Last year alone, the US Department of Defense (DOD) spent roughly $20 billion on energy—over three-quarters of which was operational energy to power the US military’s fleet of aircraft, ships, and vehicles. At the same time, recent experiences in Iraq and Afghanistan have prompted a fundamental shift in the military’s relationship with energy: access and supply can no longer be taken for granted. This means the DOD needs new approaches and technologies for managing its energy requirements.
Appointed and confirmed in 2010, Sharon Burke is the first-ever assistant secretary of defense for operational energy plans and programs. She was previously a vice president and senior fellow at the Center for a New American Security, a defense-policy think tank, where she directed research on energy security. Her job now is to help the Department of Defense and the uniformed services improve capabilities, cut costs, and lower risk through better operational energy accounting, planning, and management. McKinsey’s Tim Ash and Andrew Erdmann spoke with Burke about her role in helping to change the Department of Defense’s approach to energy—and what it’s like to establish a brand-new office within such a large and complex institution.
McKinsey on Government: You are the first assistant secretary of defense for operational energy plans and programs. What is your role and why was it established at this particular point in time?
Sharon Burke: My role is to promote the energy security of our military operations. The Department of Defense has a long history of managing energy as an input for its facilities, but this is the first time we’ve looked at energy as an operational capability. There are three reasons DOD took the step of creating this office. First, because of our presence in Afghanistan and Iraq: our supply lines were physically in the fight itself, and they had become a target. The Army estimates that on any given day, 70 to 80 percent of what’s in the supply line in Afghanistan is fuel and water. Second, the total annual energy bill for the Department of Defense is approximately $20 billion, three-quarters of which is petroleum fuels for operational energy. So when oil prices went up to $147 a barrel in 2008, it drew the attention of the bill payers in the Pentagon. Finally, both challenges caught the attention of Congress, it directed us to create an operational energy office, and President Obama agreed that it was important.
McKinsey on Government: Your office released the Department of Defense’s first Operational Energy Strategy in June 2011.1 What were you trying to achieve with the strategy, and how has it been received?
Sharon Burke: The strategy was meant to set direction. Many communities in the DOD use energy, and each has its own energy goals. We wanted to make the departmental goal clear. So this is really a “Go West, young man” message for the DOD. In classic military strategy, we talk about ends, ways, and means. First, we wanted to get unity of effort around an end, which in this case is to make sure our forces have the energy they need to operate. Then we laid out the way, which is: use less. This means reducing demand, increasing diversity and security of supply, and then, finally, incorporating operational energy considerations into future planning. For the means, the goal has been to set a direction for the department and create buy-in across the entire enterprise. It’s been well received by our uniformed military—one of the most important consumers of this strategy—including our most senior leadership in Afghanistan.
McKinsey on Government: Is the strategy helping to raise basic awareness in the military community about the role of energy?
Sharon Burke: I think everyone is well aware that energy is a cost item. But the idea that energy is a capability—that it can give you more range or more endurance—these are valued military concepts. You can’t succeed in your mission if you don’t have the right tools—and energy is a tool. We can use it well or we can use it poorly. In the context of military operations, the assumption has always been that we will have what we need, where and when we need it, in the amount that we need it. In the wars of the last ten years, we’ve certainly had that assumption challenged, and we have to think differently as we look forward. Thinking of energy as an enabler or capability in its own right is a new concept for the DOD.
McKinsey on Government: How do you define success?
Sharon Burke: We’ve been working closely with different military departments to create operationally relevant success metrics based on outcomes, but we are being very careful—success is not easy to define because it’s not strictly a question of cost. Success for the Department of Defense is in the context of military capability and mission success. How I personally define success is, “Are we getting capability into the hands of our fielded forces?” We’ve managed to quickly get hundreds of millions of dollars’ worth of improved equipment into Afghanistan and elsewhere in a way that’s having a tangible benefit for the force. So that has been our most important success metric to date.
McKinsey on Government: Could you give a specific example of the successes of which you’re most proud?
