built. And so on one level as a local command, perhaps you were happy because you had personal control over a network that you had. But what we ended up having was networks that couldn't talk to one another, couldn't share information, couldn't do the type of real-time network centric warfare that we talk about now. And so you were kind of happy and you were then kind of nervous when somebody said, well, another team is going to come over and take over. But we are seeing that change as people actually get in there and see what happens.

    So there is some cultural resistance that takes place as people give up what they had and move to the new thing. But the great thing about the contract is it is a performance-based contract. And so there are fixed price receipts so the local command has the dollars to buy what they want, and then there are a number of service level agreements to actually measure performance. So everything from the refresh rate, the latency of the system to actual customers satisfaction.

    Ms. DAVIS OF CALIFORNIA. Yeah. But what happens then if those service level agreements, performance agreements are not met? Do we start over with a different part of the system? I think Mr. Kutz mentioned something about some of the contracts falling out. How do we manage that? How do we handle that.
 Page 41       PREV PAGE       TOP OF DOC

    Mr. WENNERGREN. The big incentive of course for the EDS team is the intensive payment that they are able to achieve by living up to the service level agreements or improving them. So I think we have better measurement in place than we ever had before through the service level agreements. And the big thing I think is customer satisfaction, end users, at all those bases actually get to assess how it is going for them. And if they are not satisfied, it is apparent to us right away. So we can take actions. The EDS team can take actions. And again, since they are entitled to incentive payments if they exceed performance, they are highly motivated to deliver a good service.

    Ms. DAVIS OF CALIFORNIA. Where is the fallback though? I mean, what do we do if that doesn't work?

    Mr. WENNERGREN. Well, the contract would have provisions that we have the base period and then we have an option year. So we could, we could make a decision in an option year or we could make a decision at the end of an option year. We could recompete the contract. But so far we are happy. The performance is good and the EDS team has done a great job of putting into play some state-of-the-art network operation centers, and you know you go talk to folks down on the waterfront and places like Norfolk who were on systems before where they were maybe decades before they could get new computers and having good gear and being able to use it is a good——

    Ms. DAVIS OF CALIFORNIA. Anybody else wanting to comment on that?

 Page 42       PREV PAGE       TOP OF DOC
    General THOMAS. Well, I guess I am the only one that probably can comment on it since it is the Navy and Marine Corps team and so I will. And I agree with everything that Mr. Wennergren has said, you know, relative to single-integrated enterprise. But again, here is another example where you have, on the one hand, you know, the Navy side had multiple networks and the Marine Corps that had one network. So we had an integrated enterprise network before NMCI. But, you know, because we are the Department of Navy and we are a part of the Navy Marine Corps team, we are a participant in NMCI.

    So again, that is why I say, you know, that one size doesn't necessarily always fit all. But you have got to be mindful of these kinds of issues as you go into these enterprise solutions. And I think you are absolutely correct. You have got to have a fallback position. And I think that if you take a look at how we have implemented NMCI and I can speak from the Marine Corps perspective, we have got, you know, a fallback position, you know, that will support our Marines and Forces as they deploy around the world.

    Ms. DAVIS OF CALIFORNIA. Thank you. Thank you, Mr. Chairman. I had one or two just quick personal issues in question. One is how Navy Standard Integrated System (NSIP) is working for our Naval Reservists. One of the issues that we have heard is that there were problems around pay problems basically when we mobilize and demobilize the Reservists, and I am wondering what we are doing to raise the level of quality for our Reservists in terms of getting their pay when they need to have it.

    Mr. WENNERGREN. Yes, ma'am. And the Naval Reservists, as part of the total force, workforce, are part of our total force set of systems, so it is a little different situation than what we discussed earlier about National Guardsmen.
 Page 43       PREV PAGE       TOP OF DOC

    The NSIP system is working for us and it has already resulted in some other legacy systems going away. So I think we are doing okay.

    Ms. DAVIS OF CALIFORNIA. Okay. I hope so. Ms. Boutelle, just a quick question. Again, it is my understanding that for a number of service members who have been traveling they are using the government travel credit card, and then they have to pay that off right away, and in some cases they don't always have the resources to do that.

    We know they get reimbursed down the line, but my understanding is that their credit is being impacted because they can't always pay it off immediately. Is—are you aware of that or is that a—how are we dealing with that?

    Ms. BOUTELLE. The way the credit card process works when they use their individual travel card, before they become delinquent it would be 60 days past due. So they would have to be traveling much longer than that to run into that situation. And I am sure there are examples of people out there who are at locations that perhaps do have difficulty filing their vouchers. But with fax machines and other types of devices, I would think it would be the exception for the most part. Travelers get back and they file their settlement vouchers and they are reimbursed within a week. So I haven't heard of anyone once they get it filed that it takes any longer than that to receive the funds.

    Ms. DAVIS OF CALIFORNIA. Okay. Shall we pass along the concerns? Where should we send those to, because we have had some?

 Page 44       PREV PAGE       TOP OF DOC
    Mr. KUTZ. Representative, if I could mention, we have a study going right now to look at that issue and we have heard that there are some concerns about the timeliness of payments on that, and I can't speak to that now, but we are investigating that as we speak. So you know if your staff would like to contact me to discuss that, I would be happy to do that.

    Ms. DAVIS OF CALIFORNIA. Okay. Great. We certainly don't want their credit impacted for situations beyond their control. Thank you. Appreciate it, Mr. Chairman.

