If you have time, why not read this complete load of B@ll@cks spoken by the Rt Hon Philip Hammond MP Secretary or State for Defence when he spoke at the Reform Annual Dinner Speech 13 May 2014 (How do I know that Hammond is a banker ? …Tony) (as delivered) Introduction Thank you for that kind introduction, Andrew. And for the delicious dinner...which I hope will fuel you through this brief interlude...until some pudding-shaped relief comes along in a little while. Winston Churchill purportedly once sent his pudding back to the chef complaining it “had no theme”. I hope my speech will not make the same mistake and provide instead plenty of food for thought as we go through the rest of the evening. A time to reflect It’s been a year-and-a-half since I last spoke to Reform; four years since we came into office and began our reform programme; 21⁄2 years since I took over in May; and 50 years since the unified Ministry of Defence was created. So it’s an opportune moment to look back on what we’ve achieved... I’m proud of what we have already accomplished over the last four years in MOD; and of the work that is going on to take the agenda further, and crucially make it irreversible; and proud to be able to stand here and say that we at the MOD have made the case for reform... We’ve shown it is possible... ...in a department that frankly many thought was among the most resistant to it. And tonight I want to focus not only on how we have done this ... ... but also on what others on the reform path can learn from our journey in Defence. Overcome significant challenges But, first let me take you back to the dark days of 2010. A time, in the history of Defence, which I hope we are never going to have to experience again... I’m sure you have heard this litany of woe before: a £38 billion black hole in the budget an overheated equipment programme and a failed procurement system 1 financial short-termism stifling bureaucracy confusion of accountabilities All three services battling with one another for scarce resources. And all this in an extraordinarily large and fiendishly complex organisation. An organisation with a quarter of a million employees... An organisation that owns 1% of the UK landmass ... in over 4,000 separate sites An organisation with a balance sheet with assets worth £120 billion... ...and 1.4 million stock lines in our inventory. To put that last point in perspective, I am told that Tesco carries about 40,000 stock lines in its largest stores. And yet, with a scale matching that of the largest companies in Britain, the MOD was running, and to some extent is still running, on a level of management information that a half way decent SME would frankly be ashamed of. The PAC’s criticism over the MOD’s underspend, which you may have seen this morning, is thus completely out of context. We are running an organisation with very little management information. We are working on that, and it is improving. But at the moment we don’t have everything we need. We do not know if we have made real savings or whether we will need that money later. In that situation, I think it is right to operate on the precautionary principle, and to agree with the Treasury that we can roll forward the funding. I think that is the right way to manage public money and I am surprised that the PAC thinks differently. Had to take tough decisions We had to act decisively and make some tough calls to get the budget under control and take charge of our destiny: We retired much-loved capabilities: the Harriers and HMS Ark Royal We cancelled the out of control procurement of the Nimrod MRA4 We cut Armed Forces manpower, We overhauled our infrastructure and equipment organisations – the Defence Infrastructure Organisation and Defence Equipment and Support. We sorted out the rebasing of our troops... ...and reinvigorated and expanded our Reserve forces. And all of this at the same time as managing the drawdown from Germany... 2 ...fighting major operations in Afghanistan and Libya and continuing to find the savings necessary to contribute to the broader fiscal consolidation... ...because there can be no sustainably strong Defence that isn’t built on a strong economy and sound public finances. The scale of the undertaking cannot be overstated. Ours is one of the biggest transformation programmes ever undertaken in the Western World. What have we achieved? So what have we achieved in the last four years? Well we have become much better at managing our money. We’ve filled that gaping black hole and balanced the books by taking a hard- headed approach to what we can and what we cannot afford. We’ve also finally got a grip on our big ticket procurement projects – minimising costly delays and curbing overspends. According to the NAO Major Projects Report – which looks at the MOD’s 11 largest defence projects – during 2012/13 there was an 88 per cent reduction in overall delays compared with the previous year, and no significant cost increases other than in the aircraft carrier. And we’ve dealt with that too. We have succeeded in renegotiating the frankly shocking Carrier contract we inherited from the last Government, which shared cost overruns 90% to the tax payer and only 10% to the companies involved, to a 50 / 50 painshare / gainshare. Not just significantly reducing the impact on the public purse of any further cost increases, but more importantly, aligning the interest of the taxpayer and the consortium building the ships. So that keeping costs under control is now in everyone’s interest. We are going to see the fruits of these labours this summer, with the ‘floating up’ of HMS QUEEN ELIZABETH on 4 July, and the first flights in the UK of the F35 Lightning aircraft that are going to fly off it. And I’ll be prepared to bet that there are people in the room who thought that the carrier was still on the drawing board, and the F35 a flight of fancy. And, as Defence has always done We’ve published a balanced and deliverable Equipment Plan – something that Governments have not done before - worth £160Bn over ten years – giving everyone within Defence greater transparency and greater certainty to be able to plan for the future. For the first time ever, we have provided a proper contingency within the equipment programme. 