The Business of Government Hour

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About the show

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. The executives discuss their careers and the management challenges facing their organizations. Past government executives include Administrators, Chief Financial Officers, Chief Information Officers, Chief Operating Officers, Commissioners, Controllers, Directors, and Undersecretaries.

The interviews

Join the IBM Center for a weekly conversation about management with a government executive who is changing the way government does business.

David Chu interview

Friday, December 13th, 2002 - 20:00
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David Chu
Radio show date: 
Sat, 12/14/2002
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David Chu
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Arlington, Virginia

Friday, October 4, 2002

Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, the co-chair of The Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about The Endowment by visiting us on the web at www.businessofgovernment.org.

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation this morning is with Dr. David Chu, Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

Good morning, David.

Mr. Chu: Good morning, Paul.

Mr. Lawrence: And joining us in our conversation is Bill Phillips.

Good morning, Bill.

Mr. Phillips: Good morning, gentlemen.

Mr. Chu: Bill, how are you?

Mr. Lawrence: David, what's the mission of the Office of the Undersecretary for Personnel and Readiness?

Mr. Chu: We're the 'people' people of the Department. That is to say, we manage everything ranging from what the pay table is going to look like for military personnel, through the health care system that provides for them and their families, all the way through to questions of overseeing the readiness of our units, in terms of the training that they get, and where they get that training and how it's going to be conducted.

Mr. Lawrence: And how does it fit in the overall mission of the Department?

Mr. Chu: People, as you all I think appreciate, are the heart of the Department. And of course, there are a lot of people. We have about 3-1/2 million people when you count the active reserve and the civil force of the Department, in terms of the direct employee workforce of the Department.

And without those people, who are quality people, who are well-trained, well-motivated to do the kind of job that the nation needs, there really isn't a military. So this is the heart of the Department's capacity to fulfill the nation's needs.

Mr. Lawrence: David, as the Undersecretary for Personnel and Readiness, what are your specific duties?

Mr. Chu: My job is really to set policy within the framework that the Congress provides by its statutes and consistent with the administration's aims and agenda. Now, in some cases, we'll go back to the Congress and ask for a change of policy.

But to give an example, we supervise the health care system for the military. We buy somewhat over half of the health care services that our people need from the private sector. We have contracts through which this is managed. In fact, at this very moment, we're re-bidding those contracts.

And so my job is to set the parameters that are going to describe those contracts. How many regions are we going to have, how many contracts are we going to pursue, what degree of competition should we aim for, what's going to be the nature of those contracts, what are going to be the incentives that those contracts contain.

I don't actually run the programs myself. The office doesn't run the programs directly. But it may administer the programs, or it may administer the agency that actually carries out the task at hand. That's an example, again, from the health care sector. We have the so-called Tricare Management Activity that actually runs the contracts for us.

Mr. Lawrence: Tell us about your career prior to this appointment.

Mr. Chu: I spent most of my life in and around the Defense Department in some fashion. I came in as a young Army officer during the Vietnam War. I got my chance to visit Southeast Asia, as every Army person I think in that era got to do. And coming out of that experience, I looked around and was fortunate enough to be hired by RAND, which is a research corporation, headquartered in Santa Monica, California.

And quite by accident, I started working on military manpower questions. I was originally trained as an international trade and development economist. But this was the focus of great deal of attention, this question of military manpower, in the early 1970s. Because as you remember, the country had made a decision to go to a volunteer force. Big experiment. No one had ever attempted to put together this big a military composed completely of volunteers before. The British had a volunteer force. Much smaller scale.

And so the Department of Defense engaged RAND, among others, to help it think through how are we going to make this successful? How are we going to make this work? And it was a big challenge. And you may remember some of those years in the '70s. The volunteer force didn't do so well at first, in fact, almost failed. Partly because they set the pay numbers wrong in the mid-1970s. And the quality levels of the force fell, and in fact fell further than people managing the Department of Defense understood to be the case, because they'd made a technical mistake. They had misnormed the so-called Vocational Aptitude Battery tests, the Armed Services Vocational Aptitude Battery tests, the ASVAB.

And the managers thought they were getting reasonably qualified people, maybe not quite the level they'd like to have. The sergeants kept saying, you know, these people aren't like the ones we used to get. They just aren't very good. It turned out the sergeants were right. It turned out they were taking in large numbers of people only marginally qualified for military service, by mistake in the mid-'70s.