    Ms. BOUTELLE. Could I just add also that we do have the defense travel system that we are implementing and as that system gets rolled out, it is a Web-based system, so then wherever the traveler is at, then there will be greater chance of access to a system to go on-line and to process their settlement vouchers. So that is something, I think that we are doing that will help them. If you actually have travelers that are having problems right now, if you will refer them to me, I will certainly work with whichever service it is that is paying their settlement voucher to try to help them.

    Ms. DAVIS OF CALIFORNIA. Thank you. Thank you to all of you.

    Mr. SAXTON. Thank you, Mrs. Davis. Let me turn to a slightly different subject. Same subject, same book, different chapter, I guess. The Defense Integrated Military Human Resource System, more concisely known as DIMHRS, it is my understanding that the goal of DIMHRS is to be able to handle—to be the end-all system, if you will, to handle human resources IT issues. But it is also my understanding that DIMHRS will only meet a portion of the military services needs for personnel support.
 Page 45       PREV PAGE       TOP OF DOC

    I guess my question then is, if we adopt—as we adopt DIMHRS, how do each of you from the services believe that it will meet your needs in terms of a percentage of capability, and how will you make up the rest of that—how will you provide for the rest of the capability that you need to do the job?

    Mr. WINKLER. Mr. Chairman, we recognize that DIMHRS is not going to do it all. But it is based on a commercial enterprise resource planning system, ERP, I believe that is people soft, and what we are doing in our personnel command human resources is planning a migration effort. It is called Enterprise Human Resources System (EHRS) that will roll our 265 Army personnel systems into that ERP environment, which will be a people-soft implementation to round out the DIMHRS application, if you will. So what we are doing for the functionality that DIMHRS doesn't have it is just using the same COTS product, and it will merge right into the DIMHRS schema.

    Mr. SAXTON. Will you have to enhance your current capabilities in order to do this roll-in?

    Mr. WINKLER. No, sir. We have to do some business process re-engineering, and we will eliminate some of our legacy systems, probably a large percentage of them and we will take advantage of the modules that are available in that commercial application.

    Mr. SAXTON. Do you foresee it—and we are going to go down the line here and ask this question, but do you see a time when DIMHRS will take over the entire process?
 Page 46       PREV PAGE       TOP OF DOC

    Mr. WINKLER. So that we in the service wouldn't have to do the migration for the—I really don't know. I don't know if that is necessary, but I guess the DIMHRS program officer or whoever is working on that, might be able to tell you better than I.

    Mr. WENNERGREN. Sir, I think each of us will probably give you the same answer, that DIMHRS personnel pay module that comes on-line in the next couple of years will be a big help, and will help get rid of some legacy systems, but we will each have to maintain parts. So for us it is NSIPS, and we, like the Army and the rest of the table, are also taking advantage of the fact that DIMHRS is based on a commercial product, so we can leverage that commercial products suite for the other pieces of it that aren't in the initial deployment of DIMHRS. And our hope is to leverage as much of it as we can and as more modules were to come on line, we will take those too.

    Mr. SAXTON. General Thomas, I bet you have a little different answer.

    General THOMAS. Sir, I do. I have spent a great deal of time with my functional manager going through this specific system, and again, I think this probably provides a good example of where we have got to be smart. What we have done with our manpower and pay system, it has evolved into this integrated system over the course of about 25 years to be able to cover the entire Marine Corps. And so when the first phase of DIMHRS is delivered, if we had to accept that, we would end up taking, you know, two or three steps back. And what that means is that right now we have an automated award system. DIMHRS will not come with that.

 Page 47       PREV PAGE       TOP OF DOC
    We have a composite score capability that is automated that is a part of our current system, whereby Marines are getting promoted. DIMHRS will not support that. So what it involves, and I could give other examples. But what it would involve is for us to do a complete process re-engineering, how we promote, how we award recognition to name a few.

    Mr. SAXTON. Thank you.

    Mr. Gilligan.

    Mr. GILLIGAN. Mr. Chairman, I think our situation is very similar. My understanding is what the DIMHRS program has done is chosen that subset of personnel functions which are most likely to be common across the Department. And we are going to get that as a standard package. We understand that. We have begun to plan for it. We have a program we call DIMHRS-plus, which would be the complementary set of capabilities that would address those functions to include our assignment process promotions et cetera, that will not be in the commercial package. Actually, we are in the position where today we do not want to delay DIMHRS. That is, if expanding DIMHRS would cause it to be delayed, we don't vote for that because we want to move forward with the more modern capability that integrates pay and personnel.

    Today we don't have an integrated personnel and pay system in the Air Force and that is quite important. We have got the—Defense Finance & Accounting Service (DFAS) provides the pay system. We provide the personnel system and there are a lot of problems at the interface. So actually, what we are trying to do is ask DIMHRS for the Air Force to accelerate our implementation of DIMHRS. It was previously scheduled for 2007. We would like it to be in 2005 if possible, and then we will link it up with some complementary capabilities to be able to meet our needs.
 Page 48       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Why all the enthusiasm for DIMHRS? And I am not trying be a smart guy here. But why all the enthusiasm for DIMHRS if the Marine Corps says it is a step backwards and we are spending millions of dollars on this system that will only do part of the job? There is obviously an answer because you are intelligent people, but it is an obvious question to me.

