Leveling the playing field

A UNC Kenan-Flagler Business School seminar tailored for the U.S. Navy has provided insights and strategies that have resulted in substantial savings.

A Naval plane takes off from an aircraft carrier.
From the flight deck of the USS George Washington aircraft carrier, two U.S. Navy officers launch a E-2C Hawkeye aircraft. Savings on the contract for the four-year Refueling and Complex Overhaul of this nuclear-powered ship are part of the nearly $2 billion in savings that can be attributed to UNC Executive Development programs developed to help the Navy improve its procurement process. (U.S. Navy photo by Mass Communication Specialist 3rd Class Bryan Mai/Released)

In 2010, as Assistant Secretary of the Navy Sean Stackley started the second year of a nine-year run leading the Office of Research, Development and Acquisition, he called on Carolina for help.

Senior Navy officers in the RDA office were responsible for negotiating the best deals they could get for everything from aircraft to ships to submarines. But there was a problem. Early on, Stackley realized his team was competing on an uneven playing field tilted in favor of the defense industry.

To get help leveling it, Stackley turned to the people he knew at UNC Kenan-Flagler Business School’s Executive Development, said Kirk Lawrence, a retired U.S. Army colonel who, since 2012, directs the program at the business school’s Rizzo Center.

Soon afterward, Robert A. Connolly, an associate professor at Kenan-Flagler whose research interests include financial markets and real estate development, was asked to develop a program to meet the Navy’s needs. Connolly worked with retired Navy admiral Harry Quast to create a unique seminar for a select group of students called “Understanding the Business-Acquisition Relationship Executive Seminar.”

As part of the foundational work, Connolly spent days poring over Navy and Congressional Research Service reports that provided details analysis on Navy acquisition programs and government acquisition rules. “I read everything to be found on ship classes, radar systems and all the rest,” Connolly said.

A record of results

Since their inception in 2011, more than 600 senior leaders have participated in the seminars, said Allison Stiller, the principal civilian deputy of the RDA Office. Students include all functional areas in a program office such as contract specialists, program managers and logisticians.

For these students, the goal was not to get good grades or collect credits toward a degree. Their sole objective was to develop a business strategy to get a better deal for weapons systems they were about to buy where billions of dollars would be at stake.

And they have done it. To date, Stiller said, the insights and strategies gleaned from the seminar have contributed nearly $2 billion in savings across many Department of Navy programs.

“Seminars such as these allow the student to look at their program with a different lens, and having that perspective yields a new way of approaching a procurement,” Stiller said. “Working with UNC over these past six years, we have embraced student feedback so that no two courses have been the same.”

Each week-long seminar kicks off with an assembly at the Rizzo Center in which top-level Navy officials join with leaders of the program to lay out the challenge — and opportunity — at hand. When the assistant secretary of the Navy is behind the initiative and expresses his support at the start of each seminar, it sends a message to senior staff that he expects this to work, Connolly said.

One unique dimension to the Navy-Carolina work are the “deep dives” where Kenan-Flagler faculty join with Navy executives to develop the foundations for an acquisition strategy for a specific weapon system the Navy is about to buy — and for dealing with the corporations they will be buying them from. The aim is to devise a detailed negotiating strategy to drive down costs. These sessions are outside of the week-long seminars and are focused on a specific acquisition program.

One of the reasons the week-long program has worked so well, Connolly said, is because Stackley understood, at a deep and profound level, the myriad challenges his office had to overcome. “The first challenge was simply knowing what things should cost,” he said.

Another daunting challenge that the seminar has addressed is to close the wide gap between what defense industry executives know about how military and government systems operate, compared to what government procurement officers know about the world of finance. “The focus on financial incentives for firms often led to many ‘a-ha’ moments for program participants,”Connolly said.

During sessions he has led, Connolly said he often used the language of game theory, which looks at the strategic interaction between two or more players in a bargaining setting, to get that point across.

“I’d say, ‘Look guys, this is a repeated game. They are playing it like a repeated game. You are not and that is why they always best you.’ That usually led to spirited discussions that moved the room because we were suddenly neck deep in the real serious business of asking, ‘If we do this differently, what would happen?’”

It is standard practice for defense companies to hire away the most experienced government civilians and military acquisition professionals who know how “the system” works, then leverage that information to maintain a competitive advantage to maximize their profits. In contrast, most acquisition professionals serve their entire career with the government and are not familiar with what motivates defense industry executives to behave, posture and negotiate in a profit-and-loss world.

“The problem is that government acquisition professionals, as a group, do not understand where the leverage comes from dealing with a private-sector firm,” Connolly said. “What we are telling them is, ‘If you want the upper hand in a negotiation, this is the place to look. ’”

The defense industry also contributes to these seminars by sending executives to participate in panel discussions and offer industry perspectives, Lawrence said. Participants include Raytheon, Huntington Ingalls, Leidos, Boeing Defense and General Dynamics Electric Boat.