Executive Summary. The functional groupings of LSD s operations are:

Executive Summary Land Systems Division (LSD) is a Division within the (DMO) that is responsible for acquisition and sustainment of designated land systems for the Australian Defence Force (ADF). LSD provides project and sustainment support to Army, Air Force and, to a lesser extent, Navy. As at October 2012 there were 1,327 1 staff working for LSD compared to a budgeted workforce for financial year 2012 / 2013 of 1,188. 2 Due to HR and Finance shared service arrangements, voluntary redundancies and natural attrition, LSD s workforce has reduced, and is currently 1,228. 3 The LSD portfolio is extensive, comprising some large projects and many medium to smaller size projects. Over the past decade, LSD has played a significant role in providing support to Australia s operations overseas and the preparation of forces to deploy. The functional groupings of LSD s operations are: Land Manoeuvre Systems Integrated Soldier Systems Land Support Systems Land Vehicle Systems Combined Arms Fighting Systems Land Engineering Operational Business Development and Planning Financial Land Contracting Land In recent years, there have been a number of factors that have contributed to a challenging operating environment for LSD. These have included providing the required support to ADF operations, while implementing reform and business improvement initiatives to meet budgetary constraints. To meet the needs of the changing environment, LSD has been proactive in initiating a number of business changes, internal reviews and programs such as: Establishing Integrated Soldier Systems (ISS) Establishing Diggerworks Establishing proactive industry engagement programs through ISS Industry forum and Integrated Product Teams (IPTs) Normalising relations with the Textile, Clothing and Footwear (TCF) industry Reforming sustainment planning Strengthening sustainment management practices Establishing the Engineering and Logistics graduate programs Establishing the Materiel Logistics Employee Development program Conducting a program to remediate legacy projects which exceeded agreed performance thresholds Initiating the LSD Organisational Business Review (OBR) Initiating an organisational change program The LSD OBR, conducted in 2012, assessed the way LSD does business and identified opportunities for increased efficiency and productivity, to deliver on the budgetary constraints which aim to help LSD meet its workforce target. 1 Source: LSD Business Performance Report October 2012 2 Source: Combined DMO Workforce (APS, ADF and Contractor) as at Pay 19 14 Mar 13 3 Source: PMKeyS data 0119_LSD Pay 19 as at 14 March 13 LSD Division Assessment Ernst & Young 2013 1

LSD has commenced implementing a number of recommendations contained within the LSD OBR through the Business Case for Organisational Change which was released by LSD in November 2012, as required by the Defence Enterprise Collective Agreement (DECA). This proposes to: Establish a new organisational structure that can efficiently and effectively deliver the same required outcomes in the new environment Reduce the LSD APS workforce to meet its budgetary requirements Whilst there is evidence to suggest that the OBR is heading in the right direction for improving the performance of LSD, there have been a range of reporting and project issues over recent months, which have impacted the Ministers and the DMO Executive s confidence levels in LSD. In October 2012, the Minister for Defence and the Minister for Defence Materiel asked the Chief Executive Officer (CEO) of the DMO to undertake a review of the structure and functions of various Divisions within the DMO which manage capability projects. Due to a number of problem projects, 4 the first review announced was a structural review into LSD. In December 2012, the CEO released the 2013-2015 DMO Strategic detailing the high level plan to describe what the DMO does, what the DMO is aiming to achieve and how the organisation will achieve its goals. To support the implementation of the DMO Strategic, assessments of each Division within the DMO are needed to identify efficiencies and achieve alignment, consistency and integration across the organisation. Ernst & Young was engaged to undertake the initial divisional assessment and LSD was the first Division selected, in compliance with the Minister s directions. The objective of this assessment is to identify how LSD can improve its performance to deliver outcomes for the DMO, and provide improved support and advice to Government, the DMO Executive and Capability Managers. Since the Minister announced the LSD review, planned changes at the Head Land Systems (HLS) and Director General (DG) level have occurred. Whilst it is evident that LSD has been proactive in instigating a range of improvement initiatives and the impact of the new HLS and DG s changes is unclear at this point in time, there are further improvements that can be made. Our review assessed LSD across the areas of structure, resources, capability, roles, process, governance, infrastructure, culture, performance management and talent management. We have identified 41 recommendations against each of the areas assessed. Our recommendations focus on addressing performance challenges and building upon LSD s strengths to help improve the performance of LSD. Aligned to the areas assessed, the focus of our recommendations are set out in Table 1: 4 Minister for Defence and Minister for Defence Materiel Defence Capability Reform, 16 October 2012 LSD Division Assessment Ernst & Young 2013 2