    Mr. GILLIGAN. Let me start if I could. I think what you are hearing is DIMHRS has been delayed. It was originally to be delivered by now. We understand it is a tough problem. I think we are somewhat sympathetic with the scale that the problem, that the DIMHRS team is trying to take on. What I think you hear in the enthusiasm is we want some modernized capabilities. What I mentioned is the integrated personnel and pay is very important to us. And so the view is let's get on with DIMHRS and move forward. What we are not anxious to do in the Air Force is to see DIMHRS delayed any further.

    General THOMAS. Just one other comment, sir. I didn't completely answer your question. Again, one of the other things that we will end up having to do if we were to implement DIMHRS from the Marine Corps perspective is to maintain the legacy system until some point in time until you know DIMHRS can evolve into what we have right now.

    In addition to that, we would have to take and provide the manning and the additional dollars to maintain that legacy system. So I think that is another consideration.

    Mr. WENNERGREN. I guess the thing that I would echo is that the capabilities that it does provide are helpful to us as I think you have heard from each of us. And so we want it fast and we want it to deliver the part—they promise that it is going to deliver well. Now, we talked a little bit earlier about one size doesn't always necessarily fit all. So there is some thought about if each of us are working to standards and interoperabilities and information flows seamlessly, it doesn't necessarily have to do everything at once.
 Page 49       PREV PAGE       TOP OF DOC

    All right. It can actually do a part of the personnel pay solution for us and be helpful to us even though part of it is still work that we do ourselves because like the Marines we have a good award structure in place too, and it is all about how those fit together.

    Mr. WINKLER. And Mr. Chairman, for the Army it gets back to what GAO said. We are trying to reduce the number of systems that we have. We are trying to collapse our applications and implement enterprise systems that take care of our entire Army enterprise. So we see this as efficient for us.

    Mr. SAXTON. Mr. Kutz, what do you think?

    Mr. KUTZ. I think DIMHRS is critical. The success of DIMHRS is something that is going to impact the troops, and I think that makes it of high importance to all of us. And so success of that is critical and the discussions of integration of personnel and pay is also critical. In the work we did that found all the errors, that was one of the causes of many of the errors was the lack of integration interface between the systems.

    Mr. SAXTON. So you think DIMHRS is a step forward that gets us maybe half way to where we need to be? Is that fair?

    Mr. KUTZ. I can't—I can only say that conceptually because we have not looked at—we are in the process I think for another study we are doing. But we are in the early process of looking. We have not looked to determine whether DIMHRS will meet all the needs that are necessary based on work we have done. But certainly the concept of an integrated personnel pay system will help the issues that we have seen.
 Page 50       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Thank you. I have one more short set of questions. Or one more short question. Section 1004 of the fiscal year 2003 Defense Authorization Act stipulates that obligations in excess of a million dollars for financial system improvements be approved by DOD comptroller. Only if the improvement is necessary to, one, achieve the critical national security capability or address a critical requirement in an area such as security or safety; or two, prevent a significant adverse effect on a project that is needed to achieve an essential capability. The question is, what management structure and processes has the department put into place to have reasonable assurance that the Department is in compliance with the provisions of this law?

    Ms. Boutelle would you take a crack at that?

    Ms. BOUTELLE. Again, this is a tough one. There is a you know, 2,300-plus systems that we know of, and I think the Navy's example of when they implemented the Navy Marine Corps Internet the systems that just started showing up that they were unaware of. I anticipate that we will experience the same type of phenomena. But what we have done is we have taken the inventory and we have separated it by each of the domain owners for the transformation.

    So we have broken it down by domain owner. They are responsible for reviewing any of the changes to these systems. We are not talking about sustaining them and keeping them running. Right now we are talking about any enhancements to them. So they are responsible for doing that. Once they have gone through a review process then they have a package that they have to put together that has a business case. It is supposed to have a return on investment. And they submit that into comptroller for us to review and then make a decision through the business management systems integration office for recommendation to the comptroller to approve or not to approve.
 Page 51       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Do you have a way to identify those systems that under this provision, should be submitted to the comptroller?

    Ms. BOUTELLE. Do I have a way of knowing which ones should be submitted?

    Mr. SAXTON. Obviously, the reason I am asking this is that we suspect that maybe some aren't.

    Ms. BOUTELLE. And I think the answer is that if they weren't submitted, at this point in the learning curve or the process, I do not think that we would know. Whether they were having a change made or not, but I will tell you that we are working very, very close with the CIOs and with the domain owners to try to get our hands around this, and put a process in place and have multiple eyes looking at it as we try to determine whether or not they are changing the systems.

    Mr. SAXTON. Mr. Kutz, any comments on this?

    Mr. KUTZ. Yes.

    Mr. SAXTON. We suspect that all the systems aren't being submitted. We don't know whether it is 10 percent that aren't or 40 percent that aren't or where we are.

 Page 52       PREV PAGE       TOP OF DOC
    Mr. KUTZ. We more than suspect. We know that some are not. And we don't know how many, but based on limited data provided to us we found almost $500 million of obligations that should have been subject to comptroller review that were not submitted. And I would agree with Ms. Boutelle. They do not have a process in place right now to identify all because we asked for that and we did not get it. We got limited data from the services, and based on that we identified nearly $500 million through December 2003 that should have been submitted but was not.

