In the aerospace age, top managerial skill must be tempered with true objectivity. This careful balance is the government’s aim in the utilization of nonprofit organizations. It is a unique and justifiable solution for a time that demands high skill against a background of urgency.
Those of us who are managers have to be better managers than anybody has ever been before.
—Eugene M. Zuckert, Secretary of the Air Force
“We are by no means satisfied that the unique managerial talent with which this notion it endowed has yet made itself fully effective in defense production.”
—Roswell L. Gilpatric, Deputy Secretary of Defense
“The most critical resource we have is management talent.”
—Gen. Bernard A. Schriever, Commander, Air Force Systems Command
“The traditional prime contractor, the independent systems contractor, and the nonprofit corporation are but progressive attempts to keep forms of management abreast with technology. Each of them we created within the framework of private industry to perform a common function. The first step was to concentrate this function in o single manufacturer; the second to seven it from hardware production; the third to separate it from the profit motive.
—Max Golden, General Counsel, Department of the Air Force
Clearly, the spotlight is on technical management. This is true not only in the defense industry and the Pentagon, which share the staggering responsibility for America’s security in the years ahead, but in Congress, where the effort is monitored.
The issue now appears joined at the point where the Defense Department, and most specifically the Air Force, believes that in special cases top technical management must be teamed with true objectivity. And that the nonprofit corporation, created specifically to provide talent and objectivity, is the best way to form this team. But some members of Congress are challenging the concept as a tool to achieve good management. And there are men among them who are the first to find fault with bad management when it appears.
At the same time it must be pointed out that no committee, congressional or otherwise, has argued that there is a better way of garnering the talent and objectivity needed or that a change would improve our management of defense projects.
It must be understood at the outset that the spotlight is on a single category of nonprofit organizations. At the moment these include the Institute for Defense Analysis, RAND Corporation, Aerospace Corporation, MITRE Corporation, System Development Corporation, Analytic Services, Inc., and the Army’s new Research Analysis Corporation. Most recently, the Defense Department has launched the Logistics Management Institute.
Outside the Defense Department, the National Aeronautics and Space Administration is reported considering a nonprofit organization to help mobilize scientific skills. And, as if to illustrate that even profit-makers see virtue in no profit, the communications industry is considering such an organization to operate a satellite relay system in space.
Some of these organizations are concerned with matters of management, as distinguished from primary interest in research, development, test and evaluation, or the production of hardware, however small in quantity. In aerospace jargon, they are carrying out the primary mission of systems engineering and technical direction, described on these pages last month in the more familiar terms of architecture and management. Aerospace and MITRE are the most important examples.
Their ancestry goes back, as Air Force General Counsel Max Golden suggests, to the time when USAF entrusted systems engineering and technical direction to a prime contractor, monitored by a Weapon System Project Office. The B-52 bomber was produced with the Boeing Airplane Co., as prime, and when the first airplane was delivered to Castle AFB in California, the entire system, both airborne and ground-support elements, was operational. Gen. Clarence Irvine, then Deputy Chief of Staff for Materiel, said it was the first time in his experience that this had been true.
With the advent of ballistic missiles, USAF turned to a special private organization for its systems engineering and technical direction. This was Ramo-Wooldridge, later Space Technology Laboratories. Factors dictating the decision in 1954 were the status of the ICBM program, which had been allowed to lag for a few years, the size and complexity of the program, and its high priority. On top of this there was a recognized shortage of top talent capable of mastering all the new technologies that had to be coordinated to ensure success. From the beginning, Ramo-Wooldridge was a profit-seeking organization but labored under a USAF-imposed handicap: It was forbidden to turn to hardware production as a source of profit. Ramo-Wooldridge was financed for the most part by Thompson Products Co., which does manufacture missile components. The parent company, it was recognized by the Military Operations Subcommittee of the House Committee on Government Operations, “was clearly interested in Ramo-Wooldridge’s commercial potential.” The company was looked upon by its severest critics as “another private contractor pursuing its stockholders’ interests first and the government’s interest second.”
Basically, it was this criticism that led to the establishment of Aerospace Corporation after the same House committee, acknowledging that the early missile program had been a success, said in 1959 that “if STL is to have any future with the Air Force, it must be converted into a nonprofit institution. . . .” USAF chose to sponsor formation of a new company, after it was clear that STL was determined to continue—as always—as a profit-making organization.
What Aerospace is to USAF’s aerospace program, so is MITRE Corporation to the electronic systems in the relatively new area of command and control. As a technical adviser, it works on concepts and integration. It cannot design a product or carry on production. It provides top technical talent with objectivity. “The necessary objectivity might be attainable in industry,” says MITRE president C. W. Halligan, as a rule industry itself might question an evaluation made by the contractor or by his competitor.”
This has been confirmed by USAF’s experience with systems evaluation and technical direction. The Air Force also has found that it can achieve more flexibility—in technical areas, logistics, and organization by using an independent contractor. When several systems are being managed by one organization, the major subsystems back up each other. If one appears to be failing, it is relatively easy to select a subsystem from another project and substitute it. If one subsystem shows marked superiority over its parallel in another project, management is free to recommend substitution. This kind of flexibility is hardly possible if each aerospace system has its evaluation conducted by a different prime contractor. It also has been pointed out that the method gives USAF more flexibility in dealing with a large number of associate contractors.
There are sound indications that over-all costs are reduced. A single prime, as Congress has lamented from time to time, can collect overhead and profit on work done by subcontractors. At the same time, some studies indicate, the method generates greater competition among would-be associate contractors.
