Original audio cassette(s), signed legal release forms, and edited interview transcripts are on file in the Defense Acquisition History Oral History Collection, U.S. Army Center of Military History, Fort Leslie J. McNair, Washington, D.C.

Dr. Jacques S. Gansler

UNITED STATES ARMY
CENTER OF MILITARY HISTORY
DEFENSE ACQUISITION HISTORY PROJECT

INTERVIEW OF
DR. JACQUES S. GANSLER
CONDUCTED BY
DR. ANDREW J. BUTRICA
AT
THE UNIVERSITY OF MARYLAND
COLLEGE PARK
SEPTEMBER 12, 2002

Interviewee: Dr. Jacques S. Gansler
Interviewer: Dr. Andrew J. Butrica
Date: September 12, 2002
Location: University of Maryland, College Park

BUTRICA: I want to begin by asking you what you think were the problems in the acquisition of major weapon systems when the Reagan administration came in. You talked a lot about that in your book, The Defense Industry (MIT Press, 1980).

GANSLER: Let me start, actually, in the 1970s, because I think that leads me into the situation we had in the 1980s. Very clearly we had a post-Vietnam period during which people were expecting a peace dividend, and the defense procurement budget dropped rather precipitously. I think $100 billion or so were lost annually, along with very big cutbacks in manpower. It was also very clearly the beginning of the next generation of technology. One thing with which I am most familiar, because I started it, was the Global Positioning System, which then resulted, of course, in our ability to know precisely where we were and where smart weapons were on a world-wide basis.

So, we had this combination of dramatic drop in manpower, dramatic drop in the budget, and a rapid change in new technology, which caused us, I think, to emphasize technological superiority as our strategic posture. I think that was explicitly stated in a lot of documents in that time period.

So, before entering the1980s, in fact, there was a transition which began, I guess, around 1976, when [Secretary of Defense Donald] Rumsfeld came in. [Secretary of Defense James R.] Schlesinger had argued for a 25 percent increase in the defense budget. It was rejected by the president, then Rumsfeld came in, and we got a 25 percent increase almost right after that. We started a build-up which, of course, then led to the Reagan build-up in the 1980s.

So, here we have a focus on technological superiority, a large amount of money being almost pushed into defense. At that time in the early 1980s I think we were in a situation where money was being thrown at people. If you could spend it, you could spend it without nearly the sensitivity to economics or cost controls that one should have, even in a period in which you needed to spend money in order to remodernize the forces. We began to realize that, in order to take advantage of technological superiority, you needed to have some structural changes, as well as organizational changes, in terms of jointness and in terms of the fighting forces having more control over what's bought relative to what the services (as suppliers) intended to buy.

As I recall in the early 1980s, probably later, about 1984, if I remember, it was that time period anyhow, the Center for Strategic and International Studies (CSIS) initiated a study (in which I took part) that tried to emphasize more the role of the CINCs [commanders in chief of the unified and specified commands] and the role of jointness. The reason for this, partly and significantly, I think, was to recognize and to take advantage of what is called the Revolution in Military Affairs. This is the basic reconnaissance/strike capability that [Dr. William J.] Bill Perry referred to in his book, I think, towards the end of the 1980s. [New Thinking and American Defense Technology (Carnegie Commission on Science, Technology, and Government, 1990)] You needed to be able to technologically integrate the sensors that were in one service with the shooters that were in another service. You also needed to recognize that space, which then became sort of an air force domain, was really for the army and navy, too. It allowed them to know where they were in the world, and it provided them with intelligence data on who was on the other side of the hill, and so forth. So, you had this demand for jointness. During the build-up, that led to more thinking about, but also resistance from the services toward, any move towards jointness or towards the CINCs having a bigger role.

I think partly the drive came from the large increase in dollars without, necessarily, the appropriate controls being in place. In fact, there was a move at that time, as I remember, to even downgrade the analysis functions in the Office of the Secretary of Defense and to give all the authority to the services to pick what they wanted for the weapon systems which, naturally, were not going to be the ones that would be related to jointness. So, you had sort of the rich man's world going on, with each of the services picking what weapons they wanted without as much control over cost as you should have had, and without the structural changes taking place that would match the technological evolution that was taking place.

And then we had “Ill Wind,” and we had the spare parts scandal. As a result of those, something had to be done. I think it's fair to say that [Secretary of Defense Caspar] Cap Weinberger didn't want something to be done, and I am not even sure that Reagan did, but Congress was going to insist that something be done to address it. Almost to placate that, Reagan established the Packard Commission in 1985. I took part in that, and that's why I am very familiar with it. That started off looking exclusively at acquisition, which is what it was supposed to do. As I recall the panel was called the Blue Ribbon Commission on Defense Management. The idea was to look at not just technology acquisition, but also how it could be used better.

That led to two recommendations that were quite important. One of them was the establishment of the undersecretary for acquisition and technology. (Later, when I had that job in the 1990s, we added logistics as part of the title.) The idea was to create a czar over acquisition, someone who in fact had authority at the highest level, and who reported on acquisition matters directly to the secretary of defense, in order to try to get “control” over this acquisition process, which, from the public's perception, had gotten way out of hand, because of the “Ill Wind” and spare parts scandal. In fact, the process was more out of hand because of the waste in terms of what we were buying and whether we were taking advantage of technology, than it was as a result of illegal actions. In fact, the illegal actions were relatively small.

BUTRICA: Was there a legal requirement that the acquisition czar have a background in business? The 1981 discussions about who should be the defense acquisition executive, as the position was called then, focused on just technical knowledge without any regard to business experience.

