17 October 2000. Thanks to Richard Lardner, Inside Defense, and for getting the two reports released under FOIA.

See the two study reports cited:



InsideDefense - Special Report
October 16, 2000

Leadership streamlined, chief of staff office created
NSA Chief Pushes Ahead With Overhaul Of Agency's Culture, Operations

Review Teams Hold NSA Leadership Responsible For Agency's Problems

Oct. 16, 2000 -- A year after two teams of experts concluded the National Security Agency was suffering from profound operational and organizational problems, the director of the Ft. Meade, MD-based signals intelligence organization said last week he is beginning to see the initial benefits of a sweeping transformation effort aimed at changing the agency's culture, improving its technical capabilities and repairing its relationships with key stakeholders.

One of the most significant moves made in recent months has been the complete overhaul of NSA's leadership structure, which was sharply criticized by both expert review teams for failing to shepherd the agency into the 21st century. The agency's new "Executive Leadership Team" has fewer members than its predecessor and concentrates on corporate-wide, strategic issues rather than day-to-day operations. Further, the offices of corporate management and executive director have been abolished and replaced by a new chief of staff organization.

According to NSA Director Lt. Gen. Michael Hayden, the shift has not been pain-free. Senior NSA officials had to "separate" themselves from routine operational matters as quickly as possible and focus on the agency's overall health and future, he told InsideDefense.com Oct. 11.

"In my first months here, when we had a meeting it looked like Camden Yards," said Hayden, referring to the nearby home of the Baltimore Orioles baseball team. "We'd have a meeting on 'X' and anybody who thought they had an equity in 'X' showed up. It's hard to make decisions that way. . . . I mean, the hot issue when I arrived was: 'Did the agency have the money to continue to fund the after-hours education program as it was currently constructed?' I wondered, 'Why is that up on this floor?'"

Hayden, an Air Force officer who took over as NSA director in March 1999, said he hates to say he pays less attention to the actual running of the agency, which is responsible for intercepting foreign communications and providing security for classified U.S. information networks. But Hayden said NSA has two imperatives -- "keep it running and keep it relevant" -- and he had to turn his attention toward transforming the agency. Specifically, after decades of relying largely on in-house capabilities and tackling problems in a compartmentalized, risk-averse fashion, NSA was poorly positioned to operate in the post-Cold War global networked environment.

To put the agency on the right course, Hayden had to operate more like the chief executive officer of a large corporation than a career intelligence officer. "We said transformation was job No. 1," he noted. "We always have to worry about throwing [signals intelligence] out the door every day to meet national needs, about [having] information assurance every day to meet national needs, but what we did at the corporate leadership level was to say, 'We've got to make tough choices and our attention now has to be turned to transforming the agency.'"

NSA leadership had to "break away from the crisis of the day and let the deputies run that," he said. "Move your attention [to keeping the agency relevant]. Lead on a consistent, continuing basis at a fairly mature level of thought and focus on keeping it relevant. Keeping it relevant then devolved into a new senior leadership schema -- how we met, what kind of agenda topics we had, a new strategic vision, and a new business plan."

'Leadership Crisis'

Hayden's transformation plan is being felt throughout the agency. According to the review teams, the effort was long overdue. In August 1999, Hayden commissioned the two panels -- one staffed with agency personnel, the other manned by private-sector executives. The so-called internal and external review teams were given 60 days to complete detailed examinations of NSA's personnel, culture, organization and processes.

The internal team delivered its final report to Hayden on Oct. 1, 1999; the external team's report was submitted three weeks later. While Hayden said he was not shocked by the findings in either report, the teams' conclusions were sobering and underscored the challenges of overhauling what has long been the most insular and reclusive agency within the U.S. intelligence community (see related stories).

"NSA has been in a leadership crisis for the better part of a decade," the internal team's report declared. "It is lack of leadership that is responsible for both NSA's failure to create and implement a single corporate strategy, and for the complete breakdown of the NSA governance process. Lack of leadership is also at the heart of unfortunate organizational behaviors that have created a perception among customers and stakeholders that NSA places higher value on its tradecraft than it does on outcomes for the nation. As a result, NSA has lost credibility with its stakeholders and customers and has failed to begin the organizational transformation necessary for success in the Information Age."