3 ...we have had to prioritise... ...investing in the unfamiliar capabilities and technologies of tomorrow... ...even when that means disinvesting in the familiar ones of today – and yesterday Intelligence, surveillance, cyber – both offensive and defensive... ...yes ... at the expense of less heavy armour and fewer infantry. ...If you like our own version of the ‘horses to tanks’ moment. And we’ve made a start in reversing the long term decline in Reserve forces, with a new role, new investment and a clear commitment. A much leaner machine And last, but certainly not least, we’ve got to grips with our administrative machinery – transforming the whole Department into a leaner and more efficient engine. We’re on track to deliver genuine non-frontline efficiencies this Parliament of £3Bn...with the civilian workforce already reduced by 20,000, and ...with a further £875M per annum planned from 2015/16. MOD Head Office is on track to be 30 per cent smaller by the end of the year. And not just smaller, but more focused ... and more strategic .... doing a better job with fewer people. In a triumph of the pragmatic over the bureaucratic... ...budgets have been devolved to the Front Line Commands ...with the men and women at the coalface taking responsibility for spending decisions. When it comes to corporate services, we’ve injected some re-energising private sector expertise... ...with an external management team from SERCO successfully running our back office - Defence Business Services... ...and Capita having been recently selected as preferred bidder to be our Strategic Business Partner to run the sprawling Defence Infrastructure Organisation. And at the start of last month, our procurement arm, Defence Equipment and Support became, in Treasury jargon, a “bespoke trading entity” We have had to negotiate what that means. And I can say that we finally signed it off this afternoon. And it means... 4 ... unprecedented flexibilities and freedoms to hire, fire and reward outside Treasury and Civil Service controls, allowing a more commercial approach that will ensure MOD has greater business rigour, becomes a more intelligent customer and gets high quality equipment at best value for the taxpayer. Summary This whole process began in 2010 and last month represented a watershed moment for Defence Transformation. With the new defence operating model officially fully up and running on 1 April... and the Defence Reform Bill completing its passage through Parliament on 29 April – legislating for the reform of both DE&S and our Reserve Forces In fact, of the 53 Defence Reform recommendations made in 2010 by Lord Levene in his seminal review of the Department, 44 are complete and almost all underway... with the only exception being one that is not within the MOD’s control We now run the MOD in a businesslike manner, with a budget and a plan... We’re off the Treasury naughty step... We are the prodigal son returned... Although, I haven’t yet heard that George Osborne has killed the fatted calf... We are regarded as grown ups within Whitehall, once more. With our delegated budget just increased from a paltry £100M to £600M – the highest delegated limit of any department in Whitehall. I take it as an accolade that Defence has become boring. Boring is good: certainly boring is better than the traditional lurch from crisis to headline grabbing crisis, with constant emergency budget interventions to avoid bankruptcy! But if we want to keep the reputation we have earned we must stick to three essential lessons we’ve learned along the way. Lessons Learned First, the value of strong leadership Transforming defence has been an arduous journey... But we’ve managed to navigate the hazardous currents through having a firm collective hand on the tiller and a clear-eyed view of where we are headed. I am not speaking personally here. The structure at the top of Defence is a three-legged stool: the Ministerial team, the Permanent Secretary and his team, and the Chief of the Defence Staff and Service Chiefs. We have all focused – together – on making this work... 5 ...and it is by working together that we have managed to successfully deliver this transformation.... ...by demonstrating to everyone within the Department, that the course of action we have set out provides the best support for our Armed Forces. And we have done this by making sure our people are part of the solution – not part of the problem. We’ve engaged with them... ...at all levels across defence... ...the length and breadth of the country... Face-to-face – at Town Hall meetings At conferences...Online; via email and blogs; in print. And over the phone – via mass teleconferences...(And I can say that, for anyone who is familiar with MOD ICT infrastructure, that represents a significant triumph of will over technology...) We’ve got the message out there and in doing so, we’ve made our people a fundamental part of the transformation process rather than mere accessories or, worse, impediments to it... We have got buy-in...which I have always found a more enduring basis for change than coercion. So we are working with the grain, rather than against it. The newly configured Defence Board which I chair as Secretary of State, and which includes experienced non-executives from industry, as well as the most senior military Chiefs and civilian officials... ...is no longer a forum for inter-service rivalries to play out ...or an exercise in micro-managing... But a business-like and effective body Setting strategy Holding people to account for what they deliver... But self-confident enough to empower others to get on with the job... This brings me to our second lesson: The need to give the people who wield the power lower down the chain greater control over the purse strings and accountability for their actions. Second, a focus on money. 