Congress reacted to all this by setting standards for the military, in terms of the quality of recruits enlisted in the military. And part of RAND's job was to help the military and say, okay, if these are the standards, how are we going to get from here to there? How are we going to make this successful?

I came to work in Washington in 1978, at the Congressional Budget Office, where I ran the section responsible for national securities issues broadly. And I was invited by the Reagan administration to become what's called the Director of Program Analysis Evaluation, which is the sort of inside think-tank in the Pentagon. It's there to advise the Secretary on choices, on alternatives.

In some ways, it's the black hat of the Department. Your job is to be the Secretary's set of intellectual shock troops, to advance new ideas, ideas that may not be popular, in fact, generally aren't popular, but later come to be received wisdom.

I'll take an example. One of the issues we took on in that period of time is who should conduct the air defense mission of the United States? In that era, it was the air sovereignty mission. In other words, the airliner comes to the United States, you know, appropriately, who goes up and checks it out kind of thing. And it was being done by active Air Force units, even though it was a mission that we thought could be done equally well, and at somewhat less expense, by Reserve companies, Air Guard, Air Reserve units.

And you would have thought that we were heretics for raising this possibility that the Reserve components could do this. Well, after a long battle, the Air Force grudgingly agreed to try out using more Reserve component crews for this purpose. And of course, quite ironically, I came back to the Department, having been there from '81 to '93, came back in 2001 to discover we now had, at that time, all the air defense being conducted by Reserve component units.

So part of your job in that post is to get new ideas tried, to get them advanced, get people to look at them. I served in that post for almost 12 years, left as the administration left office in January of '93, Bush 41, as people call it. And I returned to RAND, as it turned out. I worked in RAND's Washington office, which I was the head of for a while, and then later ran one of RAND's major units, the ROIA (?) Center, which is the unit that advises the Army. And then I was invited by the present administration to come back in the post I now hold in June of 2001.

Mr. Lawrence: Given that career, what made you decide that you wanted to come back this time?

Mr. Chu: I have always found public service extremely rewarding. I recognize financially, often people take a significant step down in income to take these positions. But the psychic rewards, the sense of contribution that one gets, and the opportunity to help the nation do its business, is tremendous compensation. It gives you a tremendously good feeling about what you're doing with your life. And so it's that more than anything else that I think makes public service attractive.

Of course, the Defense Department, as I think you know, is a great place to work. It's a terrific set of people, highly motivated, very mission-oriented. Polite (?) did a survey of federal employees recently. You may have seen this piece of research. And while we have our faults -- and he pointed some of those out -- nonetheless, he was really struck by the degree to which morale in the Defense Department was not only good but getting better over time after the events of September 11th, because it's so mission-focused.

And it's just a great set of people to work with. It's a real sense of community, a real sense of pulling together, common purpose. And of course, in some sense, defending the country and its interest is the ultimate public service, the ultimate reason one had a central government.

Mr. Lawrence: It's interesting that you mention that it's such a great place to work, because the Department of Defense is the largest of the federal government agencies. And I'm just wondering with things of that scale, how do you communicate? How do you do the traditional management functions on that size?

Mr. Chu: Well, you use every instrument at your disposal, including programs like this, obviously. Part of it is just very straightforward. It's a bit like Woody Hayes and 3 yards straight up the middle. You write the memos; you make the announcements.

More important I think is getting out and talking to people, if not face to face, at least in some way that they can ask you questions, they can express their concerns. I am struck that many of the problems of the Defense Department -- and I think it's true of any large bureaucracy -- arise from miscommunication. As the military would like to say, what's the commander's intent? What are we trying to do here? What are we trying to accomplish? And why did we pick this way of getting to that goal?

And I am impressed at the power of just sitting down and talking with people. And of course, in an organization that large, a lot of what you need to do is talk to the leaders of subordinate units, to convey to them what are we trying to accomplish here? Why did we choose this method?

And of course, even better to have talked to them before you've made a choice, to engage them in thinking through how might we solve this problem? How might we address this issue? And I have always found that if you can get the leaders together like this, that you may come in the room with no idea of what to do about the problem at hand. And I am impressed at the number of times you leave the room with the outline of an answer, with the framework with which you can proceed. Because each person has contributed his or her particular insight.

And so I find the meeting -- I know people laugh a bit about meetings as being the bane of their existence. Actually, I find the meeting extremely productive. And with the tasks I have to be responsible for, a terrific way to get them to explain what we have to do, and to get them help tell us what a solution might look like.

Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our conversation with David Chu of the Department of Defense.

Human capital transformation is a key part of the President's management agenda. What's the Department's plan to address the human resource issues? We'll ask David when The Business of Government Hour returns.

(Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu, Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

And joining us in our conversation is Bill Phillips.

Mr. Phillips: David, can you talk to us a little bit about the efforts at the Department's human capital transformation process? How do the different pieces fit together, and how is that going to impact the overall mission of the Department?

Mr. Chu: I'm delighted to do so. Let me start with why we are trying to change things. We recognize this is a different world than the one that characterized the Cold War. The Cold War is over. The United States, as we all know, faces different military problems. We have to have the right kind of people, the right set of skills that are appropriate to that new set of problems.

The other thing of course that has changed is American society. It's a society a lot more educated than it was true before. It's a society where families have different aspirations than might have been true in earlier years. One of the most important changes is that most young Americans now want to go on to college reasonably soon after they finish high school.

In the old days, so to speak -- I'm almost old enough to be able to say that -- most high school graduates went out and got a job. And so the competition, so to speak, was not college. It was the job market.

Given all these changes, we have to change both what we're aiming at, and how we're going to get there. And that's what the human capital transformation is all about. To do that, what we've tried to do is to borrow from the business playbook, develop a set of strategic plans that look forward. In other words, instead of back to what our past practices were, let's look forward to what our future practices ought to be.

And separately for the military and civil forces of the Department, we have a set of efforts that are intended to give us those strategic guidelines. And I can say more about that in just a few minutes.

At the same time, for both the civilians and military, we recognize that a key part of why someone would want to join and stay with our organization, and really work hard and contribute with our organization, is the set of understandings between us and them of what this position, what this commitment is going to be like, what the social compact is, so to speak, emphasizing that we're all in this together. This is not us versus them, not employees versus management. We have a combined interest here.

And so, yes, we're going to ask you to do some difficult things, and to take on some fairly significant burdens, in particular in the military case, to risk your life or your health in the process. But at the same time, we're prepared to do various things to make sure that you're well taken care of. And part of what we want to do for both the civilian and military forces in the Department, is to make sure that that social compact is in good shape, that we are appropriately taking care of you.

That doesn't mean coddling people. It means being sure that their circumstances are what they find attractive that makes them want to come to work in the morning, want to contribute.

The terrific spirit we saw on September 12th, when the Secretary of Defense made a decision that if at all possible, the Pentagon would reopen after that attack. And I was really struck at the awe in the tone of media reporting, that my God, all of these thousands of civilian and military personnel are trooping back into the building while the building was literally still burning. And no one had any hesitation about coming back to work.

That kind of dedication is why you want to be sure that people are well taken care of.

Mr. Phillips: You mentioned the strategic plan and linking the human capital. Could you tell us a little bit about that strategic plan?

Mr. Chu: Yes. We start by asking ourselves, both military and civilians, what kind of skills are we going to need in this future world that we face? And then of course -- and that's a large debate. Obviously, there are going to be different opinions about that debate. I think the common element for both military and civil personnel is this is going to be a more educated force in the future. And so the old view that a high school diploma was enough, and that on the military side, let's say, and that we didn't really care very much if you got any further formal education or not, that's out.

We recognize that both for our good and for your -- to meet your desires, most young people enlisting in the military want to continue their education, since we have a whole set of programs designed to respond to that. And part of the strategic plan issue is how do we position these programs correctly. So, how much do we do on tuition assistance, for example.

The Army has a wonderful program called Army College Online, in which, if you meet various criteria, they will give you a "free computer" that allows you to do courses from various universities on an online basis.

Impressive results. I happened to be at Fort Lewis the day they were giving out the computers. Even though they had emphasized there were plenty of computers for everybody, that you didn't have to wait, people were there in line at 4:00 a.m. in the morning to make sure that they were going to get their computers. And these were not just privates. There were people wearing quite a lot of stripes on their arms who were there, making sure that they got the computer, and saw them signing up for their courses, and so on and so forth.

So there's a terrific thirst for continuing education on the part of our people. We want to slake that thirst, because we recognize it's also in our own interest. So defining what we need, thinking through what we're going to have to do to attract, retain, and motivate those people is the essence of what these plans are all about.

