Inside the Five-Sided Box with Ash Carter — Lessons from a Lifetime of Leadership in the Pentagon

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Inside the Five-Sided Box - Ash Carter

The military-industrial complex

Many believe that government has much to learn from big business. Yet, the reverse is just as true. And it’s hard to find a better case study on this front than the U.S. Department of Defense (DOD). In Inside the Five-Sided Box, former U.S. Secretary of Defense (SecDef) Ash Carter shows us what it takes to run a military-industrial complex. Whether you’re in government, business or academia, there’s a lot to learn from Carter’s reflections on acquisitions, leadership, strategy, and mobilisation. If nothing else, it’ll help you to appreciate the challenge, complexity, and enormity of defence.

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Acquisitions, supervision, and incentives

One of the SecDef’s chief responsibilities is to ensure that DOD spending is cost-effective. This is particularly challenging for organisations as large, complex and specialised as the DOD. From tanks to computers, the military-industrial complex has to manage over 10 million awarded contracts every year! Lamenting over the Reagan administration’s $600 toilet seats fiasco, Carter admits that waste, excesses, and corruptions “are almost inevitable”. But careful supervision and incentives can help to promote better buying.

Supervision

Carter recalls, for example, how poor management, supervision, and consultation had contributed to problems in the Joint Strike Fighter program (JSF). The program sought to acquire over 2,000 advanced joint-strike fighters. But when Carter entered the fray as undersecretary, JSF’s design, development, and manufacturing costs had doubled, and its schedule well behind targets.

While the Air Force / Navy-Marine program office were meant to run JSF with Lockheed Martin as their main contractor, Carter saw that every briefing document “had Lockheed Martin’s logo” — A major red flag to him. Additionally, many air establishments were omitted from the consultation and acquisition process. While this helped to avoid complications and delays, it prevented broader expertise and critique. This in turn insulated JSF’s problems.

Carter’s solution was to bring in a new “superstar” program manager from Navy-Marine Naval Air Systems Command. Indeed, this is a pretty obvious problem and solution. But many organisations today continue to make excessive use of contractors, consultants and bankers. Is the private sector so different?

Incentives

More seriously, bad incentives were at the very heart of JSF’s problems. Carter learned that DOD had agreed to pay for all development costs and an award fee of up to 15 percent. Unsurprisingly, the contractors had little incentive to avoid scheduling delays, inflated prices and cost blowouts.

Upon learning this, Carter renegotiated the contract structure immediately. Under the new arrangement, DOD would share cost overruns with the contractors, but only up to a 20% limit. Beyond this limit, the contractors would have to cover the costs themselves. Conversely, if the program’s costs were less than DOD had estimated, the contractor would retain half of the savings. This combination, Carter thought, aligned contractor incentives with the DOD’s objectives.

Many enterprises underestimate the impact that poor contracts and incentives can have on internal and external productivity. This is most problematic where a high degree of interaction and coordination is necessary.

When you find your organisation bogged down in the doldrums of bureaucracy, ask yourself: how did we manage to send people to the moon? Indeed, the engineering and scientific achievement of Apollo 11 were remarkable. But it was also a strong alignment of internal interests that made their coordination, collaboration and achievement possible. Organisations that solve the problem of motivation and incentives can create a competitive edge for themselves.

From fads to better buying

Fads come and go. This is true in many aspects of life, even for military acquisitions and contracting. Carter recalled, for example, the fad that DOD had for contracting program management duties. While this might attract new talent, conflicts of interest arise when it’s “the contractor and not the war fighter or the government official [that’s] in the driver’s seat”.

As Carter sees it:

“The reason fads tend to capture the fancy of would-be reformers is that they promise a shortcut to reducing costs, improving efficiency, eliminating corruption, and guaranteeing fairness—all by simply writing some new mandate or procedure into the rule book. In reality, however, there are no shortcuts. The key to acquisition improvement can be found where it has always been: in rigorous attention to fundamentals and the sound judgment of DOD experts with intelligence and integrity.”

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

Better buying power

As acquisition czar, Carter introduced the Better Buying Power (BBP) initiative to strengthen the “link between faster, smarter acquisition policies and on-the-ground accomplishments”. Carter wanted staff to think beyond the size of investment. That is, to have “affordability” as one of their goals.

To incentivise affordability, Carter allowed agencies to allocate newfound savings to other priorities. Again, this seems a simple, practical and obvious solution. But many businesses, universities and governments today actually omit this incentive from their budgeting process!