GANSLER: We had great debates in the Packard Commission about what kind of background the individual should have. In reality it reminded me of a debate that took place around 1962. Congress wanted to establish scientific advisers to the Congress. Congress said, “We need one biologist, one chemist, and one physicist.” I remember very distinctly getting into big arguments about the fact that the decisions they were going to be making at that time were on things like Nike Zeus and Apollo, multibillion dollar programs, while a biologist is used to grants of $100,000 and has absolutely no idea of management principles or anything like that. I remember the Packard Commission bringing up these examples--and others felt the same way--that the person you want for that job is someone who understands technology, has a technology background, and has a management background.

The ideal candidates were people like [Dr. Richard D.] Dick DeLauer and [Dr. William] Bill Perry and [Secretary of Defense] Harold Brown, people who had a technology background, but who also had some management experience and who understood how to manage technology rather than understand just the technology itself. The problem wasn't how electrons flow, but how to run a ten billion dollar program.

BUTRICA: Right.

GANSLER: The second issue was whether the law should say that they have to come from the “defense industry” or from “industry.” Dave Packard interestingly felt he should come from commercial industry rather than a defense firm, and obviously he would be a qualified candidate for the job, and therefore we shouldn't limit it to just defense. I think that was a mistake in some ways. The intent should have been to have someone with a defense background, because there is such a gross difference between the two, unfortunately. So, some people who later filled that job had no defense background whatsoever, and it took them quite a bit of time to even understand how defense works.

The other side of the argument that took place during the Packard Commission deliberations, and one of the most important things that came out of it, was the emphasis on commercial technology. This was a time period in which the commercial world was moving rapidly, actually ahead of the defense world in areas like information technology. Even though Defense had started the Internet, and Defense had started communication satellites, etcetera, etcetera, we showed data to the Packard Commission that showed that the chips hard-mounted on the engine block of a car were actually one or two orders of magnitude ahead of military technology, could meet every military specification, could exceed it by ten degrees in temperature, and could meet the reliability requirements, because these were safety devices in many cases. Also, you had a smooth production line, and amazingly the cost was less than what Defense was paying.

So, here you have higher performance at lower cost. Why wouldn't you want to buy commercial technology? Well, the rules didn't allow it, and the practices didn't allow it. People testifying before the Packard Commission said that you must use military specifications. We said, “No, you should use commercial specifications when they meet the requirements that the military has.” That was one of the main things that Bill Perry picked up in the Packard Commission. When he became deputy secretary, then secretary of defense, he immediately said, “We are going to switch to commercial specifications instead of military specifications.”

Previously the rule had been that you had to have a two-level-higher approval in order to use a commercial specification or a commercial component. We said, “No, the rule should be the other way.” You should have to get approval to use a unique military part or even meet military specifications. So, that was one of the main things that came out of the Packard Commission.

Besides the establishment of an acquisition czar, the other thing that came out of the Packard Commission--and which was critically important--was the establishment of the position of the vice chairman of the Joint Chiefs of Staff. He would head up the requirements process for the DoD, and we would establish something called the Joint Requirements Oversight Council, the JROC, which would be headed by the vice chairman, and the vice chairman would actually outrank the service chiefs, and could have authority, and would be the representative of the CINCs. This goes back to my earlier discussion about trying to emphasize the war-fighting use of technology, rather than just the services taking full advantage of it.

Our intent there was to have the JROC vice chairman reviewing requirements on all programs. The way the services interpreted it was that they would review requirements only on joint programs. For the first couple of years it was defined that there are no joint programs, and, therefore, they had nothing to do. So, it was necessary to change that, so that they were reviewing requirements for all programs, and trying to emphasize making programs joint wherever possible. Because acquisition is driven by requirements, that was a very important action.

BUTRICA: In 1981, one of the reforms of the Planning, Programming, Budgeting System (PPBS) that Deputy Secretary Frank Carlucci instituted was to bring the CINCs into the PPBS process.

GANSLER: Right.

BUTRICA: That simply involved inviting them in twice a year. I am going to trace specific recommendations that they made to see if anything ever happened to them. I suspect nothing did.

GANSLER: The way I would trace that is from them to the chairman [of the Joint Chiefs of Staff] to the actual budget impact. The chairman's report included the CINCs' inputs. It came out each year for the budget cycle. You shouldn't ignore the chairman and the CINCs' inputs.

What I think the Packard Commission was trying to do was to have the chairman and the vice chairman, along with OSD [Office of Secretary of Defense], be the counterbalances to the services who put their budgets together. Historically, the services dominated the budget process. The idea was to try to have the CINCs, who were the war-fighters, say this is really what I need. The problem was that the CINCs tended to emphasize near-term problems. In other words, if the treads were falling off the tank, that would be what they would talk about, rather than whether we needed tanks or whether to have a next generation tank. Their inputs, therefore, tended to be very short-term oriented, relatively small things that either could be implemented or were low priorities to the services and, therefore, didn't have much of a big impact.

It was really later that they started to have an impact. During the nineties they not only would send in their memos, but the JROC would go out and visit each of the CINCs to get their inputs. I know that when I was in the administration, we actually had them come in twice a year for a meeting in which each CINC would tell us, OSD and the Secretary of Defense, what their specific needs were. I remember one meeting in which they almost unanimously all said we need anti-missile capability for tactical theater force protection. The services weren't stressing that enough, so we made a conscious effort to increase theater missile defense capabilities and accelerate those programs.

One of the problems is that the Defense Department is a very large institution with a lot of inertia, and it takes a long period of time to see the impact of some of the changes that are required.

BUTRICA: Didn’t decentralization, giving the services more power, undercut jointness and the power of the CINCs?

GANSLER: Yes. That's exactly the point I made earlier. That's why they even, as I recall at that time, downgraded the job of what had been the assistant secretary for program and analysis. That was done so they would have less authority, so OSD would have less of an impact on the budget process, and so the services would be able to select which programs and which budgets they actually wanted during that time period.

