Structure and incentives: Necessary preconditions for the adoption of strategic mindset in capability acquisition

I want to thank you for your recent piece (part one and part two) on the adoption of what you referred to as a strategic risk management mindset within our capability acquisition community.

I particularly enjoyed the aspect of your analysis as it relates to the need for capability management practitioners to adopt what the 20th century philosopher Isaiah Berlin called a “fox-like” approach to problem solving, where the intricacies and nuances of a situation must be carefully understood and balanced in order to make appropriate decisions and to reconcile the seemingly inconsistent nature of reality.

I also share your sentiment that a strategic risk mindset is essential for members operating in this space, for there is much beyond the realms of any single, often siloed, acquisition project that must be understood when making decisions about risk. Not to oversimplify, but I would posit that your sense of what is considered strategic and the use of these factors as a behavioural driver in risk management fills the place of Simon Sinek’s notion of “Start with why”, where he asserts that the focus on core beliefs and motivations is essential for mobilising groups of people towards common goals.

However, and whereas I recognise your point that when “undertaken in isolation, structural or procedural changes are among the least effective methods to institutionalise lasting change”, I think it is important that we do not throw the baby out with the bathwater by dismissing the notion that there is little, if any, utility in altering organisational structures, specifically when it comes to incentivising desired behaviours.

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For as you say, risk management is complex and the management of it as such warrants an artistic skill set in the true Clausewitzian sense of the word. There are therefore, to my reasoning, a number of small, localised changes to structure and, by extension, incentives that are necessary preconditions for the adoption of strategic risk management mindset as discussed in your paper. I base this reasoning on two factors – the first of which is an observation, while the second is a reliance on the work of the renowned sociologist Dr Samantha Crompvoets.

To start with the latter, and at risk of paraphrasing Dr Crompvoets, what she pointed out in relation to organisational culture is that despite multiple reforms, reports or investigations into the topic within the ADF, there has heretofore been limited meaningful progress in what would otherwise be considered true structural reform and behavioural change.

Specifically, having established the idea of a “fog of culture” which she noted confuses the very issue, Crompvoets observed that “[r]egardless of how much time, money and effort is spent on culture change programs, unless the underlying structures that determine people’s behaviours are altered, then any attitudinal or other changes are at best temporary”.

Furthermore, Crompvoets went on to state that “[o]rganisational structures are the scaffolding that holds culture firmly in place” and that “[t]o change culture, you need to change the rules of the game and the nature of the field it’s played on”.

Put simply, Crompvoets’ reasoning is that culture is a symptom of organisational structures and, most importantly, incentives, which drive behaviour. Not to be a reductionist, but for the sake of brevity, I found that what you put forward in relation to the adoption of strategic risk mindset was the equivalent of addressing the requirement for cultural reform without regard for the underlying incentives and reward structures that drive people to behave in certain ways to begin with. Therefore, my proposition is that without alteration to organisational structures that create incentives, there is little hope for an enduring alteration to risk management mindset.

To my second point – the observation – I put it to you that it is a simple matter of fact to accept that organisational mindset is driven from the leadership layer. Accepting this and turning our focus to leadership within the materiel systems acquisition community, I put it to you that the most meaningful layer of leadership in the organisation, with respect to those at the working level, is at the O-5 level (i.e. Wing Commander, or equivalent); however, I do accept that the level of influence (vice meaning) increases significantly as one walks due north of O-5.

Put simply, highly tenured and experienced members of the APS and ADF (quite rightly) sit at the helm of our capability management system. Therefore, the point I wish to make is this: that anyone who could otherwise be considered accountable for organisational mindset within this context would have, at an average minimum, 20 years of institutional experience to guide their approach.

By extension, and focusing on the last 20 years in particular, I put it to you that there has been limited (albeit not entirely absent) requirement for rapid acquisition of the kind we are faced with today. That is to say, that the experience accumulated in a now outdated environment is not necessarily the most useful or suitable for pushing the organisation forward with the strategic mindset that you have called for in your paper. Thus, any alteration to said mindset will be fighting against decades worth of normative behaviours.

The net result of these two points is as follows: that in today’s increasingly uncertain geostrategic environment that demands speed to capability, the call for adoption of a strategic risk management mindset among an organisation with a vast experience base in a now unfamiliar era, paired with the absence of any structural change to incentives is, to put it simply, incompatible.

Thus, and noting once again that I do not disagree with the notion of a strategic risk mindset as the ultimate raison d’être that binds us all in pursuit of a common goal, I put to you the following alterations to structures and incentives are necessary preconditions for this mindset change.

First, there should be a structural change in the way that project risks are reported through the chain of command. Second, that a vast amount of decision-making responsibility should be pushed down the chain of command to where the information is best known and can be acted upon in a timeline manner. Finally, that posting requirements and any accompanying notion of performance assessment by promotion boards be altered to ensure tenured professionals are retained within capability streams, thus enabling members to impart sensible, timely, fox-like decision-making processes.