And so what they consist of is a series of, as we were phrasing it, lines of operation. In other words, areas we have to pay attention to. And then within each, the specific steps we'll need to take in order to achieve the results that we want.

Mr. Phillips: Let me just extend that thought a little bit. You've talked about some of the challenges you face with respect to college as an alternative to the military. You've talked about some of the programs that the Army has in place. What are the key things that the Department needs to do to continue to attract young people to the military?

Mr. Chu: Well, one of the first things that you have to do always, is to make sure that your compensation package is fair, competitive. No one's going to get rich serving in the military. But they shouldn't have to absorb undue financial burden either. And so you have to constantly pay attention to what are we competing against? And that's one of the big changes taking place that we have to react to.

Twenty years ago, the standard for thinking about enlisted compensation in the military was what could a high school diploma make in the American economy? That's no longer relevant. If most young Americans, particularly the ones that we want, seek to go on to college, the standard is what could someone with some college education, let's say a year or two, make in the American economy. That's a very different set of numbers. It's a higher set of numbers.

The President has responded to that by saying that a part of our pay raise in the last 2 years should be targeted to the mid-range in terms of experience of our both enlisted and officer communities, because in both those areas, we're kind of weak, when you, on the enlisted side, vet it against some college earnings line. We were not competitive, and we still aren't as competitive in that regard as we wanted to be. So we're slowly trying to bring our compensation level up.

But it also means, back to what you mentioned earlier, that we have to convince young people regarding college, it's not either/or. The military is not an alternative to college. We have to give you the chance to continue your education while you're in the military. Or the military could be the vehicle by which you accumulate the savings -- the Montgomery G.I. bill being the example -- so that you can, post-military service, resume a college education.

So we're trying to position ourselves so that it's not either/or, that you can do both, you can have your cake and eat it, too, and that's what we're trying to tell young people.

Mr. Phillips: You mentioned earlier the strategy for civilian members of the Department of Defense. Could you contrast that with the military strategy for H.R.?

Mr. Chu: We are starting from a much lower base with civilians. I think it's true of the federal government at large, and certainly the Department of Defense that we have not thought about our civilians as the kind of strategic resource they truly are. And one of the things I think that's giving everybody a wake-up call on this front is the coming wave of federal retirements. Everyone understands that because the civil workforce has been on a decentralized basis, what we have is a workforce with a lot of people nearing retirement age. Standard numbers are in 5 years, half the federal workforce could retire. That number applies to DoD as well.

Now, not all the people are going to retire when they become eligible. So it's not upon us quite as rapidly as some of the doomsayers may assert. But certainly in the next 10 to 15 years, the way we see it strategically as a problem within Defense, we have to recruit a number of people equal to approximately half our current workforce. That's a huge challenge.

It's also a different mindset. The last 10 to 15 years of DoD workforce management, true I think in most federal agencies as well, has been how to move off the payroll. How to downsize. How to shrink. We are not in the recruiting business. I'll take a very simple kind of issue. Do we have a booth ready to go to job fairs? Well, a few weeks ago, we didn't have a booth ready to go to job fairs. So, if I would call up and say "You know, XYZ is having a job fair. Where is our booth?" I would sort of get blank looks, because until recently, that hasn't been our problem.

Now, it is our problem. And we want to approach it strategically. We don't just want to wait for the retirements to swamp us and to drain all the talent at once. What happened, in fact -- you may recall this episode in New York City, when Mayor Lindsay let the senior workforce of New York City subway system maintenance unit all retire at once.

Well, a funny thing happened. For the next several years, the trains didn't work. Because not everything was written down in the manual. And it was those senior guys, mostly guys -- some gals, I suspect, though not many in that era -- who knew how to -- who knew those tricks, who knew how to make the trains actually run. And we don't want to let that problem happen to us. So we're trying to get ahead of that problem.

On the civil side, we're just beginning this journey. We're just starting to put the tools in place necessary to achieve these objectives. And one of them, a very simple one, is simply being candid with ourselves. How many people do we need to hire each year? Up to now, we'd never set a goal. We decentralized it, told, you know, component managers well, it's your problem Bill or Paul. You know, here are the civil service rules, here are the lists. You go hire someone.

We think we have to take a more strategic approach than that, in order to be successful.

Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our conversation about management with David Chu of the Department of Defense.

This is The Business of Government Hour.

(Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu. David is the Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

And joining us in our conversation is Bill Phillips.