So dire was the situation, the internal team warned the agency could be split into pieces. NSA stakeholders and customers "have already begun to separate NSA products and services, which they view as a national treasure, from NSA the institution, which they view as a threat to the continued availability of those products and services," it said.

The external team was equally blunt, and blamed not only leadership for the agency's failings, but the broader NSA workforce as well. "NSA appears to operate like an entitlement program," the external team found. "Most people in the agency are highly motivated and work very hard, but a portion does not. . . . Many of the supervisors in the agency do not have the courage to deal with controversial issues. This lack of courage by supervisors to address controversial issues and make difficult decisions leads to low morale. This situation becomes quite demoralizing when some people in the agency believe that all that they have to do to get a paycheck and be promoted is to show up to work."

The findings and recommendations of the two teams echoed worries that have been voiced by the House and Senate intelligence committees over the past three years. While both committees have rapped the Clinton administration for failing to allot the money needed to overhaul the agency's aging infrastructure, lawmakers have agreed funding shortfalls are only one part of a larger problem. In May 1999, the House Permanent Select Committee on Intelligence noted that NSA was "in serious trouble." Most recently, in their respective versions of the fiscal year 2001 intelligence authorization bills, the two oversight committees expressed confidence in Hayden, but still noted the agency faces formidable challenges in reorganizing itself to meet the challenges of the Information Age.

Aside from the technological and budgetary hurdles facing the agency, Hayden was confronted by a culture forged in the 1970s and 1980s when the agency's budget was flush and the slow-moving Soviet Union loomed as the primary threat. As the House intelligence committee noted in its fiscal year 2001 intelligence authorization report, "an entirely new orientation is required. . . . Each type of communication -- radio, satellite, microwave, cellular, cable -- is becoming connected to all the others. Unfortunately, as the global network has become more integrated, NSA's culture has evolved so that it is seemingly incapable of responding in an integrated fashion."

Both review teams said NSA's workforce lacks the "skillsets" to deal with the far more elusive targets the agency is responsible for monitoring. Added to that, the rest of the world is becoming more technologically savvy, making it equally challenging for the agency to keep U.S. networks secure. "NSA's efforts to shape the workforce over the past 10 years have been driven more by the need to reduce its overall size than the critical need to balance and nurture skill sets we must have to succeed in the years ahead," the internal team remarked.

Addition by Subtraction

A key to changing the way NSA leadership approached their jobs was to reduce the size of what is now known as the Executive Leadership Team. The ELT consists of Hayden, NSA Deputy Director Bill Black and the agency's deputy directors for operations, information assurance and technology. The ELT can be expanded, depending on the issues at hand, to include other agency executives like the general counsel and inspector general. The goal, however, is to keep the ELT's membership narrow and focused on "big thoughts," Hayden said.

On Oct. 14, NSA executives announced further adjustments to the agency's upper management structure. A new office of the chief of staff has replaced the executive director and corporate management divisions. Rear Adm. Joe Burns, formerly the deputy director for corporate management, is the new chief of staff. Additionally, the agency unveiled new "associate director" slots to handle the agency's information technology, human resources, installation and logistics functions. A fourth associate director will oversee the agency's National Cryptologic School.

Hayden and Black have augmented their titles; they are now, respectively, the "director and chief executive officer" and the "deputy director and chief operations officer" of NSA. As COO, Black, who took over as deputy director in July, will be primarily responsible for "keeping [the agency] running," Hayden said, while "the CEO has the primary responsibility for keeping it relevant."

The external review team had proposed the establishment of a COO who would be responsible for "moment-to-moment" activities at the agency, freeing the director to establish and improve "high-quality" relationships with stakeholders like the defense secretary, the director of central intelligence, Congress, the military commanders-in-chief and the service chiefs. Hayden said Black's new role responds to the external team's recommendation.

Hayden previously created several posts within the NSA corporate hierarchy that are intended to improve business operations and allow the agency to better handle its SIGINT and information security missions (Defense Information and Electronics Report, June 23, p1). NSA now has a chief financial manager, a chief information officer, a senior acquisition executive, a transformation office, and a division whose primary function is to assure the well-being of NSA's highly stressed information technology infrastructure. These offices operate under the auspices of the agency's chief of staff.