That clearly is a downgrading of the role not only of the CINCs, but of the chairman and the joint staff. Up until the late 1980s, the time of the Packard Commission and the Goldwater-Nichols Bill, which put into law the Packard Commission recommendations, the joint staff was not the leaders. If you were sent there it's almost punishment; and you were only there to defend your service. You weren't there to come up with what was the best joint way of fighting wars.

I remember when Dave Packard, Bill Perry, and I gave testimony on the Goldwater-Nichols Bill. The thing I remember the most was that it was the only time that I ever testified, when every single committee member--from both the House and the Senate--for the two hearings we had showed up. It never happened for me, at least, in all the times I have testified before Congress. It showed, I think, the importance of the Goldwater-Nichols Bill.

BUTRICA: Right.

GANSLER: Goldwater-Nichols said that in order to get promoted, you had to have a joint assignment. It totally flipped the priorities for the really smart, fast-burners in the services. They now had to serve in the joint staff, and they recognized these are the smarter people. They recognized that the real role of being there was to do something positive, not something negative.

I think it really did have a transforming effect which we are seeing today, probably only for the first time, the real impact of joint war-fighting and the benefits that can come from it, in Afghanistan. And we are now seeing technology that takes full advantage of that, so that you have an airplane tracking a mobile target and sending that data to an army-launched missile for real-time, in-flight retargeting. That's full jointness.

BUTRICA: That is a technological miracle compared to where things were, say, ten years ago.

GANSLER: But we could have done it ten years ago. That's the point I am making. It wasn't the technology that was limiting us. It was the organization, the tactics, the strategy, and primarily the culture. When we had AWACS years ago, the AWACS didn't have a link to a Patriot missile on the ground. It wasn't that we couldn't build a link. Technologically, we could easily build a link. Culturally, we couldn't build a link. Eventually, of course, we did. Those were the sort of cultural barriers to taking advantage of technology and the changes that were clearly possible.

BUTRICA: Bill Delaney at Lincoln Laboratory explained to me the problems of the integrated battlefield. It's amazing. The technology is there. It really is a matter of the politics of the services and jointness, as you say.

GANSLER: Exactly. The other place where you see it is in the budgets, because these programs, which could take advantage of joint war-fighting, didn't get funded. Command, control, and communication systems were always underfunded. Transportation systems were always underfunded. These are areas in which one service is supporting another, in effect. So, what would end up having to happen is that the Office of the Secretary of Defense had to insist upon those items being budgeted.

That's why your decentralization point is so important. You need a strong Office of Secretary of Defense to force those joint-related areas that are in the cracks, if you will. The air force has been given transportation, but it's a low priority relative to fighter planes. It's not that they don't want to do it. It's just that they can't afford it in the budget. So, the Office of Secretary of Defense has to say, “You have to buy some transports.” By strengthening the role of the chairman and the joint staff, the Goldwater-Nichols Bill struck a balance between the Secretary's Office, which really includes the Office of Secretary of Defense and the joint staff, and the desires of the individual services. It's not that the services sometimes didn't make the right choices. It's just that their priorities were different.

BUTRICA: It seems to me that, in looking at the Grace Commission and other Reagan White House commissions and committees, when people from business came in to look at the Defense Department, they were appalled.

GANSLER: I would say shocked. They really didn't understand how Defense worked.

BUTRICA: Exactly. A lot of them thought that the Defense Department should be reorganized along the lines of a corporation. They would have dissolved the services and, essentially like a corporation, they would have replaced them with a geographical organization. Instead of the vice president for North American Affairs, they would have the commander in chief for North America.

GANSLER: Right.

BUTRICA: Those ideas seem totally ridiculous in the face of reality.

GANSLER: And history. I mean 200 years of history, including the Constitution, which was set up to have checks and balances, unlike industry.

BUTRICA: Right.

GANSLER: Yes, you are right. They were impractical, and in some cases made ridiculous recommendations. In other cases, there were logical and valid recommendations that were so counter-cultural that they couldn't be implemented. I don't think that the Grace Commission had much of an impact. On the other hand, it did say that there was lots of room for improvement. I think everybody knew that. It certainly got the press's attention. It was great headline material.

BUTRICA: Yes.

GANSLER: You know, they said: “Look at how many hundreds of millions of dollars you can save, if you just totally eliminate the services.”

BUTRICA: Weinberger and company countered the Grace Commission. The main brunt of their attack was on the amount that you could save. Of course, the accounting was all based on how you estimated, so it's an easy target to go after. The Defense Department was supposed to write a report saying how they were going to address everything.

GANSLER: Right.

BUTRICA: They came up with a draft response which showed, point by point, how the amount of savings was wrong, without, of course, looking at their own savings estimations.

GANSLER: Yes. I think there wasn't as conscious an effort to actually make the improvements that were required as contrasted to answering the mail.

BUTRICA: Yes.

GANSLER: They had to respond to the Grace Commission. It was set up by the President. It did have a lot of high-level industry executives on it. They spent a lot of time, I remember. I appeared before them and tried to explain to them how Defense worked. It was interesting. I remember one of the analogies was something like a rug sale, and I was trying to draw the analogy to buying missiles, and it just didn't work. I think it failed partly because people didn't want it, and partly because it was hard for the Defense Department to identify with it. They were not able to say, “Oh, yeah, that really makes a lot of sense, let's do that.” It's much easier to make a change that is hard but incremental, as opposed to most of those recommendations, which were almost revolutionary: Totally stop what you have been doing for the last 200 years and start something new.

And as you suggest, let's first start off by limiting the services. Then let's start off by reorganizing into a culture that is totally autocratic, which is basically the way industry works. You have a CEO executive, and nobody else can tell him what to do. Well, the Defense Department doesn't work that way. We have 535 members of our board of directors, and everyone has their own opinion, and you can't ignore their opinion, and you can't ignore the press, and you can't ignore the public. Industry has its views. In fact, industry was not very enthusiastic about even the recommendation of buying commercial stuff, because the industry was the defense industry, which had set up large barriers to entry and, therefore, didn't enthusiastically receive even the recommendation to buy commercial components.

