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By business standards, however, McNamara’s reign at the Pentagon was an enormously expensive failure. His hatchet-men found many sweet cost savings – the duplicated purchasing which bedevils all widely spread businesses had become gross in the Pentagon, and the management techniques which produce better housekeeping were badly needed. But exacting more effective current expenditure is only one side of the management job. McNamara became far more famed for his applications of private enterprise management technology to the Pentagon’s new product launches.
‘Planned Programme Budgeting’ and ‘cost-effectiveness’ have passed into the mythology of government as well as management. The idea behind PPB is to analyse the need you are trying to meet (just like a consumer durables company identifying a market want); to evaluate the alternative methods of satisfying desire; then to choose – enter cost-effectiveness – the plan which most satisfies the specification at least cost. Yet McNamara’s previous employer, Ford, had wrongly identified the market need (plumping for an up-market large car when the customers were swinging to cheaper, more compact machines): had made the wrong product for that wrong specification: and had achieved the biggest loss ever made outside aerospace. Cost-effectiveness, indeed. The Edsel was an unconvincing trailer for business methods in government.
The McNamara reign did see some excellent new exteminators placed in the American armoury – but so did those of previous Secretaries of Defense. None of them surpassed McNamara’s failures. Many projects begun under the efficiency expert ended in wondrous cost over- runs (some $20,000 million on twenty-seven major projects), or in startling non-performance, or sometimes in both.
The most notorious of these, before Lockheed came along with the Galaxy C5A, was the F-111 – also known as the Flying Edsel. This near-total fiasco grossly exceeded its costs and, when finally put into service, crashed before the North Vietnamese could even get near it; here McNamara had overridden his aggrieved military advisers in favour of the more ‘cost-effective’ managerial solution. His civilian managers, however, were wildly out on both the costs and the effectiveness – a happening very familiar in private enterprise.
McNamara’s original mistake was another at which business is adept: he tried to kill two birds with one stone. If the same plane could serve the Army and the Navy, the US would save money. It couldn’t, and the US lost. It’s like the British chemical giant which built a monster plant and decided to save on a boiler by reusing the steam generated in the plant’s process. When the plant was completed, at a cost of many millions, the snag appeared: steam was needed at the very beginning of the process: so without an independent steam supply, how on earth could they start it up? The start-up was finally achieved, after such expense and lost time that shutdowns could never be tolerated. But the lower-quality steel piping (seen as an incidental economy of not having a high-pressure boiler) promptly melted… A few million wiser, the company has since had the plant operating beautifully with an independent boiler stuck on the end. The stories have parallels in every company that has ever done business; it is as easy to make mistakes in analysing a need as in meeting that need, or in actually making the hardware. Multiplying the stages of the management process is no protection against errors: it merely provides more opportunities for crassness.
Excerpted from pages 37-38 of ‘The Naked Manager by Robert Heller