The Defense Department wants to create a cost-conscious culture with its new Strategic Management Plan.

Michele Flournoy, co-chair of the Board of Directors of the Center for a New American Security and former undersecretary of defense for policy, told In Depth with Francis Rose the secret to changing culture is figuring out what motivates people.

“It does take getting down to the nitty-gritty of what are the incentives of governing behavior and people’s choices of about how they make trade-offs,” Flournoy said. “And that requires a dialogue with the folks on the line and helping them operate differently if that’s what you’re asking them to do.”

“In a period of growth, which we’ve experienced for more than a decade, when money is not really an object, there’s a lot of things that get added to the list of to- dos,” Flournoy said. “I think we’re in a period where we need to get back to distinguishing between what is absolutely essential, what is very important versus what is nice to do. I think there’s a lot of scrubbing of just what’s essential and what should we stop doing as a department given the more resource-constrained environment.”

She also sees opportunities for DoD to find cost reductions if it adopts some private sector techniques.

“You see many large, global companies in the private sector that have become much more efficient in recent years,” she said. “Some of them have adopted an approach called ‘delayering,’ which is a way of removing unnecessary management layers in an organization and really paying attention to expansive control and basically redesigning the organization from the top down to be much more lean and much more agile, with a real focus on performance.”

Flournoy applauded Secretary Chuck Hagel’s efforts to cut overhead spending by pursuing a 20 percent staff reduction at headquarters, though she would like to see the department make more ambitious changes.

In 2011, DoD spent $212 billion on overhead. “That is more than the entire GDP of the State of Israel,” Flournoy said. “It’s enormous. We have almost 800,000 civilians in the department, another close to 800,000 contractors supporting the department. This is an area that has experienced tremendous growth during the war years for understandable reasons. But now, it’s a period where we’ve got to turn back that growth and right-size the organization again.”

To accomplish this, Congress would need to give the administration new authorities to reshape the workforce, something Congress has granted during previous draw downs.

“We can do this smart or we can do it stupid and the national security hangs in the balance,” Flournoy said. “There needs to be a very frank discussion with members of Congress about giving the department the right flexibility to do its part.”

As DoD draws down its ground forces, it needs to maintain the mechanisms that give it flexibility to react in times of crisis.

“On the civilian side, the fact that we do have flexibility of contracting gives us that agility,” she said. “But, that to me is an argument against maintaining a larger than necessary, either military force in being, or civilian force in being because it’s an unnecessary expense. The truth is we have mechanisms that give us flexablity to grow in the future if we need to.”

Flournoy has written about how to foster a more cost-conscious culture at the Pentagon, much of which boils down to taking a closer look at the incentive structures the department has in place for various key people and decision makers.

“In the area of acquisitions and looking at program managers, today’s system essentially penalizes people that don’t spend every last dime of their budget before the end of the fiscal year, because if they don’t spend the money that’s allocated, Congress is likely going to appropriate a smaller amount for their program next year,” she said. “It’s sort of a use it or lose it environment.”

What if DoD implemented a promotion system that evaluated program managers on their ability to meet program milestones while saving taxpayer dollars?

“That would be an example of changing an incentive structure to reward people for a much more cost-effective way to manage their program,” Flournoy said.

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