1. DEFENCE EFFICIENCY REVIEW(DER) OUTLINE
2. KEY FINDINGS AND RECOMMENDATIONS

Specific Outcomes

3. VISION FOR DEFENCE
4. DER IN CONTEXT
5. HIGHER DEFENCE ARRANGEMENTS
6. LONG TERM PLANNING
7. COMMITTEE PROCESSES
8. POLICY AND STRATEGIC GUIDANCE
9. CAPABILITY DEVELOPMENT AND ACQUISITION
10. DEFENCE POLICY FOR INDUSTRY
11. SCIENCE AND TECHNOLOGY
12. FACILITIES AND LONG TERM FORCE DISPOSITION
13. LOGISTICS AND REGIONAL SUPPORT
14. PERSONNEL
15. TRAINING AND EDUCATION
16. ADMINISTRATIVE SUPPORT AND LEGAL SERVICES
17. INFORMATION MANAGEMENT
    
    Summaries
18. RESOURCE SAVINGS
19. EMPLOYMENT IMPLICATIONS

Implementation

20. IMPLEMENTATION
21. RESPONSIBILITIES OF THE SERVICE

• On 15 October 1996, the Minister for Defence The Hon. Ian McLachlan, AO, MP established the DER with Terms of Reference to:

• The DER examined the following Defence functions:

• The Minister appointed a Senior Review Panel (SRP) which was chaired by Dr Malcolm McIntosh, Chief Executive of CSIRO and which comprised a balance of Defence and non-defence expertise (see SRP membership at Attachment).
• The SRP was supported by a joint civil-military Secretariat and joint civil-military Review teams, each of which examined one Defence function. Each Review team was assisted by external experts (see Attachment for details).

• The DER relied heavily on Defence itself for ideas as well as receiving suggestions from Industry and other stakeholders. From November 1996 to March 1997 the DER received over 255 submissions, the SRP met with senior Defence managers more than 30 times and the Review teams held some 500 interviews.

Strategic Setting 

• The recommendations of the Defence Efficiency Review meet the vision for Defence.
• The proposed reforms will focus Defence on its core functions of generating combat capability and providing advice to Government, and position the organisation to meet future strategic challenges, by:

• Defence will have command and administrative arrangements that enable ADF combat elements to operate as a joint force, while preserving the single Services' identity and ethos.
• In an increasingly uncertain and demanding strategic environment, redirecting resources to military capability will build and sustain a technology-intensive ADF that maintains the decisive combat edge needed to protect Australia's interests into the next century.
• In enhancing Australia's security, a versatile and flexible ADF, equipped with high technology weapons, effective command, control and communications systems and efficient logistics support, will continue to operate competently with our alliance partners and to engage effectively with regional countries.

• The Review was designed to address the efficiency and effectiveness of the Defence Organisation in carrying out the roles and tasks assigned to it by the Government. The Defence Organisation must be structured for war and adapted for peace. Keeping the focus on the efficient production and support of military capability over long periods of peace is one of the key challenges of any defence management. Helping to sharpen the focus in Australia's Defence Organisation has been the principal purpose of this Review.

• The 1991 Force Structure Review and other efficiency initiatives have resulted in a reduction of 11,250 personnel (7,560 military and 3,690 civilians) and ongoing savings of $460 million per annum by the end of 1995-96, without real loss of capability. These built on earlier initiatives which include the privatisation and corporatisation of the former Government factories and dockyards. However, more can, and needs to be done if Defence is to achieve and maintain capabilities for an increasingly complex strategic environment and new uncertainties.
• Australia's need to maintain military capability does not arise from any current direct and imminent threat of armed attack upon us. However, the end of the Cold War has made Australia's regional strategic circumstances more complex, uncertain and demanding. Australia's need for military capabilities remains at least as high today as it has been over the past twenty-five years.
• If Australia is to remain confident that it could defeat any credible attack against the nation, then it needs to keep abreast of the unprecedented growth and sophistication of military capabilities within the region.