Often, a large organisation’s finance department will slash divisional budgets if the team is spending below their original allocation. As a result, teams are incentivised to spend more, and in suboptimal ways, to preserve their allocation for later years. It’s also hard to spot the problem after the fact as people are great at rationalising their spending habits.

Incentives, competition and substitutes

Better Buying Power also extended to contract design. Here, Carter “cautioned against dogmatism”. One should use fixed pricing when it’s reasonable to do so. But it should specify cost sharing arrangements for overruns and under runs. Where projects are speculative and costs uncertain, cost-reimbursable arrangements are probably more appropriate.

Competition is an important element of the “Pentagon’s acquisition toolbox” too. Price competition between Boeing and Airbus for defence contracts, for example, help to reduce project costs. When direct competition is not achievable, one can use cost sharing arrangements and asymmetric competition (e.g., indirect substitutes) to incentivise contractor performance.

Challenges to strategy and mobilisation

Carter says that mobilising for the wars in the Middle East was among the DOD’s biggest challenges. He describes how, historically, “the Pentagon [had] prepared almost exclusively for traditional military-versus-military conflict”. This made the Pentagon a “cumbersome” organisation and less prepared for decentralised adversaries. Roadside IEDs, for example, exposed “the inadequacy of the existing equipment and the views inherited from wars of the past”.

“Under the circumstances, the Pentagon’s system… [was] not far removed from the old, slow-moving fashion we’d become accustomed to during the Cold War… When the terror attacks of 2001 hit, the Pentagon was a bit like a successful corporate giant confronted by a nimble start-up armed with a disruptive new technology… We had to figure out how to fight back without letting our bureaucracy slow us down.”

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

Dogmatism, bureaucracy and remoteness

Several factors contributed to their challenges in the Middle East, many of which, I think, are common issues in business as well. Firstly, strategic missteps were reflected in their acquisition criteria and capability programs. Decision makers prioritised “sexy, complex advanced systems for possible wars of tomorrow” over practical equipment for “the real wars of today”.

Secondly, dogmatic biases added “to the clumsiness of our military’s acquisition system”. Carter recalls, for instance, the marine’s obsession with amphibious vehicles, and the Air Force’s resistance to drone-based warfare. Thirdly, daily bureaucracy is sometimes all consuming. Strategic urgency was sometimes lost in the minutia. Carter recalls how Congress’ Buy American policy, for example, made it difficult to procure equipment from sole manufacturers overseas.

Fourthly and relatedly, decision makers were far-removed from the tactical challenges. Carter learned that “none of [his] predecessors as acquisition czar had ever travelled to Afghanistan or Iraq in their official capacity” — A practice he soon fixed. Finally, many decision makers believed that the “new wars… would be over in a matter of months”. As military history would suggest, this is usually a dangerous assumption to make.

Contingency planning and prevention spending

Planning is essential to military readiness. It enhances “the clarity of our strategic thinking and the readiness of our forces”. War plans, Carter says, should match the adversary, environment, threat level and national priorities. At the DOD, these plans tend to contain six phases: (1) shape, (2) deter, (3) seize initiative, (4) dominate, (6) stabilise and (7) enable civil authority.

Likewise, in the event of nuclear war, there is a 2×2 playbook for the president to step through. It consists of two variables: (1) Is the attack occur with or without notice? (2) Is the response delayed or immediate? Additional decisions follow, depending where on the grid the president lands.

Crisis response

There is often a lot of uncertainty when a crisis is unfolding. Unfortunately, this is often also the moment when people expect a response. What should leaders do to navigate an emerging crisis? Carter offers several suggestions. Firstly, one should recognise that incoming information during the early moments of an unfolding crisis is often incorrect. Because of this, Carter likes to “take a deep breath” and avoid rushed decisions.

Secondly, one should “stop and ask when a decision is required, and why”. People dislike uncertainty, so doing something feels natural and productive. But taking available time to gather evidence and evaluate options can make all the difference. Finally, leaders must defuse anxiety and tension within the room. With “a sense of clarity” and “calm”, they should demonstrate an awareness of the problem, communicate “an orderly process”, and delegate meaningful tasks to the team.

Prevention spending

Why do nations spend so much on defence? Couldn’t we put taxpayer dollars to other national priorities? Indeed, it’s not easy to justify the cost because the benefits of averted disaster are hard to visualise and quantify. But Carter says it’s important to recognise the value of spending for prevention and deterrence. Yes, the cost of prevention and preparedness is high, but the risk of inaction is even greater.