Reporting structures

First, and aligned to your position that projects must adopt a holistically informed strategic risk mindset, wherein risk managers enjoy primacy of position, rank and standing, I want to draw your attention to the work of another sociologist – Andrew Hopkins.

Andrew Hopkins is Emeritus Professor of sociology at the Australian National University. His work is particularly relevant because it examines the impact of organisational structure on behaviours. Specifically, his book Disastrous Decisions: The Human and Organisational Causes of the Gulf of Mexico Blowout is relevant to our context.

In this book, Hopkins described how the reporting structure at BP in the lead-up to the Deepwater Horizon incident of April 2010 favoured the performance results of commercially minded well managers (i.e. those managers who oversee an individual oil well – in our parlance we shall simply refer to them as project manager) over that of engineering managers.

The result was that decision making was focused on productivity and subordinated safety outcomes accordingly. Indeed, the remuneration of the engineering manager was affected by whether drilling operations met their cost reduction targets. Now, while I am not here to dispute the commercial reality of business management and the role of bonus incentives, I note the point that the structural focus from a reporting perspective on profit and the ensuing limited visibility it drove regarding safety matters combined to create necessary preconditions for the ultimate demise of Deepwater Horizon.

To remedy this, Hopkins proposed in his book that a more centralised reporting structure, where engineering managers report independently to higher level executes within the organisation, bypassing project managers in the process, would yield stronger safety results. This is not to say that project managers cease to report to company executives. On the contrary, under this model, company executives would benefit from a balanced perspective where the competing priorities of bottom-line profit and safety enhancements are independently presented in parallel.

In our case, where the objective is to establish suitable incentives towards the attainment and maintenance of a strategic risk mindset, Hopkins’ ideas would manifest in the decoupling of project performance – in terms of schedule, budget, scope – and risk management. This approach would see risk managers reporting outside of the historically normative filtration process of project managers who would otherwise act as the sole representative to both internal and external project reviews.

The net result of this approach would therefore be an independent set of reports that informs the chain of command and, ultimately, the Australian people on the status of project performance, risks and opportunities, all of which exist and are contextualised within the strategic circumstances of the day.

The benefit of doing so is that whereas project managers must constantly manage the abstraction of data to a suitable level and in a sufficiently holistic manner that, by definition, omits key elements of any one specific project sub-function, allowing the risk manager to present an in-depth appraisal independently of standard process would enable a truly balanced consideration of options and provide the information basis required to apply the all-important strategic risk mindset for those in our senior leadership.

Information and decision making

My second proposition to you is that we must move the decision-making power to where the information is. This idea stems from the work of David Marquet in his book Turn the Ship Around! A True Story of Turning Followers Into Leaders. Referring to the “genetic code of control”, Marquet observed how in hierarchical organisations, the ability of those closest to the information regarding a given problem or issue are stripped of the ability to deal with it themselves.

Instead, they are required to condense significant nuance and subtleties into layers of reporting and briefs in order to allow their chain of command, who are often not particularly well versed in the technical details of the situation, to make a decision.

In our case, Marquet’s example applies to the level of our project managers who are often forced away from the project teams while they deal with the preparation of briefing material for issue papers, audits, reviews or cross departmental bushfire fighting, all in support of briefing issues up the chain of command to a sufficient level where a decision can be made.

When this happens, one often finds that multiple months can elapse between the preparation of briefing material and the execution of decisions from star rank or SES level.

Too often this merely results in the course of action that the project manager had already identified being chosen as the optimum pathway, where the only differences in them making the decision themselves versus their senior officials doing it are a) the amount of time taken to arrive at a decision, which acts merely as a proxy for “effort” in resolving issues, and b) the amount of virtual paperwork that can be pointed at to substantiate the decision in the event that any external scrutiny were to present itself.

Now, while one might argue that the higher echelons of the chain of command benefit from increased perspective about interacting programs of work and strategic nuance that their tactically minded subordinates may otherwise lack, the problem with this approach to issue resolution is that it slows decision-making time frames and impacts essential working level lines of effort where the absence of an engaged project manager is deeply felt.

In addition to the lost schedule arising from this process, project teams lose the ability to access localised guidance and leadership from their project manager and are often forced to front working groups and interchange meetings without the necessary top cover and hitting power required to consolidate a position and reach a decision among cross-departmental forums. It is not hard to see how this, in turn, creates further downstream issues for the project manager when they inevitably do return from their external briefings only to find a panoply of issues awaiting their resolution.

Whereas I do not wish to deteriorate this piece into a rant on the nature of the sorts of decisions I am referring to, I would appeal to your experience and that of the informed reader as to the type of situations that I am talking about. Moreover, and while I am not suggesting that decision such as the purchase of a fourth squadron of F-35s be within the remit of the AIR 6000 project manager, there is one topic that exemplifies my point, where I think greater decision-making power should be in the project manager’s remit, and which can be neatly summarised in two words: overseas travel.