Mr. Phillips: David, in our last segment, you were talking about strategic planning with regard to human capital transformation and a number of those things. Your current planning talks about a capabilities-based workforce, and that model. Talk to us about that, and how is it changing the way the Department does its business?

Mr. Chu: Of course, in the Cold War, we faced a single -- or often thought we faced a single major opponent. And we had a well-defined idea about how that opponent might act and threaten our interests. And so, if I may use sort of an economist's jargon, we had a point solution to every problem. We could optimize. We could pick what we thought was the best answer, because we thought we knew what the problem was we had to solve.

Now we face different problems, where the threats are not as clearly defined, where we may face over time a very different kind of problem, and one that we can't fully now foresee as I think the events of September 11th illustrated. So we're much more into a portfolio management problem, if I may continue the analogy, where we have to hedge against a variety of possible outcomes.

I'll give you an example, a practical example that I'm struggling with right now. Language training. What kind of language capacity do we want our military and civil workforce to have? Indeed, what kind of language resources will the Department of Defense need over time?

Now, 15-18 months ago, no one would have forecast that finding the Pashtun speakers in the military ranks would be a high priority task for the personnel system. Now of course we'll take every Pashtun speaker we can discover. And yet, you can't keep every possible language on hand. So, how do you get the capability here to interact with a variety of societies, some of them very different from the United States, certainly very different from Western European notions of what's the state, what's the role of government, so on and so forth. How would you function in this society?

And we need to be able to solve that problem to have the capability to operate wherever on the globe the President might send the military forces of the United States. So, it is a matter of being able to act effectively in a wide range of circumstances, whose specific parameters we cannot foresee that now constitutes the problem that we've got to solve. And what we're really coming to is I think a conclusion that to do so, you've got to have a range of capacities within your institution, not just something optimized for one particular problem.

If you're optimizing one problem, you know, it's like the watch that is stopped. It will be accurate twice a day, but it will be useless the rest of the time. Much better to have a timepiece that's perhaps not quite so precise, but that's more or less on the mark across the entire 24 hours. And that's where we want to try to take the Department.

Mr. Phillips: You have a number of initiatives in place to improve quality of life. Could you talk to us about those, and describe how they're impacting readiness and recruiting and those elements?

Mr. Chu: That's a critical issue for both the military and civil personnel in the Department. On the military side, I think it's something that's long been recognized. The military has a saying that goes something like retention decisions are made at the kitchen table, that it really isn't the retention officer that's doing the job. It's what the family decides is right for them. And that means it's not simply a matter of what is the work responsibility of the military member. It's also what happens to the family.

And that affects all aspects of their lives. Several are of course more salient than others. One is housing. The state of military housing is not good. The President spoke to that during his campaign and has emphasized it since. It's one of his personal interests. Our problem is that we have an old housing stock for those who use military houses. It was built, much of it, to the standards of the 1950s.

And to think back on what those standards were, I think we usefully recall what was a Levittown house. Levittown, as you know, was the late-'40s, Long Island, first suburbia kind of development. And it had just under 1,000 square feet. And it had one bathroom. There was no such thing as a family room, breakfast nook, or any of that sort of thing. There was only a one-car garage. That's not the standard that American families aspire to today.

What have we done? Starting in the last administration -- and I have to give a lot of credit both to Congress and our predecessors in this -- they realized that we couldn't do that all ourselves. And it was time to turn to the resources of the private sector, and to offer them essentially a long-term lease kind of proposition on government land, in which they would build the houses, and we would give them a preferential opportunity to rent those houses to our people. So we have a vast set of housing privatization efforts out there right now.

What does that do for us? First of all, it brings the capital of the private sector to bear so the government doesn't have to raise the capital outright. Second, it brings the skill of the private sector in figuring out what the housing -- what do people really want in a house? We're not necessarily all that good at it, and we shouldn't probably be writing those specifications. We want a result, which is we want a happy set of families. You tell me what they're going to like. Here's how much money they can spend, because everyone knows what the housing allowance is going to look like.

What's in it for the developer? Well, we have a good set of customers. Our people pay on time. Because in fact what we'll do is just send the housing allowance directly from the Treasury to developer if you want to buy the house. The developer still has to compete, typically, in these arrangements. He has to build a house, or a condo type unit that's attractive enough that the military members want to say, yes, I'd like to live in this. And so he's got a strong incentive to build a good community. And typically in these arrangements, he has a 25-year lease maybe with an option to roll over for another 25 years and certain refreshment stands. They're fairly complex vehicles.