• In meeting the challenge the Defence Organisation will need to organise Australia's forces to exploit the geography, make the most of its established regional lead in a wide range of military technologies, and most importantly, operate as a joint force, which is already an important doctrine for the Australian Defence Force. Meeting the challenge will require careful management, better planning and determination.
• The trend towards high technology and joint activities will result in substantial savings from reducing the duplication of many routine support and administrative tasks in the Services and the civil element of Defence. This will provide the opportunity for the acquisition of capabilities and rebalancing of the forces for the future. The very essence of this Review was to free up resources from support and administrative activities to strengthen the ADF's combat capability.
• Finding and redistributing savings to warfighting capability will be a major step forward. However it is likely that a real increase in overall resources will need to be allocated to Defence in the medium term.

• The Australian Defence Organisation exists primarily to provide the military capability which the Government can employ in war. The Organisation must be structured for war, and adapted for peace.
• The Review found Defence generally to be in good shape, with a high level of commitment and an impressive record of reform over recent years. But it also found dysfunctions which are impeding much needed further reform, including a "cultural" preference for sectional as opposed to corporate interests, much duplication, and insufficient integration across common functions.
• In examining the higher Defence management arrangements the Review has concluded that:

• Better planning and management are essential components of Australia's future defence capability.
• The long lead times involved in the development of new weapons systems and the length of service required from military equipment requires Defence planning to look well into the future in a structured and informed manner.
• A higher priority should be given to the development of effective longer term plans. This should ensure Defence is able to identify the factors that will shape the Defence Force of the future and be able to better assign priorities to its capabilities requirements.
• The Review recommended that the Defence Headquarters should only be involved with planning and policy. The Headquarters should provide authoritative strategic policy and planning direction for Defence. Longer term planning should make better use of resource analysis and intelligence.
• Service Chiefs should have primary responsibility for the formulation of advice on single Service aspects of Defence longer term planning.
• Longer term planning should focus on outputs and development strategies, and should enable a more informed and effective process for the purchase and replacement of increasingly expensive defence capabilities.

• All committees are advisory in nature. Decision making should shift from the committee to the responsible individual who acts as the chair of the committee.
• The number of committees should be reduced.
• Defence Legislation needs to be amended to reflect present arrangements by deleting reference to the Defence Committee.
• The Chiefs of Staff Committee should be retained as the principal committee dealing with operational matters, whilst the Defence Program and Management Committee should be renamed the Defence Management Committee and deal with all other matters as the management or executive committee for the Defence Organisation.
• A Defence Capability Committee should be formed comprising the Deputy Secretary Strategy and Intelligence (Chairman), the Vice Chief of the Defence Force and the Chief of Defence Acquisition (currently known as Deputy Secretary Acquisition) to approve (for ratification by the Defence Management Committee) major projects over $100 million, the overall program of lesser projects, and such lesser projects as are deemed sufficiently sensitive or contentious. For projects with special concerns, the chair will ask the Chief Defence Scientist to assist with the analysis of trade-offs and the relevant Service Chiefs.
• A small competent staff should support the Defence Capability Committee but some existing committees (such as the Concepts and Capabilities Committee, the Force Structure Policy and Programming Committee and the Defence Source Definition Committee) should be abolished.

• The development of future defence capability is critically dependent on the capacity to assess Australia's strategic circumstances and to formulate appropriate responses that maintain our relative strategic standing in the region.
• This area drives the coherent direction of the whole organisation.

• The Review has recommended that existing military and civilian staffs be rationalised to create an integrated, joint Defence Headquarters staff that is responsible to both the CDF and Secretary.