BUTRICA: Exactly.

GANSLER: So, there were all the cultural barriers from the unions, who were representing the workers in the defense plants; the Congress, which was representing the defense firms in their district; and the military, who were going to be impacted in each service by more jointness and more CINC role. So, there was huge resistance across the culture. If someone says, “Change all that. Let's start over and have a new system,” you get them all up in arms, and it doesn't have an impact.

END OF SIDE A, TAPE 1

GANSLER: That's one of the main reasons why I think the Packard Commission, and subsequently the Goldwater-Nichols Bill, had an impact. I think the reason is that the people taking part in it were former military, former Office of Secretary of Defense, former defense industry people who had defense backgrounds and who could be credible in the way they wrote the sentences and in the recommendations they were making. They could still be rejected by the administration and even by the services who will be fighting it. But they were much more credible. And the committees they appeared before--the armed services committees of both the House and Senate--were people who had defense background and experience and were willing to support it and to implement the Goldwater-Nichols Bill.

Because [Sen.] Barry Goldwater is not considered to be an ultra liberal, the bill had more credibility as contrasted to the Grace Commission, which I think didn't have that kind of credibility within the institution, even though some pretty radical recommendations came out of the Goldwater-Nichols Bill, in terms of military career planning, in terms of requirements having a joint perspective, and in terms of acquisition authority being more centralized in the Office of Secretary of Defense.

BUTRICA: The Military Reform Caucus, of which Goldwater was a member, consisted of both Republicans and Democrats, conservatives and liberals, representatives and senators. What was the extent of their role in acquisition reform?

GANSLER: This may sound cynical, but I have the feeling that they represented an Option C, where Option A was don't do anything, and Option C was take totally their recommendations, and Option B was sort of the Packard Commission recommendations. They wanted to go much further. In some cases, people such as [Franklin C.] Chuck Spinney and others who were more radical in their thinking, and who were quite vocal as part of the reform group at the time, were listened to by some of the congressional people who were quite outspoken, such as Gary Hart. I think because you now had this more extreme position being presented at the same time as you had relatively significant changes coming out of the Packard Commission and the Goldwater-Nichols Bill, or the option of doing nothing, which was kind of the position that the services and the secretary of defense and deputy secretary were taking, you end up with more willingness to accept Option B. There was a lot of momentum behind Option C, and therefore Option B was a compromise in a certain sense to accept what actually I think was a very significant set of changes.

BUTRICA: In 1981, Weinberger and Carlucci came up with a whole series of reforms that included the Defense Acquisition Improvement Program, a restructuring of the PPBS, the creation of what soon became the Office of Inspector General, and a hazy set of changes labeled efficiencies and economies whose goal was to save a little bit here and there. The notional rationale for the efficiencies and economies was that, if you implemented better management practices, economies inevitably would materialize. A lot of internal writings indicate frustration, because people were bringing about economies by just cutting or reducing programs, not by instituting better management practices. I'd like to get a response from you on that.

GANSLER: It's the same point in a certain sense I was making earlier, when we talked about waste, fraud, and abuse. People can understand a file cabinet having some empty space in it. People can understand paying too much for a hammer or a coffee pot. They assume that this is rampant throughout the organization, and that the way to fix the waste, fraud, and abuse in the Department of Defense is to tighten up on the cost of the hammer or the coffee pot or the file cabinet.

The reality is that that's a very, very small percentage of the total dollars. In fact, I actually did an analysis at one point of the number of dollars and the number of programs for which actual fraudulent actions were taken. It was one in 10,000 dollars or programs. Either way, it amounted to .01%, a trivial amount. On the other hand, there is enormous waste in building the wrong program and spending $10 billion on it, or, as they say, gold-plating it, because you put a requirement that it has to have a capability of ten Gs of acceleration instead of settling maybe for eight. The difference between those two may be $100 million per airplane more. It also would be sort of like buying tanks because we have always had tanks, instead of looking at some alternative to a tank that is much cheaper and better.

But that's an example of waste. It's not an example of an illegal action. So it’s a question of addressing a management issue. Obviously, you don't want to spend $500 on a hammer, so you do need to address that. Having addressed that will not fix the question of whether you bought the right weapon system. Buying the right weapon system is where you spend 99 percent of the dollars. It's not on buying the hammers. And it isn't necessarily clear at all that the same people who buy the hammers buy the tanks or buy the airplane. In fact they don't.

There are a large number of people buying small dollar item things, and there are a small number of people involved in these major weapon decisions where the really big dollars all go. While you do want to correct both, the solution to both is considerably different. For example, the logical solution to buying hammers is to go to the hardware store. I can't buy a precision-guided weapon at the hardware store, I hope. I have to develop it. So, the solution in one case, commercial practices and commercial specifications for hammers and toilet seats and coffee pots and file cabinets, is different than the development of a major weapon system. The process for that--the procurement, the acquisition, the requirements, the budgeting--are all different.

Here you have questions of public trust, the dollars that are being spent, the decisions that you are going to make, and the jointness, and questions of the services, of the politics, of industrial structure, and a lot of other things that have to come into it. These are major high-level decisions, but they often are wasteful. I think the argument that says that if I can fix the $500 hammers, I therefore am taking care of why a B-2 has to cost so much, is not as clear to me.

BUTRICA: The Military Reform Caucus went through a lot of evolution very quickly from its founding. It originally was interested in maneuver strategy, in educating people, and in developing smaller, lighter weight alternatives to big, heavy, high-tech tanks.

GANSLER: Yes. They want to bring back the aircraft from World War II. I remember that.