But they're very imaginative. And the results, at least so far, are extremely promising. You can go to these various bases. An excellent set at Fort Carson, as one example. They're great houses. Military families are delighted to live in them. They're nice communities. The developer has a strong interest in making a successful community, because he wants to fill it with these high-end families that come on with their housing allowances, which means there's no vacancy rate, there's no cash flow problem, there's no delinquent payment issue for him. It's a win-win situation for everyone.

So that's just one example of how we have to respond to what our people aspire to. We can't just stick them in a 1950s Levittown, even if it's "free," and assume they're going to be happy.

Mr. Lawrence: Health care costs are rising throughout the country, and I'm assuming the Department of Defense is no exception. What are the major concerns about health care in the Department?

Mr. Chu: Well, the big transition in health care in defense was the move to a managed care like paradigm in the late '80s, early '90s, which we call Tricare. The early years, to be candid, were not a happy situation. We had a lot of performance issues. We're proud of how far we've come over these last 10 years. We treat this just as a private sector health care operation, where we do survey of our patients after their last visit. We send them a questionnaire and say what about this last visit? How did you feel about it?

We're very proud of our scores. We're right up there just about where the better private plans are in terms of patient satisfaction with the encounter that they've had. We do face the same challenge the civil sector faces, and that is the rapid rise of health care costs, although we're very proud of the fact that this past fiscal year, for the first time in 4 or 5 years, we finished the year within our budget.

And that relates to a major management effort we've made as the Congress likes for us to optimize the mix of resources we bring to delivery of health care, to improve how well we use both the contracts we have, as well as the set of military treatment facilities, hospitals and clinics that are government-owned and government-operated and staffed by government personnel.

Often we had a bad match in a particular local market. And increasingly, the way we're going to try to deal with the cost issues over time is to view the health care system as a set of important local markets. Each one has different conditions. For defense, there are 15 or 20 really big ones around the country. Washington, D.C., is an example; Norfolk, Virginia, is another example. San Diego is an example. Fort Hood is an example. San Antonio is an example.

In other words, a place where we've got a lot of people, and we have a significant number of assets, both government and purchase character. And the issue for us is how to put those together in the best possible fashion. We'll be appointing a set of market leaders, market managers, really, who will be the guru for that area, and with certain powers to reallocate resources, and reapply resources within that small region to get the best outcome for our people, and the best deal for the government.

Mr. Phillips: Does the changing nature of the population, its age and its size, pose different complexities for managing health care?

Mr. Chu: Absolutely. We have an older patient population now than was true 20 years ago because a lot higher fraction is composed of retirees and their families. And of course as you know, Congress made a decision 2 or 3 years ago to extend the Tricare benefit to those who are otherwise Medicare-eligible. Prior law had said once you became Medicare-eligible, you dropped out of our system, except insofar as we had space available in a military hospital.

That led to an outcry on the part of the retirees as they reached 65. Congress reacted by saying, okay, they're eligible, too. So, within the last 18 months, we've rolled out what's called Tricare for Life, starting October 1st a year ago. The pharmacy part actually started a little bit before that.

It is I think a great tribute to the people working with our health care system. They made this all work. This is a huge -- this is hundreds of thousands of additional households, for which we suddenly became responsible and the whole issue of paying their bills as second payer to Medicare. So it was a significant financial transaction operation to manage here. And then it's gone, I think, at least we believe, quite well. In terms of the transition, people are generally satisfied with the outcome.

But yes, it is a population that's much older on average than was true before. And we suddenly added all these much older families, so we've got a whole new set of issues to deal with in terms of how we manage the system, including -- you know, some of these things you don't think of in advance, in terms of what public administration requires -- including the whole question of eligibility.

And the way the military medical system works, to be eligible, you have to have a military ID card. Well, many older retiree families, especially surviving widows, haven't had an ID card in years. In fact, had no idea they were supposed to apply for an ID card, because there was no benefit to them doing so. So we had a big effort to get the word out, and to help people who haven't had an ID card to get one so they can be in the system. And it's not so much the card per se that's critical. They have to be in our automated register, so to speak, so that when you come to a treatment facility, they say oh yes, here's Bill. He's on my list. We'll pay his bills. We'll cover his care.

Mr. Lawrence: That's a good stopping point. It's time for a break. Rejoin us in a few minutes as we continue our conversation about management with David Chu of the Department of Defense.