Sharon Burke: Sure. The Army Corps of Engineers knew that centralized power and more efficient generators would help tremendously, but they couldn’t get them into the field. The challenge was that every tent had a generator, and probably a generator that was supplying more power than the tent could use. That wastes fuel but also damages the generators. The Corps of Engineers fixed that by creating a small grid, so one generator is serving multiple tents or “loads.” Sometimes, they might be using better equipment, too, but it is really about using the equipment you have better.
It’s a classic problem of split incentives: consumers of fuel are out in combat; they don’t consider the limits of the supply line, and they don’t see the bill. They have to stay focused on the mission. So to help the Corps, we spent time gathering information and data and making the case to key leaders at Central Command and in Afghanistan, and we continually pressed the issue—it was a question of finding the right allies and pressure points. My leadership also supported me on this, which certainly helped. And now there is a whole suite of changes on the agenda, such as more efficient tents and shelters, centralized power, and hybrid solar systems that reduce the volume of fuel we consume while at the same time enabling our most remote outposts to become less reliant on the supply line.
Let me be more specific: we ran some of the numbers on the energy improvements made at a combat outpost in a tough part of Afghanistan. There were about 300 people there, and they had been going through 500 gallons of fuel every day, all of which had to be delivered by helicopter once a week. About 50 percent of that fuel was going to generators, mostly for heating and cooling. We estimated that just by using better generators, a simple microgrid, and insulation for the shelters, we could cut almost 4,000 gallons per month, saving one helicopter trip and 300 person-hours every month. We’ve seen similar results with other technologies—one 82nd Airborne location, for example, replaced a diesel generator with a hybrid solar generator to power its mortar pit. For the most part, that meant no noise, no refueling, and less resupply. All of these improvements help our troops do their jobs better with less risk.
McKinsey on Government: In your second strategy review in August 2012—the first since the publication of Operational Energy Strategy—you define seven targets that the armed services must meet. How well are these targets generating change?
Sharon Burke: This is not just a new office, it’s a new business line, and it is the first time the DOD has tried to manage energy security in a deliberate way. So in terms of targets, we aimed less at quantitative metrics and more at qualitative goals that would help build institutional capacity. But with that said, metrics are still important. The classic adage is that “you can’t manage what you can’t measure.” So we started with targets aimed at improving our ability to measure energy. And there are other targets—for example, we asked our research and engineering communities, both in the Office of the Secretary of Defense and across all of the military departments, to assess the way they are currently using operational energy and to look for gaps. That assessment has been completed, and we’re going to use it as a tool to guide investment.
There are things that we can do, though, to immediately improve our energy management, and we have set targets to do so. We asked our military departments to show us what they’re doing right now to make improvements, but also to show us the investments they’re making in improving some of their legacy systems and other platforms. For example, the US Air Force (USAF) has a program called ADVENT, also known as ADaptive Versatile ENgine Technology, which has a goal of 25 percent improvement in engine efficiency. That’s been an R&D program—an investment in future engine technologies—but the USAF is also making changes in real time. Air Mobility Command, for example, is improving how it routes, loads, and flies big-cargo aircraft, which is saving millions of gallons of fuel each year.
McKinsey on Government: What are your primary concerns at this point—and how do you think they should be addressed?
Sharon Burke: To create a military force in which energy is a strategic advantage, it’s important to build energy performance into both legacy programs and new operations. Many of the planes, vehicles, and ships in our force will be part of our operations for a long time, and energy performance must be incorporated into the processes associated with refurbishing, retrofitting, and operating that equipment. At the same time, we have to make sure we are building energy-performance considerations into our decisions about new equipment, capabilities, and missions. Unless we change the way we address energy in the context of both existing and new equipment and programs, we will see an increase—not a decrease—in the amount of energy our military consumes (exhibit). For both the legacy force and new equipment, we have to understand what it is that energy brings, or conversely, how it limits decisions about where to invest. The DOD’s five-year budget plan includes $9 billion of investments in energy improvements.
This is a really good story. But for these investments to be purposeful and systematic, we need to improve our analytical tools so that we know which capabilities and missions we want to target for energy improvements and how we can bring them into the force in a meaningful way.