Establishing the chief financial manager's position was a major step in addressing the problems pinpointed by the internal and external teams as well as Congress. Both review teams recommended the hiring of a CFM, noting that NSA doesn't manage its financial resources properly and is unable to use resource data to support its decisionmaking. As Hayden put it, the agency was unable to use money as a management tool. Late last year, Hayden hired Beverly Wright, who had spent her career in the financial management industry, to fill the chief financial manager's slot (Defense Information & Electronics Report, Dec. 10, 1999, p17).

"We began to put in a financial management system, which is actually now fairly mature and we're now beginning to see the benefits of that," Hayden said. "Both teams mentioned that we don't make fact-based decisions because we don't have information systems that provide us with that kind of data. But we're beginning to see the results of having started this."

For example, agency officials relied on data from the new financial management system in developing the agency's business plan. "One thing we discovered is that we were not paying sufficient attention to the welfare of our people," Hayden said. "And I'm not talking about our dental plan. I'm talking about making sure we have the right skillsets, the right levels of expertise in the agency. And it was very clear to us that we had shortfalls, and we've begun to work on that."

Hayden said the agency's financial management system has allowed it to address a criticism voiced by the external review team, which noted, "NSA has been unable to stop any ongoing program when faced with budgetary constraints. Instead, the agency makes uniform, across-the-board cuts in order to preserve legacy programs." The internal team added that NSA did not have a "single, cohesive strategy for SIGINT modernization" and was overseeing several "fragmented and duplicative" programs -- projects with codenames SMM, Trailblazer, Masterkey and Fireproof were cited as examples. The poor state of NSA's technical infrastructure was exposed in January, when the agency's intelligence processing and distribution systems crashed due to a software anomaly.

According to Hayden, Trailblazer is now the agency's primary SIGINT modernization effort and that program is a prime example of the agency's decision "to move the money from the old to the new, even though the old is still there. . . . We have moved money around, hundreds of millions of dollars."

However, as the agency closes out legacy efforts in favor of new systems, it must move with care, he said. "We've got the conceptual ideas from both internal and external teams, [and] there are consistencies, broad agreement on my part, and we're moving out as fast as we can," Hayden said. "But some of this is just hard to do."

NSA must continue to meet the SIGINT requirements of customers that range from the unified commanders-in-chief to senior administration officials and that means existing SIGINT systems can't simply be shut down while new units come on line, agency observers note. Still, as the Senate Select Committee on Intelligence noted in May, NSA "must be prepared to accept a level of risk as some resources are shifted from short-term collection to long-term infrastructure modernization."

Aiming for Lasting Change

NSA is implementing a new compensation system that should be fully in place by 2003 and is expected to help recruit and retain highly skilled employees. In particular, both review teams urged greater emphasis on improving NSA's pay structure to guard against a further exodus of agency employees to the private sector where salaries are significantly higher.

"Over the last two months, I've announced a timetable for compensation reform that will have us on a new standard by fiscal year '03," Hayden said.

Key elements of this new standard include implementing a compensation system that is aligned with NSA's corporate strategy and business plan, changing the base-pay system to one that is market based and using variable pay to recognize and reward achievement.

Hayden has been NSA director for roughly 18 months -- about half the normal tenure for that post. Over the past year and half, he's received high marks for his transformation efforts and is well thought of in a variety of circles, particularly on Capitol Hill where some lawmakers have discussed asking him to stay beyond the standard three-year term. Language was included in the Senate version of the FY-01 defense authorization bill that would have exempted Hayden from the limits on the number of generals the Air Force is allowed to have and helped clear the way for a longer stay at Ft. Meade. The provision, however, was removed during the House-Senate conference committee on the FY-01 defense bill. Hayden said the language was largely irrelevant.

"What I've tried to set up -- and what I told Bill Black when we had our final conversation before I decided I wanted him to be the deputy director -- is that this is not about us putting our people in the right place and making it happen the way we want it to happen," Hayden said. "This is about changing the system so that this works even if you and I never come to work again. That's why I've tried to set in place processes that fix these things, rather than saying, 'Well, the agency is only getting C minus from these two things so let's just move that graduating class out the door and bring the next graduating class up.' Well, I don't see any lasting change from that.

"I have got to act as if I'm the director. I can't begin to say, 'Well, it's about time to start winding down.' The charge I've been given by the [director for central intelligence], by DOD, by both [the House and Senate intelligence oversight] committees is very clear: 'We want you to start out of the blocks, run a 100-yard dash, and even though it's a marathon you're still going to run 100 [yards] every 10 seconds.'