• The Review has proposed an allocation of responsibilities aligned with the respective skills of the Deputy Secretary Strategy and Intelligence (DEPSEC S&I) and the Vice Chief of the Defence Force (VCDF). This is

DEPSEC S & I responsible for:	VCDF responsible for:
* Intelligence production	* Capability Development.
and dissemination policies	* Command and Control,
* Strategic Policy and Plans	Communications, Computers and
* International Policy	Information Warfare Policy.
* Long Term Planning	* Logistics Policy.
* Preparedness Policy	* Personnel Policy.
	* Military Plans
	* Joint Training and Education

• A single, integrated, joint strategic policy organisation should provide authoritative and clear direction for longer term planning, for determining optimal force preparedness levels and for prioritising the development of war fighting capability.
• An integrated, joint International Policy Division should develop longer term international policy approaches and direct international activities.
• An internal capability review organisation should be retained and be augmented with a longer term resource analysis capability.
• A longer term planning process has been under development in Defence for several years. Higher priority should be given to this important task, to ensure Defence is able to identify the factors that will shape the defence force of the future and to prioritise capability requirements within affordable bounds.
• Better longer term planning should also provide a framework for considering all the components that make up capability, including personnel needs, operational use and through life support.
• The Review has also called for greater emphasis to be placed on the production of longer term strategic analyses.
• The Review purposely confined its examination of Defence intelligence to the scope for efficiencies in administrative and information support. Mr Mike Codd, formerly Secretary to the Department of the Prime Minister and Cabinet, concurrently has been conducting a joint Australian National Audit Office/Inspector-General Division of Defence review of the efficiency and effectiveness of the Defence intelligence agencies.

• "Capability development" means more than the acquisition of major new equipment for the Australian Defence Force (ADF). It also involves:

• According to the DER, the Defence processes for planning and acquiring military capabilities could be streamlined, should make certain technical comparisons more rigorously, could better coordinate all relevent aspects of capability decisions, and should clarify who is accountable for what.

• The DER made three recommendations. The first was to make the following three key Defence managers more accountable for decisions about the development and acquisition of military capabilities:

• Secondly, the DER recommended streamlining the present Defence committee structure by:

• Thirdly, the DER recommended improving the technical quality of Defence capability analysis by making greater use of advanced capability modelling and simulation, to be undertaken by the Defence Science and Technology Organisation (DSTO), in cooperation with industry as appropriate.

• How Defence structures and conducts the acquisition of capital equipment is critical to the efficiency and effectiveness with which military capability is planned, developed, and acquired:

• The focus of the present Defence Acquisition Organisation (DAO) is the Defence, Navy, Army, and Air Force users of the equipment it buys:

• The DER considered that while this structure was responsive to equipment users:

• The DER therefore recommended replacement of the DAO by a more independent but more accountable Defence Acquisition Executive and:

• The DER envisaged the new Acquisition Executive continuing to service the ADF's materiel needs while:

• The DER considered that, as a fundamental element of Defence policy for industry, Defence should make the widest possible use of civil infrastructure:

• The DER emphasised the importance of competition for Defence business as a continual incentive for suppliers to be more innovative and efficient, thereby helping Defence make the most efficient and effective use of the resources at its disposal:

• The Review recommended that Defence avoid intervening in the market-place to promote specific industry capabilities to meet its requirements and:

• In the interests of a more effective Defence policy for Industry, the DER recommended that Defence:

• To sustain a technological edge in warfare, Defence needs sufficient scientific expertise to understand the technologies available and how they should be applied to best advantage in areas of particular concern to Australia.
• The Defence Science and Technology Organisation (DSTO), the principal military scientific organisation in Australia, needs to retain its overall familiarity and greater depth of knowledge in the areas of particular defence interest.
• DSTO is already pursuing many of the initiatives raised by the Review.
• The Review saw the need for DSTO to undertake more advanced modelling and simulation to improve the quality of technical analysis in support of the capability development process.
• There is scope for carefully targeted development programs in industry, to which DSTO might contribute. Defence should be involved in a program of concept or technology demonstrators, especially in fast-moving high-technology areas. This will need DSTO's strong involvement.
• There are diverse and extensive test and evaluation (T&E) facilities in the three Services and DSTO. The Review recommends that all the T&E functions should be put as an integrated unit in the Science and Technology Program where they should be rationalised.

