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Canadian Defence Policy – November 2003
Reallocating Defence Spending: The Honourable John McCallum, Minister of National Defence 
It didn't help. The empire fell – partly due to the weight of its own military spending. The
wealth of the Russian people was misspent. In Canada, we had the opposite problem: too much concern
about our personal prosperity, and not enough concern about our military capability. Under pressure
from both foreign and domestic sources, the Liberals have finally increased the budget for defence
spending. John McCallum, the Minister of National Defence, says now it's time to reallocate resources
from low to high priority projects. In addition, there needs to be a profound change in the way that
procurement decisions are made at National Defence Headquarters. What follows is an edited version of the
Minister's 22 October speech. Following the transcript of the speech is the 29 October DND press release
announcing the purchase of the LAV III-based Stryker MGS or
Mobile Gun System.]
Report of the National Defence Advisory Committee Last January, I established an Advisory Committee on Administrative Efficiency. Today I am releasing the committee's final report. It contains a number of important recommendations – recommendations which I accept. I can assure you that this is not a report that will gather dust. The department is already actively engaged in its implementation program – clearly not a sustainable proposition. To close this billion-dollar gap, I requested and received an additional $800 million in base funding in the last budget. This was a 7 percent increase in our base budget, the largest such increase in a decade. I committed to find the remaining $200 million through reallocating our own resources from lower to higher priority areas. The mandate of the committee was to help me find some of these internal savings. And the committee has ram – clearly not a sustainable proposition. To close this billion-dollar gap, I requested and received an additional $800 million in base funding in the last budget. This was a 7 percent increase in our base budget, the largest such increase in a decade. I committed to find the remaining $200 million through reallocating our own resources from lower to higher priority areas. The mandate of the committee was to help me find some of these internal savings. And the committee has delivered. I am pleased to report that we have now found $128 million in administrative savings. This is a hard number: a permanent, recurring annual saving, which will be fully implemented in fiscal year 2005-2006. Of thmy $200 million commitment coming from administrative efficiencies, the remaining one third will come from the retirement of equipment that is, to some extent, a legacy of the Cold War. It will also come from the introduction of more modern and relevant capabilities. Thiormation technology. The remaining $43 million comes from improvements in the way the department handles materiel, following my decision last year to cancel the so-called Supply Chain project. With close to two thirds of my $200 million commitment coming from administrative efficiencies, the remaining one third will come from the retirement of equipment that is, to some extent, a legacy of the Cold War. It will also come from the introduction of more modern and relevant capabilities. This is all part of our plan to modernize the Canadian Forces. Embracing Reallocation I believe in reallocation. I know from my experience as Dean of Arts at McGill University and Chief Economist at the Royal Bank that all large organizations have ... inefficiencies. I also know that the 'system' will always claim there is nothing left to cut and that all the low-lying fruit has already been harvested. A year or so ago I enthusiastically raised the topic of my $200 million reallocation proposal with my officials at Defence. It was received with considerable scepticism. Some argued that the 'centre' would simply pocket the $200 million, leaving the Canadian Forces with nothing but cuts. Others, with magnificent predictability, argued that the department had already cut itself to the bone. The prevailing view was that no cuts should be offered, and we'd be lucky to get $300 million in the budget. But my strategy was sound. And reallocation was something that I felt very strongly about. The process of improving efficiency and shifting from lower to higher priorities has to be an ongoing, never-ending process. Just as CEOs have a duty to shareholders to continuously weed out waste and reinvent their companies in response to changing markets and technology, so too governments are charged with the same tasks in the transparent and efficient stewardship of taxpayers' money. What conclusion do I draw from this for the future? If I have the opportunity to propose a future budget increase as Defence Minister, it will certainly be accompanied by a substantial commitment for further First of all, a revolutionary change in the security environment, as terrorists have replaced the Soviet Union as the principal threat to Canada and our allies. Second, a huge change in military technology, known as the 'Revolution in Military Affairs'. The Canadian Forces must embrace this revolutionary change in three areas: people, equipment, and style of managemed my second priority as minister: embracing change. This change has two components, both of them totally beyond Canada's control. First of all, a revolutionary change in the security environment, as terrorists have replaced the Soviet Union as the principal threat to Canada and our allies. Second, a huge change in military technology, known as the 'Revolution in Military Affairs'. The Canadian Forces must embrace this revolutionary change in three areas: people, equipment, and style of management and leadership. People, as always, are at the core. Our people account es are on the right track in this area and to recommend new initiatives. The membership of the Board is, to put it mildly, a dream team, consisting of no fewer than five current or past presidents of leading Canadian universities, a number of other leading academics, and five serving and retired military leaders. I told the group that they reminded me of a comment made by my high school principal some decadian Forces are to successfully embrace change. The committee argues that a consensual, transactional style of management (which may have been appropriate at a time of cutting costs) is no longer appropriate when the priority is to embrace change in an environment where available resources have started on an upward trend. In such an environment, decision-making must be more strategic and less transactional, more decisive and less consensual, more top-down and less bottom-up. I will [give] two cases that demonstrate both the value of the committee's recommendations on management style and leadership, and the progress that the department is making along this path. The first example involves the spending of this year's $800 million budget increase. The distribution