Examination of Witness (Questions 360
WEDNESDAY 4 DECEMBER 2002
KCB OBE AFC
360. The McKinsey Report raised quite a few
issues but one of them was about the cultural barriers internal
within the DLO. What are you going to do to take that point on
board? Other issues it raises are matters like accurate time management
in terms of accounts of people's time. It will be interesting
to see what has been done about that. Also, it criticises quite
heavily this inclination to hold on to excessive stock on the
basis that you might need it at some later date. Have you actually
addressed those specific criticisms raised in the report?
(Air Chief Marshal Sir Malcolm Pledger) If I can try
and take them in turn, the cultural issues are still a feature
of a joint organisation, and I think McKinsey will also be careful
to identify that the reasons for the formation of the DLO remain
as accurate todayperhaps more important todayin
our employment regime. The culture issue, of course, is not just
what I will call an internal DLO issue, as McKinsey shows. This
is a relationship with the myriad of customers that this organisation
exists very definitely to serve. It is also a relationship with
our suppliers, which varies according to the environment that
they support. So there is no doubt it is still a significant barrier
to what I will call the best
361. What steps are you taking to remedy that?
(Air Chief Marshal Sir Malcolm Pledger) First of all,
and I think you will see in here, there is a whole, new approach
to procurement, to supplier base optimisation and to an engagement
with industry that in particular areas will be more of a partnering
solution, with risk management shared across the whole of the
end-to-end process, rather than what I will call the horizontal
out-sourcing type arrangements that have been in place already.
I launched this with industry a couple of weeks ago, and part
and parcel of that launch was, also, a very clear statement to
industry that it required their perspective and approach to this
to change as well, given the operational risk associated with
what we deliver. So we have to work on that and we are already
working on it with what I will call the integration of some of
those suppliers into our organisation, the ability to data change
but, also, to meet face-to-face to determine what the collective
responsibility should be rather than the confrontational relationships
of the past. At the same time I have a personal requirement to
get a better understanding with my customers such that they understand
that we live in the real world of military capability and that
they have a role to play in setting those requirements with a
clarity that today, perhaps, does not always exist, and that we
have to, also, integrate those IPTs in a way that is not just
environmentally based. One of the points from McKinsey was that
best practice is there, the trick is to apply best practice when
it was not necessarily invented here. So all those are on-going.
We are trying to create different organisational structures, and
the board has been reorganised to reflect that. As I said, we
have got a change programme, we have champions in that change
programme working across the whole of the DLO not just in the
previous stove-pipes. So a whole range of endeavours on culture.
You talked about accurate time management. I do not think that
was one of McKinsey's, what I will call, real or significant findings.
362. It was raised as an issue, which raises
it in terms of public bodies that in industry know exactly what
costs money, etc.
(Air Chief Marshal Sir Malcolm Pledger) So it is mapping
costs on to endeavour, not just time. I think, again, that is
very fair, but I think that is why I have said that we have deliberately
set out two parts of this regime: one to concentrate on delivering
the product as currently constituted, and the second one deliberately
to set up a change process that will identify the benefits and
then prosecute. That is the means of getting that message across
within the organisation and externally.
Chairman: I think we will come on to
more about McKinsey later, if that is okay. If there is anything
that is rather sensitive we can always, if necessary, go into
363. Sir Malcolm, good morning. You are grappling
with a 20% efficiency target at the moment, with another £1¼
billion to be found in the next three years. I appreciate that
it was set by your predecessor but can you shed some light on
how that 20% was determined and whether you are confident it can
be achieved or not?
(Air Chief Marshal Sir Malcolm Pledger) I do not think
I can shed too much light on the reason for 20%. I probably want
to take refuge in saying that is the way that any large organisation,
when it looks at rationalisation and bringing together significant
output-oriented organisations, would want to start. There has
to be rationalisation of considerable extent across that organisation.
The 20%, of course, was an output target, not an input one. I
would suggest that one of the motivators to that was to try to
create a culture in the organisation that was focused on delivering
the outputs rather than simply maintaining the current arrangements
for provider regimes. But why 20%, I think I would probably have
to come back to you with the reasons, other than to say that it
is, of course, a stretch target that is entirely consistent with
the principles of Smart Acquisition.
364. It is not plucked from the air, surely?
(Air Chief Marshal Sir Malcolm Pledger) When you put
three organisations together and you have got a balance sheet
of £22 billion and a total operating cost that is, even now,
of the order of £9 billion a year, I am not sure it is not
a reasonable aspiration to identify targets of that kind of proportion.
365. Might it not have been that 20% was the
sort of sum that would make the SDR programme affordable?
(Air Chief Marshal Sir Malcolm Pledger) I have no
doubt that a recognition that we could do things with better value
for money within the DLO helped the SDR process, but I have got
no reason to believe that it was the, what I will call, arrangements
to make the bottom line match.
366. How confident are you about achieving it?
(Air Chief Marshal Sir Malcolm Pledger) Again, as
I think I have said so far, one of my largest disappointments
on taking over was the inability to show how far, really, we had
gone along that path and, therefore, the fragility of the information
systems that were in place to identify, prosecute and then measure
the change that resulted. We currently believe that we are probably
nearly a third of the way towards that target. I would have to
say that the process changes and assessments that have come out
of the best practice and its extrapolation across the DLO should
go at least halfway, if we are successful, to achieving those
targets. What we have also identified in here is the means then
to move up that staircase from traditional logistic support into
the availability or the contracting for output regimes. That is
a very powerful tool to incentivise industry in a way that I believe
will get us further along that path. So, certainly not complacent
and a very stretch target remains, but I think we now have the
identification of at least a large proportion of the savings that
we do need to make, whilst improving effective logistic support
to that military capability.