    Mr. SAXTON. Can we——

    Ms. BOUTELLE. I will say that again this is something that we have not done in the past. You know, this is where it goes back to each of the components having their funding and their systems and taking care of themselves as far as their mission requirements. And so now that we have moved to a domain structure, we are trying to put a discipline process in place. I think we are making progress. We have had the Deputy Secretary sign out a portfolio management directive that lays a framework so we are moving in the right direction. Again, it is just we are not there yet.

    Mr. SAXTON. Well, it is a fairly simple concept. I am sure it looks simple, and I am sure it is harder to implement than it looks on the surface. But if I were a—if I had the authority someplace in DOD to go out and buy a system, and I knew the law said if it is a million dollars or more, under these circumstances it has to be submitted to the comptroller, I would feel a responsibility to submit it to the comptroller. I don't see what is so hard about that. And again, I am not trying to be a smart guy. I know you are trying to do a good job. But what is the problem?
 Page 53       PREV PAGE       TOP OF DOC

    Ms. BOUTELLE. Well, I think you kind of hit on it. If you knew that there was a responsibility to do it, you would submit it. I think we have put out the guidance that it is a requirement. I can't—I do not know the program managers that are not submitting their requirements, and I do not know why they are not. You know, I am kind of at a loss to explain that one. I don't know if the service CIOs can add to that or not.

    Mr. SAXTON. Unfortunately we are running out of time. But would representative of the services submit an answer to that in writing for us?

    Mr. WENNERGREN. Yes, sir.

    Mr. SAXTON. That would be very helpful. And I think that everybody is well intended on this matter of compliance with this provision. But it is not getting done to the—at the level that we would like to see it being done. And so if you service representatives could address that, we would appreciate it. Thank you all for being here. We appreciate your participation. And we are going to move on to the next panel at this point.

    So again, we appreciate your being here and we know you are trying hard to arrive at the goals that we collectively have with regard to this, with regard to these matters. Thank you.

    I would like to welcome our next panel, Mr. Thomas Burlin, Partner U.S. Federal Industry and Global Government leader at IBM; Mr. Steve Peck, president, SAP Public Services; and Mr. Kent R. Schneider, president, Defense Enterprise Solutions, Northrop Grumman Information Systems. While we are making the change here, let me just say that we appreciate your participation as well and as soon as you are all in place, we will be ready for your opening statements. Thank you for being with us today.
 Page 54       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Mr. Burlin we are ready for your testimony.

STATEMENT OF THOMAS BURLIN PARTNER, U.S. FEDERAL INDUSTRY AND GLOBAL GOVERNMENT LEADER AT IBM

    Mr. BURLIN. Yes, sir. Thank you. Mr. Chairman, I am, as you introduced, Tom Burlin, partner for the U.S. Federal Government account and the global government leader for IBM. We appreciate the opportunity and the committees invitation to talk about business modernization in the U.S. Department of Defense. As you are probably aware, IBM is the prime contractor for the Department of Defense's business modernization program, BMMP. And the team consists of IBM and eight subcontractors, four of which come from small business. The team believes it is particularly well suited to lead this DOD project.

    Massive transformation that the Department is under taking has direct relationship to IBMs own modernization efforts over the past 10 years. DOD today is much like IBM 10 years ago, a vast silo-oriented organization with disparate information management systems, multiple databases software programs that don't talk to each other, with complex business processes that hinder rather than enhance organizational efficiency. Through a commitment by IBM's leadership to change, coupled with sound investment strategies, IBM is in a genuine transformation. We cut our costs, we embraced common processes and systems. Our $6 billion investment has returned some $17 billion in savings and we have improved our time to market by 75 percent.

    I might also note that we went from 128 CIOs to one. We began work on BMMP in April of 2002. We were asked to examine everything from strategic planning and budgeting to financial management accounting, logistics, procurement, human resources. Our starting point was building the business enterprise architecture or BEA. In layman's terms, a business architecture is a framework or model that represents an end-to-end view of an organization's business mission strategy and processes and how those elements link to its information technology strategy.
 Page 55       PREV PAGE       TOP OF DOC

    Using this framework, DOD will be able to make sure that IT investments in the future will work with current systems. It will help minimize costs, maximize investment. Ultimately it will help DOD to fulfill its mission to support our armed services, agencies and our Nation's fighting troops. Team IBM delivered the initial version of the business enterprise architecture May 1st of 2003 on schedule and under budget.

    Working in collaboration with DOD, we intend to deliver future versions of the BAE in three successive increments with the overall goal of achieving a clean audit opinion in 2007. We believe we are on track to make this delivery. While we have encountered some challenges already, we are seeing measurable results that have positive impact on the Department's business process and capabilities. I have detailed these for the committee in my written testimony.

    In closing, let me emphasize two points: First, any plan to modernize the DOD is evolutionary. It will be an ongoing process with constructive collaboration from the department, team IBM, the services and agencies. Second, any transformation requires a tops down approach. Senior management must demonstrate its commitment to the support for the initiative to succeed. We are pleased to have been selected to assist the Department in achieving its business transformation goals.

    We are committed to deliver the best possible advice and products for the Department to support its goals of making our Armed Forces more agile and adaptive to any emerging threats. Mr. Chairman, members, thank you for this opportunity. Welcome any questions.

    Mr. SAXTON. Thank you very much. Mr. Burlin.
 Page 56       PREV PAGE       TOP OF DOC

    [The prepared statement of Mr. Burlin can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Peck, welcome.