Whether you agree with Carter’s reasoning or not, I think the general idea of prevention spending is important. In Firefighting, Ben Bernanke, Tim Geithner and Hank Paulson outline a similar challenge in the prevention of financial crises. We can draw similar parallels to our preparedness for wildfires and pandemics, too. Society is often slow to prevent tail-end risk until they’ve experienced the pain of it for themselves.

As Carter puts it:

“Non-events [can] mean the survival of freedom for huge swaths of humanity and millions of lives save. Money spent to produce those results was scarcely wasted. In fact, that’s exactly the reason we spent most of our defense dollars during the postwar years… If we tried to cut that figure drastically… we might find ourselves, in time, in a battle for survival against a major global adversary… – a battle whose demands would make today’s defense budget appear pitifully small”.

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

Between leadership and reinforcement

When talking about leadership, Carter likes to differentiate between leadership and reinforcement. To Carter, leadership is about the direction that leaders set for the organisation. Effective leaders understand the importance of path selection, and the trade-offs, opportunity costs and risks it entails.

Reinforcement, by contrast, “involves bringing out the best in your subordinates”. It focuses on communication, culture, mentorship and so on. Effective leaders must nurture the “values, habits, skills, and culture” that enable high operating standards. It goes without saying that experience, honesty, and integrity are a must.

Order, clarity, diversity and sincerity

Carter got to observe the leadership styles of several presidents firsthand. I found his reflections on Barack Obama the most interesting. In particular, Carter believed the former president possessed four qualities that made him “an exceptional leader”.

Firstly, Obama was smart and orderly. This helped him to handle crucial details methodically — An “unfortunately rare” combination in large organisations, Carter says. Secondly, Obama was “decisive”. Carter never left a meeting with the president with unclear directions, roles, and responsibilities.

Thirdly, Obama “did not play games”, like “pit[ting] one staffer against another”. Treating your staff well, Carter says, can generate devotion, hard work and productivity. Finally, the former president respected a diversity in opinions. He listened to disagreements and gave members their chance to explain their views and arguments.

Playbooks and conventional wisdom

Leaders must also know when to use and abandon conventions. One criticism that Carter had of Obama’s tenure was his tendency to ignore the playbook in favour of an “unconventional policy path [as] … a worthwhile goal in itself.”

According to Carter, Obama didn’t enforce “the red line” against the Assad regime’s use of chemical weapons in Syria because the red line was “an artefact of some conventional playbook”. Whether it was the right move or not, Carter found such reasoning too “dismissive”.

This, of course, is an oversimplification of the situation. But Carter’s point is this: “Conventional wisdom [can] contain a healthy helping of wisdom”. Yes, we need new thinking when conventional wisdom is “outdated and inflexible”. But we shouldn’t do away with tradition until we have a good reason for doing so.

Learning organisation

With that said, organisations must know when to abandon or adapt their traditions. For example, to attract “the best minds”, the “DOD modified its rules on policies like hairstyles, tattoos, and religiously prescribed dress”. “The same need to broaden our talent base moved [Carter] to lift the DOD’s ban on transgender service members… [and] open all positions in the military to women”. To find the best people, we have to draw from the “entire pool of talent — not just a portion of it”.

Carter believes that leaders should show greater “respect for history, and it uses”. Carter himself majored in physics and medieval history. After all, history is an important repository of problems and problem-solving approaches. And “thinking historically”, Carter says, is a valuable “tool for analysis, interpretation, communication, and persuasion”.

Finally, if you’re an aspiring leader of tomorrow, you best be nurturing your ideas, philosophy, and style today. When you’re finally in the pilot’s seat, you won’t have time to learn to fly.

“Henry Kissinger once remarked that all the ideas he used in government were ideas he’d brought with him – because while he was in office, he was too busy to generate any new ones… It takes time, energy, and discipline to stay current on new thinking in any field, much less to create fresh concepts… But those who occupy important leadership roles in government have little time to do either of these things. So, bringing in new faces – with a stock of new ideas – every four or eight years is not a bad thing, even if it produces some awkward disruptions in the process”.

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon

References

Carter, Ash. (2019). Inside the Five-Sided Box: Lessons from a Lifetime of Leadership in the Pentagon. More articles and research from Carter at < https://www.belfercenter.org/person/ash-carter/publication >

Further reading