367. Your new Strategic Plan identifies an "immediate
priority" of "defining an output cost baseline and understanding
cost drivers and levers". How can you be confident that such
large savings are achievable when such a fundamental, first step
has yet to be reached?
(Air Chief Marshal Sir Malcolm Pledger) As I say,
it is an output regime but it does not stop us still counting
the input inefficiencies that we will make. So we do have the
means to do that. The new performance regime that is also in here
shows you how I believe we can do it. Nonetheless, the Ministry
as a whole, of course, is committed to move to an output costing
regime. The customers are already embarked upon that, and we needcertainly
with our major customersto accelerate that. We have targets
to achieve by 1 April, but deliberately we have to measure on
an output basis if we are to achieve this target from 1 April.
368. Once your integrated project teams have
sorted out their "costs of ownership", you expect them
to achieve 30% savings over the next four years. Do you expect
each and every integrated project team to find such a level of
savings, as the Strategic Plan seems to suggest?
(Air Chief Marshal Sir Malcolm Pledger) No, absolutely
369. How are you going to balance that?
(Air Chief Marshal Sir Malcolm Pledger) What we are
embarked upon, as it says in here, is a clear process-based evaluation.
Each of the business units are championing some of these streams
and they then, because of their stewardship of the IPTs, engage
with them to determine where the benefits accrue. I think, again,
if you look at McKinsey, it becomes plain and apparent very quickly
that the 80/20 rule applies, with some of these large IPTs potentially
delivering the savings much more quickly than others. Therefore,
we have to concentrate our resources and our efforts in those
particular areas. That is already in place.
Patrick Mercer: I know Kevan is begging
to come in.
370. If you do not achieve this 20% target,
it is legitimate for ministers to sack you?
(Air Chief Marshal Sir Malcolm Pledger) Fine.
371. That is what I find very odd. Whenever
I set targets for the people I used to manage, one, I used to
actually have some control over them. One of the rationales I
always used to set was the fact that they were achievable. If
you are saying you do not know, one, why the rationale was set
and, secondly, it is not achievable, I think in your position
I would be very concerned that if somebody does come round and
say "You have not met these targets" you are going to
have to have some damned good excuses and reasons why. Surely,
it would have been better to start off by saying "This is
not achievable". Frankly, we could have picked any figure
(Air Chief Marshal Sir Malcolm Pledger) I do not think
I said that. I think I said that I did not know why, necessarily,
20% was picked. I think I said I thought it was
372. But you are in charge of actually meeting
this target. If I was in your shoes I would want to know exactly
why it was picked. If I have got to meet it.
(Air Chief Marshal Sir Malcolm Pledger) You may. I
simply said that we are currently at a point in the transformation
where we have recognised we have made 6%, that is 14% left. That
is a stretch target that I accepted on taking up the appointment.
Mr Jones: Why?
373. Did you challenge that at all?
(Air Chief Marshal Sir Malcolm Pledger) No.
(Air Chief Marshal Sir Malcolm Pledger) I did not
see a reason to challenge it. We had already embarked upon that
375. Can I ask another question, then? If 20%
is a figure you cannot justifywhich I find remarkable that
you take responsibility forwhat is to say, then, that the
figure for efficiencies could be higher than 20% and therefore
it could be leading to inefficiencies? Could it not?
(Air Chief Marshal Sir Malcolm Pledger) The second
point you have made twice is that it is not achievable. I think
I went through an explanation of the means that we have identified
to achieve it. I think that is a fundamental difference from where
we were a year ago.
376. I am sorry, I think that is absolute nonsense.
If you are actually going to achieve a target, first of all you
need to know whether it is achievable and on what basis it is
set (you have not got a clue, you said); secondlyokay,
you are working towards itfrom the public purse point of
view, or an efficiency point of view, how do you know, if you
do not know why it was set, if that is the ultimate figure? You
might be able to save 20 or 30%. If you are only going to get
a situation whereby you get 20% and then you lay off, is that
not bad news for the taxpayer, if you can actually get, say, 30
(Air Chief Marshal Sir Malcolm Pledger) I think you
are trying to bring what I will call a black and white perspective
to this. I seriously still think that we have shown what we have
achieved so far, and I have given you reasons why 20% is a legitimate
377. You do not know if it is.
(Air Chief Marshal Sir Malcolm Pledger) In the constituency
of what is available to me from the tools that I have and the
time-scales in which we are going to try to produce that. I think
I had also said to the Chairman when we started that this will
be a vehicle to do so, which we will update each year. I have
no doubt whatsoever
378. I am sorry, you do not, because you have
actually said to this Committee, one, you do not know why the
target was set in the first place. Therefore, you have not a clue
whether that can be achieved or whether a higher figure can be
achieved. All I am saying to you is that 20% was chosen but we
could have pulled any figure out of thin air30, 40, 15
or 5, whatever. I would have thought a fundamental question that
you should have asked is whether you can actually achieve this.
I will say this as well: if I was sat in your shoes I certainly
would have done.
(Air Chief Marshal Sir Malcolm Pledger) As I say,
I think I have answered that question, and I think I have given
you the means whereby we can get to 20%.
379. Or higher?
(Air Chief Marshal Sir Malcolm Pledger) I think I
also said to you that as we develop through the programme management
arrangements and through further Strategic Plans, if there are
subsequent opportunities for us they will then be reflected in
the update of this document.