STATEMENT OF STEVE PECK, PRESIDENT, SAP PUBLIC SERVICES

    Mr. PECK. Thank you, Chairman Saxton and members of the subcommittee. I am Steve Peck, president of SAP Public Services, and I appreciate the opportunity to appear before you today to share SAP's perspective on the business transformation efforts of the Department of Defense. For 32 years, SAP has built business applications software that is based on integrating business processes to help businesses run better. SAP's commitment to customer success and product quality has made SAP the clear worldwide market leader in the business application software space and the third largest software company in the world overall.

    We have nearly 20,000 customers and employ almost 30,000 people in 50 countries with over 5,000 people here in the United States. We develop highly scalable open standards business application software, and our specialty is partnering and aligning with our customers to help enterprises modernize and better achieve their business goals.

    This is especially true for large complex entities. In fact, SAP is used by seven of the Fortune 10, including companies such as Microsoft, IBM, Exxon and Federal Express. And in the aerospace and defense industry, 23 of the top 25 corporations use our software. Successful modernization and transformation, can't rely just on the technology. It is accomplished by implementing change through a combination of people, processes and technology. And today I would like to talk about three real world examples.
 Page 57       PREV PAGE       TOP OF DOC

    First Raytheon. Raytheon has grown through the years both organically, and through acquiring highly disparate business operations. They implemented SAP as an overall common system. This provides a single operating picture and business process standards for their leaders and enables them to have one face to their customers. By using our solution, Raytheon now accesses information throughout their global operations and network of over 93,000 employees, and has realized significant savings and better competitive advantage.

    The second one, I would like to highlight the Defense Logistics Agency's (DLA) Business Systems Modernization Program, which is modernizing financial management, order fulfillment, supply and demand planning, material management and procurement. As part of this effort, DLA reengineered its business practices adopting the commercial best practices embedded in SAP software. This comprehensive integrated system is in use today for thousands of items to supply—of supply and is on track to manage more than four million items when fielding is completed.

    Business processes have been improved, organizations reshaped and the workforce has been retooled. This program is supporting the DLA mission today which includes military operations in Afghanistan and Iraq. Third, I would like to highlight the U.S. Army, which is using our software to help transform the Army Logistic Enterprise including their new global combat support system and the Logistics Modernization Program.

    In the future, the Army will be using SAP software to support forward deployed forces and to create a logistic common operating picture to give joint commanders the ability to make decisions based on real-time information. This transformation combined with the use of innovative technologies such as mobile devices and radio frequency ID can help enable total asset visible from foxhole to factory, and is consistent with Secretary Rumsfeld's transformation objectives. We take great pride in the fact that all of our Federal customers have either succeeded or are on the road to success with their SAP implementations.
 Page 58       PREV PAGE       TOP OF DOC

    It is important to note that success doesn't come easily. But as you can see by our examples, it is worthwhile. To embark on a large modernization program and government we need to pay close attention to the acquisition policies and program management strategies that support effective transformation, especially in light of fast moving technology advancements. From our viewpoint the critical issue for most large organizations, whether public or private, is mastering complexity while insuring integration and program momentum. Because of the investments technology companies like SAP have made, and the broader use of technology in the private and public sectors, government now has a unique opportunity to put this innovation to work and allow lessons learned to be quickly applied leading to shorter acquisition cycles and faster results.

    We strongly recommend refining acquisition approaches and processes that focus on what must be done rather than how to do it. We believe this approach provides a framework for capitalizing on the best practices that have been embedded in the design of COTS products like SAP, and will allow the government to leverage the investments made to create these practices and achieve the desired outcomes. We understand that the end goal here is to help protect and defend our country by making sure that the Department of Defense has the tools to function efficiently and to make sure our war fighters have what they need.

    We hope that our testimony has been helpful to you, Mr. Chairman, and members of the subcommittee. Thank you for the opportunity to appear this afternoon and this concludes my prepared remarks.

    Mr. SAXTON. Thank you very much.

 Page 59       PREV PAGE       TOP OF DOC
    [The prepared statement of Mr. Peck can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Schneider, please.

STATEMENT OF KENT R. SCHNEIDER, PRESIDENT, DEFENSE ENTERPRISE SOLUTIONS, NORTHROP GRUMMAN INFORMATION SYSTEMS

    Mr. SCHNEIDER. Mr. Chairman, thank you for the opportunity to come talk to you today about the Department of Defense Business transformation. We think at Northrop Grumman we are uniquely positioned to provide input on this issue because we are engaged in transformation across the Department of Defense including business systems. At Northrop Grumman, we believe that three concepts or themes underpin successful public domain business system modernization and transformation.

    First, we believe DOD needs to take an enterprise view of defense transformation in order to achieve interoperability, scalability, agility and greater mobility of enterprise systems and architecture. And I would add in this regard that when we are talking about enterprise, it is useful to understand what enterprise we are talking about, whether we are talking about a military service or we are talking about DOD in general, because you will often get a different perspective depending on what you are talking about.

    Second, we, the DOD and industry, need to reuse and reapply technologies, that already exist to the extent that we can. You have heard about the application of COTS today. We need to take proven best of breed technologies from commercial and government sectors and adapt them to similar problems and possibly unrelated environments. Lower costs and certainly lower risk will result from such reapplication.
 Page 60       PREV PAGE       TOP OF DOC

    Third, we believe we need to find a balance between best commercial practices and DOD systems engineering experience and domain expertise. Now, you heard Mr. Gilligan say earlier that the Air Force had had great difficulty early on in applying commercial technologies. We have found that that risk can be reduced when domain experience is applied.