• The Defence Estate comprises land and buildings spread across Australia to a book value of some $13.6 billion Gross Replacement Value.
• Approximately 10 per cent of total Defence outlay is spent on the Defence Estate each year. Reducing the size of the Estate will save operating costs and provide one-off revenue.
• As a result of the Review greater impetus should be given to Defence's ongoing and extensive property rationalisation program by including another 33 potentially disposable properties. The disposal revenue can be reinvested in other Defence capital assets and the substantial ongoing savings in operating costs can be redirected to other Defence priorities.

• A centralised Defence Estate Executive should be formed which draws together all resources currently spent on investment and maintenance of the Defence Estate. This would encourage a more coordinated and streamlined approach to management of the Estate on a national basis.
• A system of internal rent charging should be introduced to expose the full costs of ownership and encourage a more business-like approach to holding assets.

• Defence's current force disposition is broadly consistent with strategic guidance and operational requirements.
• Consolidation of Defence activities onto a smaller number of larger, and where possible, joint Service bases should be pursued to minimise costs.

• In-house logistic support for the Australian Defence Force comprises:

• In addition, both the Services and other Defence elements (eg the Defence Acquisition Organisation) maintain substantial organisations to support their respective interests in regional Australia (eg liaison with State and local government, industry liaison and the provision of broader support like personnel and financial management, facilities management, security, health and legal services).
• The overall cost of the various Defence elements providing their own base logistics, base administrative support, and regional liaison services is equivalent to 32% of total Defence outlays and some 30% of total Defence staff. In FY 95/96:

• Defence has already tested a number of base logistic and base administrative support activities to see if they can be performed more efficiently by the commercial sector in a structured market testing process called the Commercial Support Program (CSP):

• The DER identified opportunities to free up significant staff and financial resources currently absorbed by logistics and regional support without undermining the capacity of the base infrastructure to deliver the outputs needed by operational commanders for combat capability. To achieve this the DER recommended:

• With respect to the provision of base logistics and base administrative support, the DER recommended:

• With respect to regional support, the DER recommended:

• Overall, acceptance of the changes recommended by the DER for improving the efficiency of logistic support for the ADF should:

• To date, the approach to personnel management within Defence has been to assume that each of the single Services and the Public Service will manage its own people separately and independently.
• But this approach has led to:

• The Review has found that a great many of the personnel activities carried out in Defence are services that line managers do not need to own, providing they have sufficient control over what they achieve. Hence the DER recommended:

• The single Services individually manage their health services and the rising costs of health care seen in the Australian community are being felt in Defence.
• A single, integrated, joint health organisation should be formed to control all Defence health activities.

• The CDF should be the employing authority for all military personnel, while the Secretary to the Department of Defence should be the employing authority for all civilians.

• The ADF has an extensive range of allowances and benefits. While recognising that this reflects the diverse nature and responsibilities of the work performed by the ADF, this leads to high administrative costs and an over-reliance on allowances.
• A comprehensive rationalisation and restructuring of allowances and benefits should be undertaken as a matter of priority. The principle of payment for job type, rather than qualifications held, should be applied more widely and used to determine salaries for individual jobs, rather than the use of variable allowances.

• The three Services have well developed personnel reporting systems which are thorough and comprehensive and are used routinely for promotions and postings.
• In contrast, the Public Service reporting system is inadequate and unreliable, leading to poor line management relations with staff, and ill-advised and sometimes unfair promotions and postings.
• The Review recommends that a summary of recent annual civilian assessments be made available to all interview panels by the Personnel Executive - who should be the custodians of the records.