This is The Business of Government Hour.

(Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu. David is the Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

And joining us in our conversation is Bill Phillips.

Mr. Phillips: David, in the last segment, you clearly demonstrated a passion for the quality of life and the social compact with the military. Talk to us about education of children of military dependents.

Mr. Chu: I think this is one of the sleeper issues out there. And it illustrates the fact that what people worry about in terms of our quality of life shifts over time as the aspirations of Americans change.

And one of the things people aspire for now, as we all appreciate, is good quality education for their kids. We've done a terrific job overseas with Department of Defense educational system. Our schools overseas, if we were a state, and you gave us a standardized test -- and we do actually do take these tests like everybody else we'd be between 1 and 5 in the nation, in terms of test score outcomes, which is I think a terrific record.

But as I go around the country and I ask people stationed at Base X or Camp Y, how is the school system, too frequently, I get poor answers. I get answers where you recognize from their behavior that they are not satisfied. We have, in many locations, people either living a fair way away from the base in order to find a school system that they find adequate for their kids, or actually sending their kids to private schools. And it's not just officers. We now have some senior enlisted personnel, who, while we pay them decently, I don't think we're really paying the level where they can typically afford a private school, who are saying I'm going to somehow find this money, because the situation is unacceptable.

This is a big issue for the Department. The Department, of course, should not be running the schools in the United States. We do, for historical reasons, run a small set on the few bases around the country. But we shouldn't be in the school business because that's a local responsibility. And one of our big challenges in the Department of Defense is to find a way to work with local communities so they can improve the school system for everyone, but importantly including the children of our military personnel.

Now, one of the improvements which we seek all around the country, both from strong school systems as well as others, is being sure that they're sensitive to the needs of kids of families who move around a lot. One of the difficulties that occurs is, you know, tryouts for the sports are let's say the last week in August. Well, if you don't show up till September, you may not be considered by the school system.

Likewise, each school system has its prerequisites in order to take the calculus course, let's say. Well, if you didn't quite meet those, you know, you might not get that chance. And so we've got an organized program, importantly advanced by Mrs. Reimer (?), the wife of a former Underchief of staff, to try to sensitize school systems and school system leaders to the need to think about how your rules will affect an important part of your student body in those communities where you've got a lot of military children.

And I'm delighted many school systems are responsive to that overture when we make it, and start to think about how they could do things a little bit differently so that our kids have an equal chance as someone who has lived for 20 years in the same place.

Some of it's hilarious, and the local school superintendent can't do anything about it. One of the problems, as you know, in many school systems, is you have to take a course on the history of the state in which you live. And some of our children have taken the history course for several states, which is more I think than anyone really anticipated.

Mr. Lawrence: Many have wondered I think about the relationship between the Department of Defense and the Department of Veterans Affairs. Now, as I understand it, you're part of an Executive Council that's looking into the coordination between the two. I wonder if you could tell us about the goals of that Council?

Mr. Chu: This is something that Leo Mackay, the Veterans Affairs Department Undersecretary and I put into place within the last year to respond to the President's interest in seeing better coordination between the two departments. But obviously share, in some sense, the same population. The veterans are all graduates, alumni, so to speak of the Department of Defense.

VA runs a big medical system, as we all know, of course, to deal with veterans' problems, which are somewhat different from the active force. In some locations, we have facilities in the same place. And so one obvious issue is shouldn't we collaborate more? Shouldn't we find a way to work together? We also have issues of how we organize the benefit program so it's easier for them to deal with those programs. For example, could we not make the exit physical from the military the same physical that VA uses for assessment of disabilities?

Well, in the past, the physical didn't do all the tests the VA needs to have. So it's a matter of making sure that we have the same form, that the record can be read by both institutions since all records are now increasingly electronic, and that we make sure we cover all the testing VA has.

Some of it is quite straightforward. Some of it is quite complex, in terms of how we do things. And I'll give you an example. We already do a fair amount of business where they take care of our patient, we take care of their patient. An example in Honolulu is Tripler (?) Army Hospital has a VA outpatient clinic on its grounds. And if you need inpatient care, you go to the Tripler Hospital.

But each of these has to be crafted one by one as a separate agreement between the two institutions. A lot of argument of what the costs are, who's supposed to pay for each element of cost. And what Dr. McKay and I agreed was let's find a way to cut through these arguments so that the two institutions can work together more easily. And so what we did was simply say if you take care of my patient, there is an externally established schedule of prices. Essentially it's an extension of the Medicare schedule.