It has been pointed out that a profit-making company entrusted with responsibility for system evaluation and technical direction is bound to face situations where it can make an honest and objective decision and still be accused of serving its own, and profit-making, interests. If, under these circumstances, the prime contractor loses the confidence of some associates, his value to USAF is lessened and the projects he handles are jeopardized. This goes not only for current systems but also for the ones he may direct in the future.
As pointed out last month, more than 350 nonprofit organizations are serving the government. If any two of them are exactly alike in charter, corporate structure, environment, mission, capability, or future prospects and ambition, it is not evident in the record. What they do have in common is their utilization in what Deputy Defense Secretary Roswell L. Gilpatric has called “a variety of functions.”
“Most of us in the Department,” he said in a recent speech, “rarely have the time to sit back and examine objectively the operations of the military establishment. While individuals could be detached from their regular assignments for this purpose, such an arrangement would not solve the problem of reconciling entrenched organizational points of view.
“Furthermore, nonprofit organizations enable the Defense Department to bring to bear on problems which cannot appropriately be assigned to private enterprise, talents not readily available to the government.”
Then he added:
“There are obviously limits on the use to which such organizations can be put, and we certainly do not intend to let them become convenient catch-alls for projects within the competence of private industry.
“Government in-house activities, nonprofit organizations, and private industry all have their roles to play in the defense program. The objective should be to achieve the best possible balance among all three types of competence.”
Mr. Gilpatric’s reference here was to the criticism voiced in January 1960, by a committee that studied USAF’s ballistic-missile management under the chairmanship of Dr. Clark B. Millikan. This group found that STL had done a good job but accused USAF of giving it too many tasks “outside its primary area.” The report made it clear that systems engineering and technical direction were the essential functions.
USAF Secretary Eugene M. Zuckert has echoed Mr. Gilpatric. The nonprofit organizations, he said at a Los Angeles symposium, “are in a position to make unique and valuable contributions. It is because they are special that we turned to them in the first place. And so they must be kept, if their exceptional potential is to be fully realized. We must be particularly careful that they do not become convenient catch-alls for work which should be performed either by the Air Force or by private industry.”
Mr. Zuckert pointed to the House committee’s basic vote of confidence in the concept, which was aligned with a warning that a close rein must be retained. He said USAF must make it clear why the nonprofit corporation was selected to do a particular job.
“Our purpose,” he said, “will be to preserve the usefulness of these nonprofit organizations by ensuring their scrupulous attention to the proprieties of public service and the bona-fide interests of the people of the United States.”
This goal has been put into words as a statement of policy on USAF’s relations with the nonprofit firms it has sponsored. Specifically mentioned in this regard are Aerospace, MITRE, RAND Corporation, Analytic Services, Inc., and System Development Corporation. The text of the policy statement is on page 79. It was issued over Mr. Zuckert’s signature.
The policy is a new and more restrictive definition of the controls USAF intends to maintain over nonprofit corporations. Behind each of its clauses there is something in USAF’s experience, usually on Capitol Hill or in its relations with production contractors, that calls for correction or a clearly stated insurance that some abuse, actual or potential, is eliminated.
Unspoken in the policy statement is the evident conviction that the more esoteric systems which lie ahead in the aerospace age require a type of competence and objectivity, so far as evaluation and technical direction are concerned, that can best be achieved through a nonprofit operation. The suggestion, made by the General Accounting Office and some members of Congress, that the government can get this kind of management with in-house capability, is rejected.
The Air Force statement on its policy toward nonprofit contractors has not been greeted with unanimous approval by the five companies to which it specifically applies. Some felt that it is too severe, others that it approaches the problem negatively. At first blush one spokesman said the statement “gravely needs revision to make its provisions positive and constructive.” A high Air Force official, on the other hand, commented that “these nonprofit corporations are not traditional contractors. They have a special relationship with the Air Force that cannot be ignored. The policy statement does no more than reflect this, and, we feel, in the long run will eliminate any doubts as to the dedication of these nonprofit corporations to the public interest.”
At this writing, it appears that the policy, which imposes strict monitorship on nonprofit operations, will stick and be extended to new corporations that the Defense Department is finding necessary. The extent to which this is true may be defined more clearly after the Bureau of the Budget has completed its analysis, as ordered by President Kennedy. That report was scheduled for completion December 1.
So far as the aerospace industry is concerned—and the reference here is to the profit-making production operations on which we depend so heavily for national security—it has not been demonstrated that they have lost anything to which they have undisputed title.
“It doesn’t take a very good ear to pick up growls of industrial discontent about how deeply government is getting into business,” said Donald Douglas, Jr., in a recent speech. “But talk about socialism is cheap, while viable solutions of the problem come a little harder.”
In the seven short years since the missile program really got started there have been tremendous advances that looked nearly impossible at the outset. There have been equally great changes in the aerospace industry, yet it was by its ability to adapt itself to new management ideas while the revolution was taking place, that the industry emerged into the space age with new strength.
One House committee report, in 1959, said bluntly that “government relationships with nonprofit organizations . . . pose problems, but they are less important than the benefits received.”
There are alternatives, of course. But these could include the development of a huge bureaucratic in-house talent, or a full-fledged return to the arsenal system. They could include stricter control of private business, right to the border or into a socialistic system. The route of the Air Force and other government agencies, utilizing the objective and competent architect engineer with nonprofit status, could be a strong defense for private enterprise against these inroads.—END