BUTRICA: Next they went after specific weapon systems, such as the Bradley tank. Then an issue came to them from outside their group, the spare parts business. They thus went after spare parts and major weapon systems simultaneously. To what extent did congressional reform stem from the reform caucus versus the representatives and senators on the armed services committees? If you look at the defense appropriations bill every year, amendment after amendment altered the acquisition process. What is your thinking on that?

GANSLER: As I recall, reform activity had a significant impact by continuously raising the question: Are we picking the right weapon systems? It was most successful in the army anti-aircraft system. It also was successful in addressing the so-called waste, fraud, and abuse issue, because they were able to elevate the visibility of the need for acquisition reform.

By presenting an extreme attack, it forced much more recognition of the need for change. I have the recollection that there was a considerable overlap between the members of the reform group and the armed services committee, so that it wasn't a case of either/or. That a number of them were actually on the armed services committees gave them some credibility and allowed them to have some impact, I think. There they are, right in the committee hearings on the armed services side arguing for these changes.

Again, going back to my statement a few minutes ago, there are somewhat different problems here--whether you pick the right weapon and how you view war-fighting versus the need for worrying about the price of a toilet seat and a hammer. They were simultaneously addressing both of these problems by the end of their impact. I don't think they had the right direction in some areas, I would say it that way. In a certain sense they were anti-technology. That's why I said they were trying to bring back the war planes of World War II, because they said they were more reliable. There were more of them because they were cheaper, and so therefore they must have been the right answer.

There is an answer that says you can get low cost, high performance systems. That's what the commercial world was showing in the 1980s. A dramatic shift was taking place in automobile production and semiconductor production. The commercial world was demonstrating, even in computers and TVs and things like that, that you can get improved performance at lower cost. Defense was getting improved performance at higher cost.
The reform group was arguing (I took part in some of the meetings) that you can get lower cost. I completely agree with them (on an historic basis) to the extent that their solution was lower performance in order to have lower cost. History had shown that the way Defense worked is that in order to get high performance, you had to pay more, and if you wanted to pay less, you got lower performance.

The commercial world was showing something very different, which was that the old paradigm had been broken, that you didn't have to pay more to get higher performance. You just had to figure out some smart ways to get higher performance at lower cost, and that higher performance at lower cost could be very reliable. Let me give you the example of the semiconductor chips. The commercial ones were orders of magnitude more reliable, yet orders of magnitude lower cost, and two orders of performance improvement. They were changing every 18 months, while Defense was changing its systems every 20 years. So, the technology was moving rapidly ahead, and Defense wasn't taking advantage of it.

BUTRICA: Perhaps there is some inherent reason why a government department or agency can't achieve that goal. Howard McCurdy recently published a book about “faster, better, cheaper at NASA. [McCurdy, Faster, Better, Cheaper: Low-cost Innovation in the U.S. Space Program (Johns Hopkins University Press, 2001)] He concluded that you can have two of them, but not all three. You can have faster and better, meaning you can have performance and reliability, and you can do things on deadline, but you will have to spend more money.

GANSLER: That's true, but it's the wrong money that he is talking about. You have to spend more per month in order to get it faster. When you are done, the system that you developed can be lower cost. David Packard gave me an example one time that I will never forget. He said that if he designs a piece of test equipment for some improved performance test equipment, it will come out costing more. So, he makes them go back two more times. Okay, now I know you can get the performance, now I want it at lower cost. So, he has to go through two more designs to get that. That cost more, because you have done it three times instead of once. But when you are done, you have designed a lower cost piece of test equipment that you can build in volume, and the amount that you will save is enormous.

BUTRICA: Economies of scale.

GANSLER: No; because of the reduced production cost versus the increased development cost. I am willing to pay a little more in the development phase, to save in the production phase, which is what usually matters for any volume item. Take guided missiles. If we spend less in the development of the guided missile, we will probably come out with an expensive system that will be high performance. Then we buy a million of them. I want to spend more money in the development cycle and do it fast, because I am doing it under an intense dollars per month basis. I want to get it so that it has low cost and high performance. Then I buy millions of them. Think of how much I save even though I spent a little more up front.

It's the same argument that you would use for why you have two people try to develop it rather than just one. Congress is always saying that's wasteful. Why do you need two? Why don't you just manage one well? The whole idea is that market forces will force these two to be innovative, to come up with a lower cost version, which I can then put into high-volume production. I'll spend twice as much for the development, if you have two of them doing it, but I get huge savings from the production cost. That's the concept behind trying to have competitive prototypes and things that we are doing like on the Joint Strike Fighter today or we did then on the F-16.

BUTRICA: I would like you to expand on a remark you made earlier. In 1981, the Defense Department introduced a range of reforms. To an observer, it might seem that Casper Weinberger and Frank Carlucci were resisting fundamental change, and that it fell to Congress to take up the task of reform. What do you think about that?

GANSLER: First, I genuinely think that Weinberger and Carlucci were trying to make reforms. I don't think it was as cynical as you describe it. It's not that they weren't trying. My impression was that you had two things happening at that time. One was: you were giving a lot of money to the services. Secondly, you were saying to them: use it wisely, and here are 32 initiatives that you ought to try to do. So, the question is: which did they focus on?

My perception is that they really focused on how to spend that money. You got to get rid of it in a sense. What to buy? Are you going to buy more airplanes, going to buy more missiles, going to buy more tanks? The focus was on recapitalizing the force, to use the terminology of that time. It was badly needed, because, as I said, you had this huge post-Vietnam decline, and procurement had essentially stopped. It was very similar to what happened in the nineties with the huge decline after the fall of the Berlin Wall. Those were the two big periods in the post-World War II period in which you had this huge decline of defense spending.

You end up with weapons that are twenty or thirty years old. I don't know how old your car is, but I would be willing to bet you, you would find it hard to get parts for a 1967 year old truck. That's army planning. That was the kind of problem they were running into at this time after a decade of not buying stuff. That was the reason for the Reagan build-up. It was really to recapitalize. We also were looking at the Russians. When we would decline, they didn't. Since they continued, and we declined, the gap was getting bigger in terms of expenditures, in terms of equipment, and in terms of state of the art. We had the technology. They were deploying it. That was the difference.