Table 1: Focus of Ernst & Young s recommendations Area assessed Structure Capability Roles Process Infrastructure Performance Talent Focus of recommendations Current LSD structure LSD s proposed structure LSD demographics (staff age profile, gender profile, military and APS mix, and ex-military mix) Staff retention Deployment of resources Advice to Government capability Project management capability Understanding Army s requirements Role definition and execution Command and control Process focus Advice to Government process layers Delegation levels Leadership cohesiveness and awareness Accommodation Location Software infrastructure Risk aversion Impact of Army on LSD culture Absenteeism Individual performance management LSD performance reporting Career development and progression Training and education Some of the recommendations included in this report should be implemented as soon as possible to make a significant impact in a short time frame and to rebuild confidence with the Ministers and the DMO Executive. Other recommendations will take longer for LSD and the DMO to implement and for improved performance to be realised. As such, we have grouped our recommendations to the themes of consolidate, align, strengthen and refine, and suggested timeframes to commence implementation. There are 10 key messages flowing from our 41 recommendations. In summary, these are: 1. Enhance accountability within LSD by improving performance reporting, empowering decision making at the delegated levels and strengthening performance reviews. 2. Increase staff capability to provide accurate, complete, timely and well-supported advice to Government by strengthening training programs. Capability could also be enhanced by seconding LSD staff to DMO s Ministerial co-ordination area to gain experience. In addition, the use of DPAWS needs to be mandated across LSD and the roles of Head of Land Systems (HLS) and the Director Generals (DGs) in the coordination and clearance of Ministerial Submissions strengthened. LSD Division Assessment Ernst & Young 2013 3

3. LSD remain based in Melbourne, with all staff accommodated in one location. Further, the provision of adequate Defence Secure Network (DSN) access, increased meeting room space and video conferencing technology for LSD staff must be addressed as a matter of priority. To strengthen relationships and better connect LSD to Ministers, the DMO Executive and other Divisions, HLS should spend structured time in Canberra and the DMO Executive should increase their visibility and presence at LSD. 4. All SES / Star positions should be contestable. This will not only support career progression opportunities for APS staff within LSD, but it will also ensure the most suitable candidate is appointed to leadership roles. This will also help to balance Military and APS experience amongst LSD s leadership. In the short term, all SES Band 1 / 1 Star positions should be contestable. In the longer term HLS should be contestable. 5. LSD s OBR proposes reducing LSD s SPO Branch structure from 5 to 3 Branches. To balance workloads across LSD more evenly, relieve capacity constraints that the OBR s proposed structure would impose on DGs and to minimise the risk of making a significant organisational structural change as LSD transitions to a new HLS, LSD should only reduce its structure to 4 SPO Branches. 6. Strengthen career management of APS and Military staff by establishing talent management programs across the DMO. 7. LSD implement the planned workforce management system to improve the prioritisation and allocation of Divisional workload. This system is critical for managing overall resourcing levels across LSD, supporting talent management, aligning work expectations to resourcing levels and improving the efficiency of work prioritisation across LSD. 8. Strengthen the cohesiveness of LSD s Executive team and increase their focus on actively and deliberately engaging across LSD with consistent and united messages. 9. Continue to adopt DMO-wide programs, and focus on developing new initiatives to improve the age and gender profiles within LSD. 10. Establish a mechanism to align individual Key Performance Indicators (KPIs) and performance agreements throughout LSD and to the DMO Strategic. We believe that the recommendations proposed in this report will supplement and complement the recommendations made in the LSD OBR to improve the performance of LSD. Our team has made every effort to source the necessary data to support this review. However, not all of the required data could be provided by the DMO within the timeframes of this review. As this review commenced in December 2012, the most current data available at that time has been used throughout this report to determine ratios, proportions and enable comparisons to other Divisions across the DMO. As at March 2013, LSD staff numbers are 1,228. 5 The reduction in staff numbers since October is due to HR and Finance shared service arrangements, voluntary redundancies and natural attrition. The reduction in staff numbers is unlikely to change our conclusions or the relativity of comparisons made between LSD and other Divisions across the DMO. 5 Source: PMKeyS data 0119_LSD Pay 19 as at 14 March 13 LSD Division Assessment Ernst & Young 2013 4