To summarise – the integral of added working level friction caused by the absent project manager, owing to higher level reporting obligations, creates a non-trivial impact on project schedule that could otherwise be avoided were sufficient independence and freedom of action granted to people in such positions.

The remedy, therefore, lies in the movement of decision-making power down the chain of command, and then, as Marquet put it, “a little bit further”. After all, given that we ostensibly entrust those O-5 (or equivalent) level staff with immense budgets and financial delegations when we anoint them to their positions, what I am proposing here is merely that the ongoing decision-making powers within project scope be commensurate with these delegations.

Posting and promotion

My third, final, and perhaps most consequential proposition to you is that we need to reform our approach to posting and promotion. That you or I immediately understand the implications and the consequences of this simple statement is testament to how much is intrinsically known by those in the organisation but which so often goes unsaid to those on the outside. Therefore, in the interest of making the implicit explicit, and so that those not so well versed with Defence personnel management practices may understand, allow me to elaborate.

As many readers will know, there is an unwritten rule in acquisition project office personnel management circles regarding the mix of ADF, APS, and contracted professionals. The rule, amorphous as it might be, runs something like this: members of the APS, not subject to a mandated posting and promotion cycle, provide corporate stability, knowledge retention and depth of expertise while their ADF counterparts structurally cycle through the organisation to provide contemporary operational experience and broaden their knowledge base such that they themselves may become the generalist flag officers capable of wielding power across the department.

Among this, contracted staff provide pinch-hitting, specialist expertise in niche areas for a limited duration in support of predefined outcomes and specified deliverables.

However, for a variety of reasons, this theory has, in recent times, failed to materialise. What one finds instead is that the combination of workforce shortages and promotional incentives to diversify among both APS and ADF members have resulted in limited tenure Commonwealth staff occupying essential positions and fulfilling essential roles within project offices, all while contractors have become the tenured repositories of vast amounts of corporate knowledge; however, powerful as the contractor cartel might be when wielded appropriately, even these tenured experts require their Commonwealth counterparts to provide the structure and direction in pursuit of holistic and meaningful project outcomes.

Unfortunately, the nature of the Commonwealth workforce as just described has, in recent times, been unable to achieve this.

My proposition is therefore geared towards the requirement to establish and maintain suitably tenured and experienced project leaders within the Commonwealth component of the workforce. Whereas I have once, too, often heard it stated that one needn’t worry about an acquisition posting because “it’s just simple project management”, I can comfortably assert that this field is a specialty in its own right and needs to be treated as such.

Non-trivial amounts of time, effort and energy are required to establish a suitably capable workforce in this light – one that can develop the skills necessary to exhibit the very fox-like behaviours that you espouse in your paper and which are required to make informed, agile, risk-based decisions within a strategic risk mindset.

Now, noting that we do appear to acknowledge this specialty workforce requirement through the existence of the Australian Command and Staff Course (Capability Management (ACSC(CM)), there does not appear to be sufficient recognition of the same fact with regard to treatment of personnel management and postings. To do so, therefore, the limitation in postings that arises through preference for breadth over depth of experience in pursuit of career enhancement incentives needs to be removed.

To that end, postings to the acquisition environment should, as a standard scenario, be extended to five years, with a workforce design that sees those personnel retained within the capability for a subsequent three-year posting.

In concert with this, our promotion system must reward performance and depth of experience in the same way that it does breadth of experience across capability streams. Notice that I do not contend that one should be preferred over the other – rather, that they be considered in the same light. For at present, and in recent times, this does not appear to have been the case. The result of this I would suggest is among the most damaging factors in Defence’s ability to procure materiel in a timely and efficient manner.

Conclusion

I trust it is clear that I do not disagree with your proposition that we need to adopt a strategic risk mindset in materiel systems acquisition. Moreover, I have long been a proponent of the need to adopt a fox-like approach to problem solving within our acquisition community and have personally found this way of looking at the world most informative.

Rather, my overarching point is that the pursuit of such a mindset must account for structural and incentives-based alterations that can and must be made to our organisation as necessary pre-conditions for the outcomes described in your paper.

Similarly, I feel compelled to state that I do not consider any of my propositions as a panacea to the problem of timely acquisition. I acknowledge the complexity of the environment within which we operate, where the interaction of dependencies and people make for large amounts of uncertainty over extended lead times that must be managed with care and attention to detail. Accordingly, I have put forward these ideas in the hope that they may be picked up by practitioners for the intent of improving our capability management system.

It is my hope that members across the department, at all layers and of all rank, can adopt these ideas at their respective level of relevance and apply them to their day-to-day undertakings in the context of their immediate team.

My sole intent always is to advance this discussion and collectively improve our skills in this field for the betterment of our warfighting professionals. Therefore, I ask nothing more than that you engage with my ideas in this light and, should you find the opportunity, offer your insight and expertise at a moment that suits you.

For your consideration.

Josh Vicino is chief operating officer at Prometheus Defence and a reservist in the Royal Australian Air Force.