So, the Reagan build-up was absolutely necessary, and it wasn't that they were spending the money just because the money was there. They needed to buy stuff. But in terms of focus, if you need to buy things very badly, and simultaneously somebody else is telling you, “By the way, be very careful of how you do that, spend your money wisely, and change your processes,” I would think that just got less attention. I don't think it was ill intended. I don't think that there was cynicism associated with it. I think they had practices that they had been using, and they just continued using. Those practices weren't necessarily the most efficient or the most effective.

BUTRICA: The Carlucci Initiatives appeared to be most effective and successful in those areas where the Office of Secretary of Defense had the greatest control. For example, they succeeded in streamlining the acquisition process. In terms of certain other initiatives, they admitted their own failings. For instance, some initiatives, such as multiyear procurement, required congressional approval, and their successes were more limited.

GANSLER: Right.

BUTRICA: But they did have some success. It seems that one could argue that, after they instituted these several reforms, they felt that they didn't need to introduce any additional reforms. The first phase of the revolution was completed, but they were not going to enter the second phase.

GANSLER: I wouldn't have said it quite that way. I think it was much more of a priority. We needed to recapitalize, and we were going to focus on that. Congress helped in some ways, but Congress really didn't help in other ways.

BUTRICA: In what ways did they not help?

GANSLER: Well, one that occurs to me is the spare parts scandal. The solution that they came up with was to add 5,000 auditors. The amount of savings that these 5,000 auditors could achieve was relatively trivial compared to the cost of the labor of those 5,000 people and compared to their overall impact. It also forced even greater separation between military and commercial activity.

If you are going to have specialized cost accounting in the factory, you can't put the commercial and military in the same factory. Going back to semiconductors, I remember visiting one semiconductor plant that was doing very low-volume military-specific parts. I said to them, “You have state-of-the-art stuff. Why don't you also do commercial?” They said because the cost accounting system of the auditing process is so very different. In the Defense case, you have to account for every dollar. In the commercial case, you want to reduce the number of dollars. They are very different. In order to reduce the number of dollars, you do things like allocating costs across your production line. In the case of Defense, you have to keep track of the cost of each part. They are very different. So, you can't integrate the plant because of the cost accounting differences, which were the things that the auditors were auditing. Now we got 5,000 more of them, so we can put one in every plant and make sure that they are different. That was not a positive contribution.

On the other hand, we did have to figure out a way to address what I think were apparent cost abuses. In some cases, illegal action certainly had to be corrected. But the question one always asks is whether the added legislation and regulation that applies to .01% of the cases, and that now gets applied to 100% of the cases, increases or decreases the cost. I think it actually increases the cost dramatically.

END OF SIDE B, TAPE 1

GANSLER: The issue here is whether increased regulation helps or hurts. Of course, the regulation comes from the Congress. Therefore, one has to ask the question whether Congress--by its “microregulation”--is actually forcing a separation between the defense and the commercial industrial sectors, which I think is causing huge cost increases. We have demonstrated that with example cases.

In fact, I am sure it was in the late 1980s when we actually took some defense unique parts and built them in a commercial plant. We put them on a flexible manufacturing line and showed that you could save like fifty percent of the cost, because you get overhead absorption from the high-volume commercial stuff that makes a huge cost reduction, and you still get high quality defense-unique items off of a commercial line. But you have to waive cost accounting standards and a bunch of other specialized government requirements that require congressional approval.

BUTRICA: The emphasis throughout the 1950s, 1960s, and 1970s seems to have been on transferring the advanced technology developed by the Defense Department to the commercial sector. In the 1980s, the tables seem turned. People want to know how they can put into the hands of the Defense Department the advanced technology developed by the commercial sector.

GANSLER: That's empirically valid because in the 1950s, 1960s, and 1970s, Defense was ahead. DARPA didn't develop the Internet for commercial application. It was developed because Defense needed the system. DoD didn't exactly pay for the acceleration of the semiconductor industry. It was invented in the commercial labs, but it was actually accelerated and applied first by Defense, then by the commercial world. You have to put up a satellite. It has to be a small lightweight system, so we will use semiconductors. There are defense-unique requirements for communication satellites or reconnaissance satellites.

By the time we came to the 1980s, there was an explosion in the commercial world particularly of information technology. Because of that, there was money flowing in the commercial world, there was research and development being done, there was a drive to be first to market with advanced technology, with high reliability parts. They were getting widely applied. One example is the chip in every car that I mentioned earlier. The volume was huge. As a result, Defense stepped back, or at least those people who wanted to stepped back, and said, “Why don't we take full advantage of this?” Bill Perry was one of the people who led that charge.

I remember one guy who came down from the Defense specifications organization in New York. He was going to give the Packard Commission a briefing on military specifications. The first chart said you need military specifications. After that, the rest of the charts simply explained why you need military specifications. But his assumption was that you need military-unique parts, because that's his job. And we have always done it. They worked. They are fully tested. We have to get the best for our boys, but not recognizing that, in fact, they weren't getting the best for their boys. They were not taking advantage of this commercial technology which had actually moved ahead. As a result, Defense was being held back by using 20-year old technology in their systems instead of 18-month old technology.

BUTRICA: Competition originally was not part of the Defense Acquisition Improvement Program, although both one of the study teams and industry input had recommended increasing competition. Paul Berenson believes that Weinberger and Carlucci were not really interested in increasing competition. To what extent do you think they were reluctant to introduce competition, and how important is competition in reducing costs and improving the acquisition process?

GANSLER: As I have written a number of times, I obviously think it's very important, particularly in the design phase. A lot of empirical data and a lot of example cases support this. The historic model was that people would submit proposals, essentially design proposals, and one of those would be selected to develop and produce the weapon system. Usually during the development phase, the cost would almost double. Then in production, they would continue to grow.