    In DOD, the application of commercial solutions often can be a problem. This results from the unprecedented scale of defense operations the complex environment within which major defense systems are developed and introduced and unique government processes that are often anchored in public law and regulation. We have found that a partnership between commercially-oriented firms and defense integrators like Northrop Grumman offer proper balance bringing best commercial practice and the required military domain expertise. The statement I provided you offers the example of DIMHRS which you have heard plenty of today.

    I won't go through that except to say that Northrop Grumman leads that effort and I would be happy to answer any questions that you might have. Thank you very much.

    [The prepared statement of Kent Schneider can be viewed in the hard copy.]

    Mr. SAXTON. Thank you. Let me start with this. You have—your organizations have a different level of experience with IT business systems than perhaps our friends at the Pentagon have. Are there things that you could do if you were asked that would help with the transformation of the processes that are underway that you have heard described here earlier today which we all know there are—that we are not meeting the level of success that we would like to. Are there things that industry could do to be helpful if you were asked?
 Page 61       PREV PAGE       TOP OF DOC

    Mr. BURLIN. Mr. Chairman, I certainly believe that that would be possible. Whether we were asked—I believe we have been.

    Mr. SAXTON. Maybe you have been asked.

    Mr. BURLIN. I do believe we have been asked and I feel as though in the business modernization program, that is exactly what the Comptroller and the Secretary is asking of the team is to provide the experiences, not just the technology and the intellectual capital of the IT experiences, but the business experiences that we have as a group and certainly the experiences that IBM brought to the table in their transformation.

    So I believe we have been asked. Hopefully, we have provided that counsel and will continue to provide that counsel.

    Mr. PECK. Mr. Chairman, I think that along those lines, that one of the things that we can learn there is what have the biggest most complex entities across the globe done to modernize themselves in the 1990's and in 2000. And I think that when you look at balancing the right kind of oversight with the right kind of momentum and the direction that they have taken it is less about—the technology is important, but it is how they implemented the process and the change to achieve the desired results that are mandated by their share holders. And I think that there are some lessons learned there of the big, big complex of the Fortune 50 companies that we could probably look at, and then map up their program policies and procedures, their acquisition policies and procedures with how that was designed to make those programs successful.
 Page 62       PREV PAGE       TOP OF DOC

    Mr. PECK. And I think that a little more private-public collaboration from the very top and the very biggest and the most successful could help.

    Mr. SCHNEIDER. Mr. Chairman, I absolutely agree. I think Mr. Burlin got it right when he says, we have been asked; and I think we have shared our expertise and our experience where we have been given the opportunity to do that.

    I think if you go back to Mr. Gilligan's testimony when he talked about the three elements: technology, change management, and process improvement, I think we bring experience in all of those areas. I think we have been asked to share that. I think sometimes we haven't been asked to share it comprehensively.

    I do agree with the point that Mr. Peck made with regard to learning from large-scale industry and, for that matter, from other governments.

    What we do have to remember is that, as we go to modernize these enterprise systems at the DOD level, we are sometimes encountering scale that has never been experienced before. DIMHRS is a good example of that. The largest implementations of that type we have seen anywhere, whether government or in the Fortune 50, are in the hundreds of thousands of records. DIMHRS, in its first instantiation, will be 3.1 million records with the requirement to scale to 8 million. That is an order of magnitude larger than anything that has ever been done.

    So I think what we need to do is bring together—and that was my point earlier—the best commercial practice, along with the experience in integrating large-scale government systems. And I think, if we work together in industry, we can bring that composite experience and expertise to bear.
 Page 63       PREV PAGE       TOP OF DOC

    Mr. SAXTON. When Mr. Burlin was giving his answer, I said, maybe I should have asked if DOD has asked you for this kind of suggestion. And I think common sense would probably say they have.

    Have they asked on a large-scale, throughout other industries that have done integrated systems, for input from them as well?

    Mr. SCHNEIDER. I think they have. And I think industry has responded to that, and not just in the IT area, but in defense transformation in general.

    I think the difficult problem here—and it gets back to the point I made about there is more than one enterprise—is that often we are not talking to a single audience. If you talk to the service CIOs that you had here earlier, they talk about the enterprise in terms of their military system. When you talk to the DOD proponents, they talk to a larger set that includes the joint environment.

    I am not sure they are always asking the same question or they are always asking—or getting the same answer. And they have to be clear in which enterprise and which problem they are trying to solve.

    Mr. BURLIN. Sir, I might also add that, at least as this subcommitteeis questioning along IT investments, we are an IT company and therefore have a predominance of IT professionals in our company; and when you look at the Department of Defense, they would be a minority within that. Certainly as you look at the Department further, you would find almost every industry. So I believe they do work through other industries, whether it be the distribution industry or the transportation industry, to get commercial insight into how they are modernizing those processes.
 Page 64       PREV PAGE       TOP OF DOC

    To the extent that we, as IT professionals, support those industries, I believe we try to connect them with knowledgeable industry experts in that domain.

    Mr. SAXTON. Here is another interesting question to contemplate—for me to contemplate anyway. Maybe you have some insight that can help me out.

    It seems as though, as we transform IT, we get transformed to whatever point we happen to arrive at, and all of a sudden there is a need to transform that. Talk about that a little bit. Where do you see us going in the future with regard to future transformation?