of these funds was anything but equal and consensual. Rather, it was highly unequal and asymmetrical, with funds directed where they were most needed for sustainability and transformation. As such, funds were allocated disproportionately to the capital budget, spare parts (national procurement), the army, recruiting and training programs, and support to the Reserves. My second example will be of special interest to this audience: Defence's long-term Strategic Capability Investment Plan, or SCIP as it's known locally. Strategic Capability Investment Plan The SCIP is a tangible demonstration of the type of management and leadership that is required to I will [give] two cases that demonstrate both the value of the committee's recommendations on management style and leadership, and the progress that the department is making along this path. The first example involves the spending of this year's $800 million budget increase. The distribution of these funds was anything but equal and consensual. Rather, it was highly unequal and asymmetrical, with funds directed where they were most needed for sustainability and transformation. As such, funds were allocated disproportionately to the capital budget, spare parts (national procurement), the army, recruiting and training programs, and support to the Reserves. My second example will be of special interest to this audience: Defence's long-term Strategic Capability Investment Plan, or SCIP as it's known locally. Strategic Capability Investment Plan The SCIP is a tangible demonstration of the type of management and leadership that is required to successfully chart and implement strategic change. In the past, capital investment planning had been very much a bottom-up exercise. Projects emerged from proponents in the navy, army and air force. Inevitably, the sum of these proposals exceeded the budget by a large margin. As a result, there was much frustration from those whose projects were not accepted, as well as much wastage of resources because it was known in advance that only a fraction of the proposals could be accepted. Moreover, since the overall defence budget was not sustainable, there was always a risk that the department would be forced to dip into the capital budget to finance current operational needs. This year, the department has moved to a much more strategic, top-down approach in an atmosphere of greater predictability. As a consequence of the $800 million budget increase, not only has it been possible to increase the annual capital budget by $160 million, but also the achievement of sustainability in the overall budget has resulted in much greater stability and predictability for the capital budget. A more rational basis for planning now exists. Work on the SCIP has constituted a huge effort by many people, particularly the team led by the Vice Chief of the Defence Staff. When completed, it will provide a strategic vision of Defence's capital plans over a period of fifteen years. Henceforth, the SCIP will be reviewed annually, and planners will work only on projects that are in the SCIP, thereby economizing on both human resources and human frustration. Three Key Priorities Under Strategic Capability Investment Plan In the course of these SCIP meetings, I have made three priorities clear. First, the Maritime Helicopter Project remains our top investment priority, and there must be no impediment to acquiring the new helicopter as quickly as possible. Indeed, just as Adam Smith famously noted, it is not 'from the benevolence of the butcher or the baker that we expect our dinner'. So too it is not from the benevolence of the helicopter companies that we expect speedy delivery of the new helicopter. Instead, my colleague Ralph Goodale [the Minister of Public Works] and I will appeal to the self-interest of those companies with a plan that awards bonuses for early delivery, and imposes penalties for late delivery. My second priority is to accelerate implementation of the army's plan for its own transformation. Third, the Hercules transport aircraft is the essential work-horse of the Canadian Forces. Imaginative steps must be taken to improve short-term serviceability and medium-term capacity. Good progress has been made in this area, but more work remains to be done. No Strategic Airlift Capability for Canadian Forces In terms of demonstrating responsible management, I have made it crystal clear that Canada will not be unilaterally purchasing strategic airlift for the Canadian Forces. Only two NATO nations, the US and UK, have this capability. For a country of Canada's size, it is simply not an efficient use of resources. Over the past six fiscal years, Canada has spent approximately $107 million on strategic airlift, an average of $18 million per year. This is but a mere fraction of the annual interest on the cost of our own strategic airlift – let alone the capital cost. And no one has yet been able to give me a single instance where the absence of this capability stopped us or significantly delayed us moving people or equipment from point A to point B. I note with pleasure that the department has already signed a contract to airlift armoured vehicles to Kabul – just two working days after the decision to send those vehicles was taken. By removing strategic airlift from the SCIP, we free up money measured in the billions of dollars for more important investments. All Elements of the Canadian Forces are Equally Important Now, there seems to be an impression around town that I am army-centric. Yes, the army has an excellent transformation plan to which I am assigning high priority. But let us not forget that the largest single component of our current capital plan consists of air force projects, notably the helicopter project, as well as the modernization of the CF-18s and the Aurora aircraft. And let us not forget that the air force has been serving continuously in the Arabian Gulf area for over two years. The air force is vital to the success of our mission in Afghanistan. The air force is also vital to the defence of North American air space. As for the navy, as I have said many times, the navy has done Canada proud in its two-year marathon in the campaign against terrorism. In its quiet, efficient manner, the navy has done half of the coalition's work with less than one-fifth of the assets. In terms of our investment plan [for the Navy], we are committed to replacing the Auxiliary Oiler Replenishment ships. Conclusion I conclude with two messages: we are embracing reallocation; we are embracing change. I am delivering on my commitment to reallocate $200 million from lower to higher priorities. Not only do we embrace reallocation for today, we also embrace reallocation as a continuous, never-ending process that is intrinsic to the way we will do business in the future. My second message is that Defence is embracing change. In response to fundamental worldwide shifts in technology and the security environment:
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29 October 2003 News Release:
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