6 I make no excuse that my second lesson is around budgets. Money isn’t everything, but proper financial controls are the foundation for everything else the department does. As Lord Levene said, this is not a distraction from providing military capability, but an essential enabler to it. And this was not recognised in Defence. When the parlous state of our finances was exposed in 2010, it seemed to come as a surprise to some people in Defence that force structure and capability came at a cost... Little wonder this was the case when: ...budgets were managed centrally... and no one was held to account for the systematic waste and lack of management control... So we chose to delegate budgets downwards to the frontline commands Instilling a culture of budgetary awareness and accountability... Meaning that people had a vested interest in knowing both the cost and the value of what they are doing. Now they are responsible for managing their multi-billion pound businesses... For identifying the trade offs and the difficult decisions that need to be taken in their areas... ...and if they don’t succeed, they have nobody else to blame... In other words, they have entered the real world... ...where the thirst for efficiency is embedded in the incentive structures that people at all levels face... And ...our leap of faith has paid off... No longer do we have major programmes committed to on the never-never Instead we only commit when we’re sure we can afford not just the capital cost but the year-on-year running costs as well.. With a rigorous business case approval process underpinning every decision. And decisions like whether we invest in more simulation by reducing live flying hours should clearly be taken by the RAF and not by politicians or bureaucrats in Whitehall. Driving a focus on military productivity – achieving greater output with fewer inputs – without compromising the quality of what is delivered. Already, this devolution of power from the centre has paid dividends in promoting a culture of initiative...in which we explore the art of the possible... 7 Rather than bemoan our failure to achieve the impossible. Which brings me to my third lesson learned...the need constantly to innovate. Third, the need to innovate. We have made some innovative changes top down. I’ve already referred to the outsourcing of the management of Defence Business Services, and the new structure and unprecedented freedoms and flexibilities of DE&S. We have also set up Joint Forces Command. Integrating Air, Land and Sea capabilities, into an organisation of more than 20,000 people with an annual operating budget of over £3Bn ...all of it run by a headquarters of around 300 people ...working with less hierarchy and more flexibility than before ...and it is providing far better results. But there is only so much you can do top down. We now need to institutionalise innovation throughout the organisation. And that comes from delegation, and empowering people with clear objectives on what they have to deliver but with flexibility about how they have to deliver it... By delegating the power and the authority to innovate, we have made a start. But in the next phase of Defence reform we need to embed this culture change and make it irreversible.... We need to embed it so that it becomes immune to changes of politician, government or senior officials ...sustaining this process of innovation... Because it is the lifeblood for Reform... We are proud of what we have achieved. But we know we still have much to do ...Returning from Afghanistan and restructuring our forces so they are ready for the next challenge – ‘contingency’ in the military lexicon. ...Recruiting the soldiers, sailors and airmen – regular and Reserve – that we need for the future ...Dealing with the fact that, as the economy returns to growth, manpower costs can be expected to rise more quickly than the Defence budget ...Responding to the threat of legal encroachment onto the battlefield, and societal weariness of intervention, as was demonstrated in the Syria vote 8 And we need to do all this at a time when an uncertain world fires new threats at us from all directions... ...as we’ve seen from the rapidly evolving events in Ukraine... So I’m also resolved to keep the reform dynamo spinning... ...to ensure our energy has not been wasted... and that we can, and will remain, fighting fit, well beyond the next General Election Conclusion And there lies the challenge...embedding and sustaining the changes we have made ... while ensuring the flexibility to face the future. Yes...We’ve gone the hard miles...as you have heard tonight Yes...Defence has got its house in order...against all the odds We have decisively put behind us an era of perpetual crisis in the management of Defence and its budgets And we are well on the way to building a disciplined Department with a clear sense of direction ... ... that is delivering value for money for the taxpayer ... ...and the support they deserve to our Armed Forces. And if we can achieve that in Defence then just imagine what we could do across the rest of Government. Thank you.
Posted on: Thu, 15 May 2014 20:40:27 +0000
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