Summary of Recommendations The 41 recommendations documented throughout the report, against each of the DMO Divisional Assessment elements, have been classified against four themes: Consolidate Commence within 3 months Align Commence within 3 to 6 months Strengthen Commence within 6 to 9 months Refine Commence after 12 months These classifications are based on our experience achieving performance improvement within large and complex Government departments, our understanding of the maturity and resources available to LSD and the DMO, and the issues requiring prioritised attention. Figure 1 shows the four themes and the key activities and improvements expected from implementing our recommendations within the defined time periods. Figure 1: Key activities and Improvements by theme 12 Months 6 Months Refine Consolidate Revise structure Enhance support for HLS Workload and workforce management Robust reporting Provide cohesive leadership Reset and build relationships Improve IT access and facilities Increase personal accountability 3 Months Align Clarify accountabilities and responsibilities Update governance framework & business planning Communicate consistentlywith all stakeholders Increase Executive visibility Streamline support arrangements to DGs Strengthen Enhance people capability Simplify processes Develop an empowered culture Bolster talent and performance management Consider long term structure Strive for continuous improvement Improve workforce profile and succession planning Our recommendations are classified by theme and against each framework element in the following sections. LSD Division Assessment Ernst & Young 2013 5

Consolidate Table 2: Consolidate Phase Implementation Recommendations Recommendation 2. Adjust the structure proposed in LSD s Business Case for Organisational Change to reflect a four SPO Branch structure, instead of three. The budgetary impact on LSD of this amendment needs to be considered 9. LSD implement the planned system to improve the prioritisation and allocation of Divisional workload and workforce tracking 13. LSD re-set and clearly define the CoS role to increase the support provided to HLS including assisting with the centralised prioritisation of work within LSD. Structure Roles Either the current CoS could be given the opportunity to provide this redefined role, or the existing DG Land Engineering or DG Land Manoeuvre Systems could take on this responsibility in addition to their existing role, with support from the current CoS. This option is only a short term arrangement to assist the new HLS and should be reviewed in three months time. Future support arrangements need to be in line with the Minute released by the Secretary of Defence on 26 February, which outlined support arrangements for SES staff 17. LSD continue to build the maturity of its Ministerial correspondence processes 18. LSD, with support from the DMO Ministerial Services and FOI team, continue to strengthen the coordination of the Ministerial Correspondence team within LSD and mandate the use of DPAWS to manage Ministerial correspondence. The roles of HLS and Branch Heads in the coordination and clearance of Ministerial Submissions should also be strengthened as part of this initiative Process Process 19. LSD establish due dates for Division initiated Ministerial Submissions Process 20. LSD re-instate the weekly Ministerial Task List with the following adjustments made: a. Develop a consistent and forward-looking report each week b. Define parameters to trigger red / amber / green alerts c. Include due dates for LSD initiated Ministerial Submissions d. Include a separate breakdown of Quarterly Reports. These reports should be a standing task on each week s report to maintain sight of the due date and information updated as necessary e. Include in the status column information on activities being undertaken to mitigate risks or delays and likely timeframes to rectify f. Provide a set of recommendations for action by HLS, as required (these actions should be triggered when escalation of an issue is required, for example) g. Include a column to indicate whether drafting instructions have been completed and issued to the Action Officer 23. LSD improve the cohesiveness of the LSD Executive. HLS needs to enhance the LSD leadership team s focus on actively engaging across LSD and developing a communication / engagement plan for Process LSD Division Assessment Ernst & Young 2013 6