• Training and education is vitally important to the quality of the Australian Defence Force and its support. It is also a major consumer of resources, directly in terms of facilities and staff, and indirectly in the time taken by people who would otherwise be engaged in operations.
• Much of the training of support Service personnel has a great deal in common, e.g. military police, cooks, medical and legal staff, musicians, mechanical and electrical trades, intelligence and clerical staff.

• All basic non-military training, where appropriate, should be merged across the three Services and the Australian Public Service, contracted out to recognised civil institutions, and then supplemented with specific on-the-job training.
• The availability of the Australian Defence Force Academy (ADFA) to more members of the ADF and to Defence and other civilians to undertake mature age, full-time and part-time studies should be more strongly encouraged. Overall Defence should make quite clear what it requires of ADFA.
• Officer education should be managed as a single process and there to be greater emphasis on joint officer training.
• Common elements of various high level courses should be merged across the Services to draw on common overheads. The three Service Staff Colleges should be merged and collocated, possibly in Canberra. The Joint Services Staff College and the Australian College of Defence and Strategic Studies should be merged and retained in Canberra.
• The responsibility for development of ADF Training and Education Policy and the implementation of the recommended joint education system should be given to a new policy organisation.
• The Review recommendations would

• Administrative support is a necessary overhead but its costs should be kept to a minimum.
• In Defence further effort can be applied to minimising the cost of administration within the three Services and, more importantly, across the three Services and the Department.
• Line managers do not need to own the resources that supply their administrative support providing the quality of service provided can be guaranteed.

• A Defence Administrative Support Executive should be created that would take over and rationalise the central and regional administrative support of the Australian Defence Force (ADF) and the Department.

• Defence has three categories of legal services:

The first two categories are a military function which is appropriate for lawyers employed by the three Services to undertake, however, there are significant efficiencies to be gained by reorganising current resources into a single legal service with three Service branches.

• There is no benefit and considerable cost in using military lawyers for civil law activities and except in some areas specific to Defence, little need for civilian Defence lawyers to be employed as Public Servants.
• As far as possible this activity should be market tested.

• The management of information is critical to the successful conduct of military operations. The nature of military operations is changing and significant advantage will be achieved through the creative, timely and decisive use of information.
• Each of the Defence Programs develops and purchases information systems to meet their own needs with the exception of the acquisition of major command, control, communications, computers and information warfare capabilities,. While this approach generally satisfies the needs of local users, it does not necessarily focus on the overall corporate needs of the Defence Organisation.
• A medium term goal for Defence should be a single Information Management Organisation, which combines operational and administrative systems.
• A Defence Information Management Organisation would draw together

• The Review recommended that initially the operational and administrative information systems be treated separately to enable a more effective redress process to be initiated by Defence.

• Implementation of the Defence Efficiency Review is expected to result in one-off savings of over $500m and mature annual savings of at least $770m, with prospects of reaching annual savings of nearly $1,000m (equivalent to 10 per cent of the Defence outlay).

• Net staff reductions of some 3,100 civilians and 4,700 military personnel (or 15% of civilian Defence staff and 8% of total permanent military and based on 1995/96 figures) are anticipated, with the majority of those military positions expected to be recreated in combat and combat support areas. A further 12,900 positions (some 7,000 military and 5,900 civilian) will be market tested to determine whether activities can be undertaken more efficiently by the private sector.
• A new structure consistent with the Review's recommendations is expected to be put in place by 1 July 1997, but it will take some four years to release the bulk of the resources for redirection to enhancing defence capability.

• Defence spending has declined, as a percentage of GDP, from 2.6 per cent in 1986-87 to 1.9 per cent in 1996-97 - the lowest figure since 1938-39.
• With no real growth in the Defence Budget and growing cost pressures, Defence has been compelled to make internal reforms to free resources for the acquisition, modernisation and support of combat systems.