But you have a sole source, basically a monopoly supplier, from the time that the program starts through the design. Since you know you are going to buy, let's say, 300 airplanes, the company is assured of selling 300 airplanes. They may not sell them all the first year. If it costs more, the government would buy only half of them. But they will buy them. So, the quantity is fixed. Now it's an incentive to the corporation, almost, to make it a higher cost item. That is reinforced by the military. If you show the military the potential for some higher performance, they will say that they would much rather have that, even if it costs more.

There is no reduction in the quantity as a result of the increased cost. Normal market behavior, price elasticity, isn't being applied here. A monopoly supplier has very little incentive to lower their cost. In fact, the data show that when competition has been used to lower production cost--competition in development to lower production cost--it has a very significant impact on the cost of the system when it's in production.

There is also a lot of data, for example, in the jet engine example of the so-called “great engine war,” in which competition was introduced when the sole supplier started to behave improperly. In this case, it was actually the low reliability of the engine that caused competition to be introduced. As a result, reliability went up dramatically, and, by the way, cost went down dramatically, too.

Markets work. That's the theory of this, and that's why it's better than monopolies, which is what Russia would use, or socialism was using, and what Defense was using. We were one of the few places in the world that was not moving toward competition in programs.

And so to me, you introduce competition first to improve performance, and by the way costs go down. You don't do it for low cost. That's the danger. One of the things Congress doesn't quite understand is why you don't always award to the low cost bidder. You don't award to the low cost bidder, because he may be bidding junk. What you care about is best value competition, which is performance and cost. The same way you and I buy. Do you drive a Yugo?

BUTRICA: No, I don't.

GANSLER: Why not? The obvious answer is that it satisfies minimum acceptable performance at lowest cost. That's what traditional Defense procurements used to be: minimum acceptable performance at lowest cost. People would argue that's the way you ought to do buying. But it isn't the way you and I buy. We make trade-offs between performance and cost. We do it when we buy food, when we buy cars, when we buy television sets. We don't just go for the low-cost bidder with minimum acceptable performance. Why would anybody settle for minimum acceptable performance?

This concept of best value buying is a very key element of competition. It is one in which there has been some significant misunderstandings of it by the Congress in the legislation that it writes relative to competition. It should not be that the low bidder wins. It should be that the best value wins. Then you really do get improved performance at lower cost. Otherwise, you just get cheap junk.

BUTRICA: That's correct. You mentioned the Soviet Union. You’ve written about how the Soviet Union acquired major weapon systems. They had competition in the research and development phase, then a separate set of organizations competed to do the production. Isn't something lost by separating research and development from production?

GANSLER: Absolutely. In fact, that's one of the big weaknesses of the Soviet system. They really had three steps: they had the research, and then they had the development, and then they had the production. Those were all separated. So, you ended up with an incredibly long cycle time and an extremely hard transition from research into production. You want a linkage between the two especially today, when you really want to design for producibility. When you want a short cycle time, you almost have to have the people who are doing the design very integrated with the people who are doing production. So, you want that integration, and the Soviet system basically forced that to be separate.

It would be like asking a university professor to design a production system. It just doesn't work. They will make it work the first time, and that's all. They will build one that will work. They don't care about the cost. They don't care about producibility. They don't care about reliability. They don't care about supportability.

Increasingly, what we are worrying about now is designing so that it's not only producible but supportable. That's become an increasing part of the commercial world. You almost plug in replacement parts, and you don't even have to screw in them. Well, the professor would not have designed it that way. And that's what you don't want.

BUTRICA: Yes. Two Defense Science Board studies of the defense industry [1979 Summer Study on Reducing Unit Cost of Equipment (March 1980) and 1980 Summer Study Panel on Industrial Responsiveness (January 1981)] found certain key sectors lacking, including electronics. A number of programs attempted to address a range of technology-related industrial problems, including MANTECH (manufacturing technology) and TECHMOD (technology modernization). Do you want to comment on why those sectors were in trouble when, for example, the electronics industry was really taking off?

GANSLER: The electronics industry was taking off because in the commercial world producibility and low cost matter. Historically, in the defense world, that hadn't been the case. In fact, I actually initiated the 1977 Defense Science Board study [1977 Summer Study Report of the Acquisition Cycle Task Force, March 1978]. That was the last time I was there. I did it because I felt that for the argument we just went through, in terms of the importance of manufacturing and the integration of manufacturing into development, that all the dollars were going into designing the system, but none of the development dollars were going into producing at low cost.

You needed things, such as manufacturing technology, that would be focused on defense items. It shouldn't be focused on commercial items. Those were being done automatically by the commercial world. But producing a low-cost fighter plane, or a low-cost tank, or a low-cost ship is the sort of thing that the manufacturing technology dollars were intended to try to address, so that you could produce these Defense-unique items at significantly lower cost, if you made the investment in trying to reduce the cost. We hadn't been making investments in cost reduction. We had been making investments in performance improvements.

BUTRICA: I have the impression that the Reagan administration, particularly the Defense Department, saw technology as a solution. Name a problem, technology could solve it. One of the things that you mentioned in your book, The Defense Industry, and which interests me greatly, is a Defense Department program called DESAT (Defense Small Business Advanced Technology Program, later subsumed by SBIR, the Small Business Innovation Research Program). It was a small business technology program to encourage companies, such as inventor-led companies, that were on the cutting edge of technology.

I also have the impression that Richard DeLauer had very specific ideas about how money should be invested in technology, namely, in basic electronics that every weapon would need, such as standard avionics packages and other electronic black boxes that you could plug into various weapon systems. That also included investment in communications, command, and control systems. Am I wrong in thinking that there was a general trend within the Reagan administration, especially in the Defense Department, to emphasize investment in these technologies, or was this just a continuation of a general trend within the Defense Department to see technology as the solution?