Recommendation internal and external stakeholders 26. Increase access to Defence Secure Network (DSN) terminals for LSD staff 27. Increase access to DSN, Defence Restricted Network (DRN) and Unclassified video conferencing facilities for LSD staff Infrastructure Infrastructure 28. LSD remain based in Melbourne Infrastructure 29. All LSD staff should be accommodated in the same location Infrastructure 30. HLS to spend structured time in Canberra (e.g. one week per fortnight or two days per week) to build and maintain relationships with the Ministers, Ministers Offices, the DMO Executive and colleagues 34. LSD hold staff to greater account to instill a culture of accountability and responsibility Infrastructure Align Table 3: Align Phase Implementation Recommendations Recommendation 1. Review and balance support arrangements for the LSD DGs and HLS. Re-balancing support arrangements could be used to harvest savings, to meet LSD s workforce target or to re-allocate staff to high priority activities in LSD 6. Change at least one current 1 Star position to a contestable or SES Band 1 position. 14. LSD should clarify to all staff the accountabilities and relationships HLS and LSD has to the DMO and Capability Managers. This should be done in conjunction with embedding the accountabilities detailed in the DMO Strategic 21. LSD update its governance framework to align to the DMO s new governance arrangements, that come into effect on 1 February 2013, and communicate this to all staff 24. LSD Executive engage more frequently and deliberately with all staff and present consistent and united messages 25. LSD revise their business plan to reflect the new DMO Strategic to ensure all staff are aware of the new DMO principles and that they are embedded within the daily operations of LSD 31. The DMO Executive increase their engagement and visibility at LSD in Melbourne 33. LSD develop a communications strategy that enables communication of LSD success and communication of issues with key stakeholders 35. LSD Executive reinforce to their staff about the need to maintain a balance of delivering capability to Army whilst working within DMO priorities and principles 36. LSD continue to build and celebrate the strong culture of delivering land systems capability Structure Roles Infrastructure LSD Division Assessment Ernst & Young 2013 7

Recommendation 37. LSD establish a mechanism to align individual KPIs throughout LSD and to the DMO Strategic. This should be done in conjunction with broader initiatives to align DMO Business Plans and individual performance arrangements to the DMO Strategic Performance Strengthen Table 4: Strengthen Phase Implementation Recommendations Recommendation 8. LSD develop a strategic workforce management plan that aligns with the broader DMO workforce strategy 10. LSD increase the capability of staff to provide accurate, complete, timely and well-supported advice to Government, by: a. Educating all LSD staff on the importance of providing accurate, timely and well-supported advice b. Building the capability of all staff through focused and ongoing training programs c. Holding all staff to greater account for quality of work in relation to Ministerial Submissions d. Providing additional focused training for all staff on Ministerial correspondence. This may involve members of DMO s Ministerial Correspondence team visiting LSD to conduct on-site training e. Introducing a rotation policy of seconding LSD staff to Canberra, for a finite period, in the Ministerial co-ordination area f. Enhancing staff performance arrangements to focus on Ministerial correspondence as part of their performance agreements 12. LSD provide training to staff to improve their financial acumen and ability to provide Army with accurate measures of committed and discretionary funds 15. Complete a Functional Analysis within LSD to understand where opportunities exist to align effort to the future direction and priorities of LSD and the DMO 16. LSD review its process model, identify further opportunities for streamlining processes and build flexibility into decision making. This should be done in conjunction with the Standardisation Office and activities to embed the DMO Strategic behaviour simplify processes 22. LSD review the Ministerial Submission delegation levels in 6 months or once HLS has determined that capability and trust has been rebuilt with the Ministers, Ministers Offices and the DMO Executive 32. LSD address the culture of risk aversion by empowering decision making back down at the delegated levels and embedding the key behaviors of the DMO Strategic, specifically Personal Accountability Capability Capability Roles Process LSD Division Assessment Ernst & Young 2013 8