    Mr. BURLIN. Well, sir, we started our transformation out of necessity. We were a——

    Mr. SAXTON. ''we,'' IBM?

    Mr. BURLIN. ''We,'' IBM, yes, sir.

    We were a company heading to default. So, in military terms, we had to fight immediately. We didn't have a lot of time to contemplate our response, and so we began a very—with a sense of urgency on that road. That would be about 1993, when Mr. Gerstner came on board to the company.

    I would tell you, we are still transforming and, most recently, moving from a network-centric approach to an on-demand approach.
 Page 65       PREV PAGE       TOP OF DOC

    Mr. SAXTON. What does that mean?

    Mr. BURLIN. Sir, what I heard today was, if we design systems and then we see large increases or decreases in demand on those systems, what do we do? I think the future of IT has to address that. That is a reality. It is a reality of business.

    It is certainly a reality in the Department of Defense that there are going to be surges, that there will be changes; and I think the IT systems of the future have to address that. They have to be resilient, they have to be flexible, and you can't pay for the maximum requirement all the time.

    So I think as we move from an e-business environment, from a Web environment, the next generation will be an on-demand environment, where you buy what you need when you need it.

    So we feel we are still in that transformation.

    Mr. SAXTON. Thank you.

    Mr. PECK. Mr. Chairman, no doubt it is an evolution; and with the proper type of architectural standards and the right balance in how you can mobilize to get results, because momentum in a program is critical, early results are critical, then it becomes an evolution as you begin to enhance your processes and adopt and involve the technologies.

 Page 66       PREV PAGE       TOP OF DOC
    Most of the large companies are standardizing on a very common set of logistics and financial platforms. They are tuning their efficiency. They are looking to measure their effectiveness, because there is a balance between the two.

    And then, as they look at ways to either adopt new technologies or new best practices, game-changing practices on how they look at their end-to-end logistics or how they measure their performance scorecarding, then they implement that on top of the backbone.

    But having a common—common system, common source of the truth is critical in order to be a foundation for that evaluation—or that evolution.

    Mr. SCHNEIDER. Mr. Chairman, I think your question accurately points to the fact that information technology is in constant evolution. And so as we build systems to satisfy the transformation needs of the Department of Defense or any other large enterprise, we have all pointed to the need to use commercially available systems whenever that will satisfy the requirement.

    And I would go beyond that to say that we shouldn't modify those any more than we absolutely need to.

    You heard mentioned several times the DIMHRS program. One of our objectives there is to, have at completion, less than 10 percent of that system comprised of custom code. The reason for that is that as technology evolves, and if we use an open modular architecture to build that system and we don't modify those pieces to the extent that they cannot evolve to the next generation of technology, we won't have to go back and build a new system. We will be able to refresh the technology in that system over time without rebuilding it, because we will have software that is compatible with the new pieces that are coming on board.
 Page 67       PREV PAGE       TOP OF DOC

    But if we go in and take that core software and modify it beyond recognition, the next release of that software will not be applicable to that solution because you would have to go back and do just as much modification to reapply it.

    So I think one of the responsibilities we in industry have is to make sure that when we sell the Department of Defense or any other government agency a solution, we do it in a way that will be able to evolve with technology.

    Mr. SAXTON. Mr. Peck, what is your largest industrial customer?

    Mr. PECK. Well, I can name—one of them is sitting to my right here, in IBM. They are probably one of the largest, if not probably one of the top two or three, I would say in the world, on SAP. We have got the ExxonMobils of the world. I can't tell you for sure what the top is.

    Mr. SAXTON. Let us stick with IBM. How long did it take you to implement SAP across IBM?

    Mr. PECK. Tom, you may know that even better than I do.

    Mr. BURLIN. I believe we started much the way that the Department of Defense has started, with an enterprise architecture review in about 1993. We spent about 3 years developing and substantiating that architecture.

 Page 68       PREV PAGE       TOP OF DOC
    I can't be exact. I can certainly reply back when we started the SAP implementation, but it would have been fairly early in that one of the first areas that we focused on was our supply chain and modernizing our supply chain. And we, through a process of evaluation, using the architecture that we put in place, settled on the SAP product as best meeting our requirements for portions of that solution.

    So it would have been in the mid–1990's, sir, but I can get you an answer. And we probably completed that over about a 5-year period, I would say.

    [The information referred to can be viewed in the hard copy.]

    Mr. PECK. And typically what we see is that you start with an aggressive but attainable goal in how you implement, and you look at large entities for time horizons, anywhere between 18 and about 27 months on a first phase, on how you roll it out; and get measurable results there that kind of prove out the statement and create the momentum through the organization in the winds of change; and then roll out, you know, more function areas beyond that.

    Some of our more moderate-sized companies can implement in periods of time of 6 months. So you have got to kind of balance the change on that.

    Mr. SAXTON. How much customization of SAP products was required?

    Mr. BURLIN. Within IBM, sir? We actually worked very closely with SAP and have a fairly standard implementation of the—we control the architecture through a central advisory committee, if you would. So there are, if you will, rights reserved to the enterprise for how a software product, in this case SAP, is implemented. And then there is the ability progressively within the individual lines of business to implement.
 Page 69       PREV PAGE       TOP OF DOC

    Largely, I would venture a guess that 80 to 90 percent of the process is standard probably on the outside edge of the enterprise, maybe 10 percent is modified to the specific needs.