• A further reduction of 1,200 civilian staff is being implemented in response to the Government's 1996-97 Budget decision that $125 million be redirected from spending on administrative areas to combat-related and personnel retention initiatives.
• But the gains from these initiatives are not enough to achieve the levels of capability, training and readiness which are needed to build and sustain a technology-intensive ADF capable of protecting Australia and its interests in an increasingly uncertain and demanding strategic environment.
• The reforms of the Defence Efficiency Review will enable Defence to redirect significant savings from administration and support to strengthening the ADF's combat capabilities.
• Later in the year Defence will be presenting to Government a review that the Minister has asked for of Australia's strategic circumstances. The findings of this strategic analysis will be used to guide the reinvestment of the resources identified by the Defence Efficiency Review.

• This sheet addresses the implications of the DER recommendations for Defence staff in terms of:

• Detailed decisions yet to be taken in the course of implementing the Review over the next four years will shift Defence staff and related resources among States and between the Government and commercial sectors:

• Since the mid-1980s, Defence has recognised the need to manage the resources allocated by successive Governments to the Defence function more efficiently and effectively. To this end Defence has, for example:

- Corporatised or privatised the Government factories and dockyards;

• Defence has achieved staff savings of 11,250 from these and other efficiency initiatives it has taken since 1990/91 but before the DER.
• The DER identified substantial opportunities to accelerate and broaden over the next four years or so previous Defence efforts to free up resources to reinvest in combat capability:

• The scale of staff rationalisation recommended by the DER to free up resources for combat-related purposes between now and the turn of the century needs to be considered against the background of overall Defence staff reductions to date:

• Every effort will be made to continue the past practice of reducing staff numbers through retraining and redeployment to other positions, natural wastage, constrained recruitment above base level and, as necessary, voluntary retrenchments. The possibility of compulsory redundancies cannot be excluded.
• As with previous initiatives, central redeployment and placement processes will be established to assist surplus staff.
• Market testing is the process by which Defence determines whether activities it currently does in-house can be done more efficiently by the commercial sector:

• Because it involves effectively transferring jobs to the commercial sector, the market testing recommended by the DER is separately identified in estimating overall savings attributed to DER initiatives.

• The DER recommended reducing over four years or so the number of military positions currently assigned to support and related administrative functions and reallocating the resources involved to the combat force:

• These changes are comparable to recent reductions in Australian Defence Force numbers:

• The DER recommended reducing over four years the number of civilian positions involved in Defence administrative activities:

• These changes are comparable to recent reductions in Defence civilian staff numbers:

• The Australian Defence Force should be transformed into a more effective and efficient fighting organisation during the next four years.
• The Review team has been impressed with Defence personnels' contributions and submissions as well as their general willingness for innovation and change.
• The Secretary to the Department of Defence, Mr Tony Ayers, and the Chief of the Defence Force, GEN John Baker, should be responsible to the Minister for Defence for the successful implementation of the Review recommendations.
• Three techniques should be used during the implementation of the reforms:

• The detailed assessment and preparation of an implementation plan should be finalised by 1 July 1997, while the majority of the rationalisation and commercialisation of functions recommended by the DER should take place during the next two to four years.
• Line managers and commanders should be responsible for preparing, committing to and implementing detailed plans in their own areas, and for keeping their staff informed about planned changes and their implications. This will encourage "ownership" of the change process by the personnel and organisation involved in the activity.
• Ongoing evaluation of the level of achievement of resource efficiencies should be undertaken. Defence line managers and commanders will identify milestones and evaluate and report on implementation progress.

• The DER's basic premise was that:

• In order to eliminate any ambiguity as to the relative status of the CDF and the Service Chiefs, the DER recommended that the present Ministerial Directives to the Chiefs be replaced by directives from the CDF defining their responsibilities for:

• The DER recommended that the position of the Service Chiefs should be enhanced. They should:

See also:

• Defence Efficiency Review Report
• Other Media Statements and Speeches
• Defence Home Page