Recommendation 38. LSD Executive review the suite and frequency of performance reports to achieve the optimum level and effort of reporting from consistent sources 39. LSD refocus the monthly Business Performance Report to increase the capacity of HLS, provide context, structure and consistency to the report, and reduce the time taken to compile and complete the report 40. LSD reinstate its HR strategy and develop a talent management program, aligned to the DMO talent management program (once established) that: Clearly defines career progression and promotion pathways for staff Supports succession planning, consistent with the DECA Systematically identifies and retains talent Provides further opportunities to develop high performing staff at all levels Strengthens LSD s existing Training Needs Analysis program and, subject to resources being made available, provides training opportunities that meet the current and future capability needs of LSD Provides incentives for completing relevant qualifications Increases the focus on individual performance management (e.g. EPAs) Achieves consistent performance management of all LSD staff (Military and APS), and alignment to the Strategic behaviours Supports the alignment of the DMO Strategic from organisational level to individuals 41. LSD extend the Training Needs Analysis to track attendance at training programs and ensure those staff who identify training needs and where budget is allocated, attend training Performance Performance Talent Talent LSD Division Assessment Ernst & Young 2013 9

Refine Table 5: Refine Phase Implementation Recommendations Recommendation 3. Review the LSD structure in twelve months time, with a view to moving to a three SPO Branch structure 4. LSD continue to adopt DMO-wide programs and focus on developing new initiatives to improve and balance the age and gender profiles across LSD 5. LSD monitor staff retention to ensure the increasing trend in staff turnover does not continue Structure 7. Make all SES / Star positions contestable in the longer term 11. DMO and LSD to continue to collect and closely monitor Gate Review data and time taken from 2 nd pass approval to contract signature to identify project management capability issues Capability LSD Division Assessment Ernst & Young 2013 10

Limitations We believe that the statements made in this report are accurate, but no warranty of completeness, accuracy or reliability is given in relation to the statements and representations made by, and the information and documentation provided by DMO management and personnel. We have indicated within this report the sources of the information provided. We have not sought to independently verify those sources unless otherwise noted with the report. We are under no obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form unless specifically agreed with DMO. The findings expressed in this report have been formed on the above basis. Third party reliance This report is solely for the purpose set out in section 2.2 of this report and for DMO information, and is not to be used for any other purpose or distributed to any other party without Ernst & Young's prior written consent. In carrying out our work and preparing this report, Ernst & Young has worked solely on the instructions of the DMO, and has not taken into account the interests of any party other than DMO. The report has been constructed based on information received since the commencement of the engagement, and which have been provided by DMO. Since this date, material events may have occurred since completion which is not reflected in the report. This report has been prepared at the request of DMO in connection with our engagement to perform the services as detailed in the engagement letter dated 29 November 2012. Ernst & Young, nor the parties which have endorsed or been involved in the development of the report, accept any responsibility for use of the information contained in the report and make no guarantee nor accept any legal liability whatsoever arising from or connected to the accuracy, reliability, currency or completeness of any material contained in this report. Ernst & Young and all other parties involved in the preparation and publication of this report expressly disclaim all liability for any costs, loss, damage, injury or other consequence which may arise directly or indirectly from use of, or reliance on, the report. This report (or any part of it) may not be copied or otherwise reproduced except with the written consent of Ernst & Young. LSD Division Assessment Ernst & Young 2013 11