McKinsey on Government: What are some of the biggest innovations in operational energy? What do you think could be the next major areas of investment for the Department of Defense?
Sharon Burke: Over the last five years, the most significant improvements have been in the way that contingency bases—the bases that are forward-deployed in Afghanistan, Iraq, and elsewhere—use energy. Specifically, we’ve seen meaningful efficiency improvements in what we would call an environmental control unit, which is heating, ventilation, and air-conditioning, and we’ve also seen improvements in generators, tents, and water use in kitchens. And we already have some meaningful metrics in terms of thousands of gallons “off the road.” We are also seeing new kinds of power generation—better batteries and hybrid generation through a combination of microgrids or control systems, solar generation, diesel generators, and batteries. An example I am particularly proud of is Operation Dynamo. The Army’s Rapid Equipping Force, working with a number of the Army’s acquisition leaders, asked a brigade combat team—while it was in training—to decide which types of energy-improved gear would work best for its mission, and then the Rapid Equipping Force and the acquisition professionals traveled to Afghanistan with the team to help set it up. I initiated the project through a contact with an Army leader, but it was key institutions within the Army that made it work.
In the near term, the lion’s share of the investment will be in propulsion and engine improvements. This is where we use a lot of our fuel, so we will prioritize efficiency improvements by investing in things like hydroelectric drive for ships; engine-efficiency improvements for aircraft, vehicles, and ships; and aircraft-body improvements via winglets and microvanes. Further out, we’re talking about significant changes in equipment that we actually use, which could mean wholly new systems. For example, some missions that are now performed by manned submarines might soon be performed by unmanned underwater vehicles, which use less fuel and also offer a greater range of fueling options. The same is true for aerial systems—we might soon replace some manned systems with unmanned ones. There is also some experimentation with putting solar on the wings or using hydrogen fuel cells, which means aircraft can fly longer and farther.
McKinsey on Government: What is the relationship between the Department of Defense and the private sector when it comes to driving and sustaining innovation in alternative energy and efficiencies?
Sharon Burke: Our overall mission is national security—to defend the people of this country. Throughout history, that has been a powerful incentive for innovation. There is no guarantee that what we innovate for our purposes will cross over into the private sector, but in some cases there is certainly potential. For example, right now we are engaged in a hybrid energy-storage project in conjunction with the Advanced Research Projects Agency at the Department of Energy. Although it’s very much geared toward military purposes, it’s an example of a project that has a high likelihood of commercial crossover. Also, we have an excellent innovation backbone within the department, but it doesn’t operate alone: we depend on the private sector to help execute our innovation vision. We generally have a problem we have to solve or a need we have to meet, and I think that that can be a very powerful pull for innovation—and it is just as true for energy as it is for any other military capability. We tell the private sector what we need, and they come to us with innovations. But the real target here is to build energy security into our procurement process—our requirements, acquisitions, and contracts. That’s how we will generate a sustained demand pull for innovation.
McKinsey on Government: How did you define your objectives, both as a leader and for what is essentially an entirely new office within a large and complex department? And what lessons have you learned when it comes to managing what is in many ways a start-up?
Sharon Burke: I think the first lesson I learned is that when you’re creating a new business line in a place like the Department of Defense, it’s very important to understand the context you’re coming into. In this case, it wasn’t enough to know what energy security is all about and how important energy security is—it was crucial to understand how energy is relevant to the institution and its mission. It was very important to understand the landscape first. It’s also important to understand your boss’s priorities. Secretary of Defense Gates and his successors Secretaries of Defense Panetta and Hagel all made it clear that their first priority was existing operations and deployed forces. So that meant that our first priority was deployed forces. Finally, I’ve learned a lot about building an institution during a very turbulent time, when it wasn’t always clear what our budget was going to be or how many people we were going to hire. Ultimately, you can’t let that turbulence distract you. You still have to be accountable. I was very fortunate in that I was able to hire very good people to get the office under way. When you can assemble such a great team—and I was very lucky that I was able to do that—it makes a difference. I think that’s true for any institution.