    Mr. SAXTON. Now, compared to the military, your company is a rather homogenous——

    Mr. BURLIN. Actually, not, sir. Certainly, we are an IT company as an enterprise, so—as I made the point earlier. But we work in almost—we work in 17, 18 different industries. We do everything from building products as a manufacturer of products to consultancy and, you know, service delivery.

    So we have a—rather diverse. And as we went into our modernization, contained in my testimony, we actually had literally hundreds of business processes that had to be consolidated.

    Mr. SAXTON. This would be a tough question for you to answer, I suppose. But you say only 10 percent of your SAP products that you have implemented are customized?

    Mr. BURLIN. Rather than 10 percent are customized, think of about 80 to 90 percent of the core processes—these are modules. If you think of the software as coming in modules, having functional capability, about 80 to 90 percent of those modules are used as designed and implemented.
 Page 70       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Should that be a goal of DOD, to be 80 or 90 percent?

    Mr. BURLIN. Certainly, the higher that you can drive that standardization, the more return you get out of the implementation of a cost product. I don't know that I could say unequivocally that 80 to 90 percent is correct. My experience is, we do gap-fit analysis early on, and the implementation across DOD projects tends to run in the 60 to 70 percent. So I think improving that and focusing to improve that fit would be an objective.

    Mr. PECK. One of the secrets to success in all of our large entities, especially in recent times, has been this view of not having customization; SAPs designed, as Mr. Burlin knows, to be highly configurable so that it is not truly customizing any code, but to be able to be configurated so that it can meet your business needs.

    But, in general, when you are looking at business process change and adapting best practices, it is important that you have the right governance in place to say that we are going to adapt to the best practice delivered unless it is either a matter of law or just a unique process that can't be changed.

    And that is kind of a critical component, to have the right governance to do so, because sometimes, quite frankly, people want to implement something because they have been doing it for 30 years. Nobody can remember why they were doing it that way.

    So it is better to adapt to best practices, keep it as vanilla as possible, have a configurable, scalable system that can work, and then make sure that if they are going to actually get in and change the software, it is done for a very specific reason and with the right kind of governance in place.
 Page 71       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Mr. Schneider, what is the largest system integration that Northrop Grumman has done for the government?

    Mr. SCHNEIDER. Well, we have—probably the largest one we have ever done is the Joint Stars effort, which is an electronics platform built on a 707 platform to do aerial surveillance and to download data from an airborne platform to ground stations and be distributed to ground commanders.

    In the IT arena, I would say it is probably the global command and control system.

    On the business side, probably the DIMHRS effort that is under way right now.

    Mr. SAXTON. It sounds like DIMHRS is highly customized. Not necessarily by Northrop Grumman, but DIMHRS is being supplemented by legacy systems which are custom systems, and DIMHRS is providing—I am not sure how to characterize it because I am certainly not an expert in this, but I hear that DIMHRS provides something around maybe less than 50 percent of the total capability that is necessary.

    Is that——

    Mr. SCHNEIDER. Well, I am not sure that is clear, Mr. Chairman. Part of the problem has been in the government consolidating requirements from the military services and the joint environment. We believe that DIMHRS has the potential to satisfy a much higher percentage than that of the total requirement. We also believe that where the services do gap analysis against the current architecture and express the needs for additional functionality to the Joint Program Office that that can be rolled into the core architecture and probably done more cost effectively than to develop supplemental systems. And we have suggested that approach to the military services as well as to the Joint Program Office.
 Page 72       PREV PAGE       TOP OF DOC

    To get back to your question about how customized it is, it is in fact not customized very much at all. It is built on a PeopleSoft platform. We did the kind of gap-fit analysis that Mr. Burlin was discussing. We were able to get out of PeopleSoft about 70 percent of the functionality that was required.

    We are actually using IBM components, database and middleware to close that gap to over 90 percent, so that we believe that less than 10 percent of the system will ultimately be custom.

    I think one of the important things to remember about DIMHRS is that it not only addresses some of the issues that you heard earlier with regard to bringing pay and HR into a single system—and it is that gap that has caused a lot of those failures in paying people properly and so forth—it also brings active, Reserve and National Guard, as well as currently serving and retired, into a single system. But it also brings all the military services into a single system so that a joint commander, as an example, can get readiness data and a complete personnel profile on an entire joint task force, as an example. Or, even a military service will be able to get readiness data and a personnel profile of their entire command, which they can't get today from the HR and payroll systems that they have.

    There is one other thing I would like to respond to in your question with regard to the number of legacy systems.

    DIMHRS will replace about 79 systems that exist today. But in a field of about 200 systems that are out there that touch on HR and pay—they are not HR and pay systems, but they touch on it from the standpoint of providing input or output—so with a successful implementation of DIMHRS, we will eliminate those 79 legacy systems that it replaces.
 Page 73       PREV PAGE       TOP OF DOC

    But we do have the integration task of being able to talk to over 100 systems that will remain in the inventory as they presently exist. Now, it may be possible that, as we evolve the system, we will find ways to replace some of those as well.

    Mr. SAXTON. Well, thank you.

    I have no further questions at this time, unless any of you have something you are just burning to tell us. Thank you for being here. This has been a great exchange, and we appreciate your participation in this hearing.

    Thank you.

    [Whereupon, at 3:35 p.m., the subcommittee was adjourned.]