GANSLER: Well, two things. One, obviously, Dick DeLauer came from a technology base. Avionics, electronics, and so forth would naturally have appealed to Dick. But much more, I think, was the basic strategy of the U.S. versus the Soviet Union. Theirs was quantitative superiority. Ours was technological superiority. They had twice as many of something, but if ours were better, we could take care of theirs, and we could win. And so there was a strong emphasis on being able to overcome their larger numbers with our technological superiority. In a certain sense, it's almost the inverse of what we did in World War II, where the U.S. emphasized quantitative superiority.

Because we focused on technological superiority, and because the U.S. was ahead technologically in the world during this period of time, we clearly wanted to build the best of the few we were building. Therefore, we would emphasize a technological approach to problems that were coming up as contrasted to what the reform group was saying, which was to take lower technology and build more of them, trying to go in the quantitative direction, I think.

There were conscious efforts to figure out how to take advantage of pushing technology in the military required areas. That's different than saying technology across the board. For example, where the commercial world was moving ahead, take advantage of it. Don't make the investments there. But where you have defense-unique things, whether in avionics or communication satellites or communication systems or computing, where the commercial world wasn't moving ahead as rapidly as it did during 1982, yes, we will make those investments.

There was a recognition that a lot of innovation comes from small businesses. Therefore, small business innovation research (SBIR) is an example of that kind of emphasis that says a lot of innovation comes from small companies, so let's make sure they at least get some of the dollars rather than giving it all to the very large corporations that have a fantastic ability to absorb all of the money unless there are some sort of set-asides, if you will, for the small business innovation. Then you have to make sure it goes in the right direction.
The Defense Department needs to care that the dollars set aside for small business innovations are invested in things that really will have high value multiplier. Some cases fall off into the commercial world and other cases will be purely for defense. But it won't be like the Small Business Administration that mostly funds restaurants.

BUTRICA: Is there anything else you want to add?

GANSLER: Basically, I think we have covered all of the key things. There was one other area that had a lot of debates during the 1980s, as I recall, and that was multiyear budgeting.

BUTRICA: Okay. As opposed to multiyear procurement?

GANSLER: Right.

BUTRICA: This is the biannual budget?

GANSLER: Right. That area really didn't get fully resolved. I mean, there was definitely a requirement to submit a two-year budget, but it never really caught on, let's say. I personally didn't want to have the two-year budget, because then you have a bigger step function every two years. I personally thought we should go to something more like what the Europeans have, which is a rolling three-year budget. If you think about our law, the budget cycle, and the budget committees, they are supposed to look at three-year cycles. So why not have big debates over the fourth year, and see how much that budget should be, but kind of try to commit to a more stable budget process. A two-year run would simply have big steps in it, I think.

Even on any kind of a rolling three-year budget, you would still have to have the flexibility of making changes depending upon the world environment. September 11th last year would change things. But a more stable budget process probably would be a very valuable thing, to be able to look ahead and credibly determine how much you were going to spend. The Defense Department is much better at that than the other agencies. The PPBS system forces you to look a little bit ahead.

I was shocked to find just recently that the Department of Energy had a one-year budget plan. So, it says, “Next year I get rich, I can start anything I want. I can start up ten projects and assume next year that I get twice as much money, and I'll be able to afford them.” That doesn't make any sense at all. Defense is much better at management. In fact, in general every GAO [General Accounting Office] study of Defense versus other agencies always says Defense is the best by far at the federal, state, and local levels. It still needs a lot of improvement. But having said that, I think it's sort of like Churchill's famous statement: democracy is the worst except all the others. And I think Defense, management-wise, is in that category. I think it's clearly the best managed of all the agencies, but it has a lot of room for improvement.

BUTRICA: Yes. When I eventually get around to looking at the Strategic Defense Initiative, might I see some of the jointness problems there, trying to get the services to work together as one?

GANSLER: Of course, that organization was set up so that it reports to the undersecretary, not to one of the services. The reason for that is simply that the services didn't want to spend money on that. It wasn't any of their traditional missions. They fought very strongly against any big researchers going in that direction, and they still do in many cases, because now it's gotten to the point where it’s very large dollars.

At the time, it was set up that way because it needed to have some high level visibility and support, because it would have been essentially killed. The president wanted it, so it was set up as a high level organization. It still today reports to the undersecretary, and it still does because of the resistance that it would get. It is also set up that way because it is a joint organization. Again, it would not have gotten the same support if it was given, say, to the army. It would not have gotten the budgeting either from the army or the other services, if it was given to one of the services.

So, what I think you will find is that, when it was first set up, it was for the defense of the country. Today it is now doing both tactical and strategic work, and those are integrated today as missile defense. Personally, I think it makes a lot of sense to have them integrated. But I think you will find that there is still a lot of service resistance to an organization that is, in a sense, elite. It's the only program that reports directly to the Office of Secretary of Defense and gets the full visibility of the undersecretary.

I spent lots of time with the program manager. I selected the program manager. I also spent lots of time working with that program manager and with that program, probably more than any other program in the Defense Department. The next level of intensity for the undersecretary is other major joint programs that need support, such as the Joint Strike Fighter. So, the fact that it is there means it does get the visibility and support. I think that's the primary value of where it is and why it is what it is, because it would not have, I think, government support.

BUTRICA: Inadvertently, Ronald Reagan created the largest and most visible joint program.

GANSLER: Right. I am not sure it was inadvertent. He wanted that to be a high priority program.

BUTRICA: Right.

GANSLER: And the way to get it to be a high priority program is organizational. If it were sent back to the services, it would have disappeared.

BUTRICA: Exactly. Okay. Do you have any other comments?

GANSLER: I can't think of any.

BUTRICA: I thank you very much.

END OF INTERVIEW