And we'll both agree to accept that, because we want to be able to meet -- actually, accept it minus 10 percent because there ought to be some savings here for the government and the taxpayer -- and let's not argue over exactly whether I used one more bandage on your patient than would be normal, and therefore I've got to charge you a little extra. It will all come out in the wash in the end.

And the idea behind this is to release the energies of the local leaders so they can come to the agreements, which they typically seek and want, because they want to do the best thing for their patient population.

Mr. Lawrence: David, let's shift and talk about the future. You talked earlier about the challenge of the pending retirement over the next number of years, significant people leaving. As you look out, what are the most significant personnel and readiness issues and challenges that you face and the Department faces?

Mr. Chu: It's how you sustain the contemporary success of the volunteer force. As American society changes, and the aspirations of young people change, and as we're conducting a probably long-term global war on terrorism -- this is not a short conflict, this is a long haul event, much like the Cold War in some respects, I think is the way we ought to think about it. That ought to be our mindset.

And how do you keep this force as it is today the best military in the world? Important because it's got the best people in it, and they are motivated and properly trained to do their job. And that's the other big challenge. How units will operate in the future, as I think operations in Afghanistan demonstrated, is going to be very different from the past. It's a much more, as the military like to say, joint operation.

So you had Army Special Forces operatives on the ground calling in air strikes from Air Force and Navy aircraft. And we don't practice enough for real, so to speak, in peacetime, in the peacetime settings with those kinds of joint operations. Not that services don't work together well, not that they can't work together - not that they can't improvise well. But our standard is and should be not to improvise.

In other words, this should be second nature. It shouldn't be okay, I've got to solve this problem on the aircraft on the way to the theater because I'm now facing the enemy. I should have done this over and over, so it's automatic, so I know what I'm doing, and I know how to work with someone from a different service, a different kind of weapons system than my own service provides.

And providing that joint national training capability is one of the Secretary's premier objectives. My orders are, stand this up by 1 October 2004.

Mr. Lawrence: Given all the conflicts you alluded to, what's going to happen to the size of the Department if that's --

Mr. Chu: Our expectation is the number of people in active service will probably be relatively constant over the foreseeable future. We need to realize the challenge the secretary has issued to the Department. Don't just solve the problems, react to the pressures of the present day by adding without thinking about what you're going to subtract. In other words, if I have a new, high priority mission, what older mission that maybe isn't quite so important, can I take off the table? What can I stop doing?

And why does the secretary want to do that? The obvious reason is we do not have an unlimited budget. Although we have a big budget, there is a constraint out there. And the secretary has to do two things with the budget. He has to win the current conflict, and he has to invest in those transformational articles that will change the face of the Department for the future.

If he allows new missions simply to be added on top of everything else we're doing, he'll never have any money with which to transform. And so my clear instructions are figure out what we can drop off, what's low priority, what doesn't have a real payoff in this environment, which might include civilianizing the function, which might include going to a contract to provide that function.

The constant question that I'm charged with examining is does this need to be uniformed personnel, which is our most expensive resource in the Department.

Mr. Lawrence: What advice would you give to a young person who is now considering an opportunity for career service?

Mr. Chu: Well, first of all, I'd congratulate him or her, because I think it's a terrific choice. Second, I'd emphasize pick something that interests you. Because if you don't have a passion for it, if you don't enjoy it, if you don't like it - there are a lot of vicissitudes that come with public service. There are a certain number of burdens. I don't want to be unclear about this.

And so you've got to love what you're doing. I think it's less important to chart a career in some kind of managed sense. If you do well, my take on the federal government is if you do well, you'll get a great chance, a great set of chances. So start with something interesting. Start with a set of issues that turns you on. Start with a set of people that you like to work with, especially pick a boss that you respect and that you think you can learn from, and it will take care of itself from there.

Mr. Lawrence: David, we're out of time. Bill and I want to thank you for being with us this morning.

Mr. Chu: It's my pleasure. Thank you.

Mr. Phillips: Thank you very much.

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Dr. David Chu of the Department of Defense.

Be sure and visit us on the web at businessofgovernment.org. There, you can learn more about our programs, and get a transcript of today's very interesting conversation. Again, that's businessofgovernment.org.

This is Paul Lawrence. See you next week.

David Chu interview
12/14/2002
David Chu

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