"I've got nothing else to do, nowhere else to go," Hayden added. "I [work] not as if I'm in the second half of the average tenure of a director, but as the director, and there is nothing more to that sentence." -- Richard Lardner

About the internal and external team reports:
The internal team, known as the New Enterprise Team, and the external team submitted their final reports to Lt. Gen. Hayden in October 1999. InsideDefense.com obtained both studies along with appendices through the Freedom of Information Act. Both documents will be available soon on InsideDefense.com.

Review Teams Hold NSA Leadership Responsible For Agency's Problems

In October 1999 National Security Agency Director Lt. Gen. Michael Hayden received final copies of two studies he had commissioned to recommend solutions to the numerous problems that threatened the future of the signals intelligence organization.

The reports were bluntly worded and contained sharp criticisms. In particular, the studies placed the blame for the agency's woes at the feet of the NSA's senior-most officials. One of the reports, prepared by a team of private sector information technology executives, charged "many of the supervisors in the agency do not have the courage to deal with controversial issues." The external team discounted claims that a smaller, post-Cold War budget and a greater demand for the agency's SIGINT and information security (infosec) products are to blame: "Unanimously, the external review team believes that the managerial issues would be no different should prior funding levels be restored. Money alone is not the answer."

The external team also noted "there have been a number of significant studies of NSA in selected areas over the past decade. Almost all have been done extremely well and offered good recommendations. But almost none of these recommendations have been implemented in a meaningful manner."

The other study, completed by a group of NSA employees known as the New Enterprise Team, warned "absent profound change at NSA, the nation will lose a powerful weapon in its arsenal."

"Stakeholders and customers are resigned to accepting diminished NSA capability, not because of insurmountable technological challenges, but because NSA has proven to be a poor steward of the nation's SIGINT and INFOSEC capabilities," the NETeam report stated. "NSA is an organization ripe for divestiture; its individual capabilities are of greater value than is the organization as a whole."

"Nearly every person we interviewed mentioned the failure of leadership as the principal cause of the agency's decline," the NETeam added.

Overwhelmingly, the two studies did not speak well of Hayden's predecessors.

While Hayden agrees with the bulk of the findings in each report, he said the criticisms have to be put in the proper context. Specifically, previous NSA directors had been operating by necessity in a risk-averse, compartmentalized environment, he said. That environment has changed completely, demanding massive changes in the way the agency operates and is organized.

"Less money and increased requirements have a tendency to uncover behavioral patterns, the effects of which are buffered under different kinds of circumstances," Hayden said in an Oct.11 interview. "You have an agency that survived very well by being very compartmentalized and very focused. It had a very focused target [the Soviet Union], it had a relatively steady funding stream [and] it had a technological edge on the enemy to beat the band.

"When you do that, what you want is consistency and thoroughness and care. When you live in a culture that reeks of thoroughness and detail . . . you develop a leadership system that optimizes you for that. And so you're up there against a Soviet Union that's very dangerous, but frankly is pretty lethargic.

"Well, since speed is always a trade-off against something else -- thoroughness, care, whatever -- why would you invest a great deal of money in speed that you don't need, knowing that if you over-invested in speed you're shorting yourself somewhere else [that's] very important? You build up a way of making decisions that's pretty well optimized for that. None of that applies today. The funding is far more limited, the target is far more dispersed and the target's technology is not produced by a superpower but by a $3 trillion a year telecommunications industry," he said.

"And so the [external] team describes it as lack of courage, [but the agency] is a very conservative, risk-averse organization. It's pretty easy to say that's lack of courage when one of your premiums is to avoid risk. That's what I think they were referring to."

Of the NETeam and its external counterpart, Hayden said "these were really honest people. They did everything I asked of them. They were very candid, and they didn't pull punches. That said, they weren't mean or vindictive There's hard language in there, but it's not hateful language. It rings true in broad measure. Honest men can differ -- they talk about lack of courage, I may choose to say that's conservatism. The result is actually pretty much the same. What it is I do about it is different.

"And to a degree perhaps the reports don't reflect that this might be a lot more about process than it is about individual people," he added. "But I in no way undercut the cultural problems the agency has." -- Richard Lardner

Special Report - October 16, 2000
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