Vertical integration and the military - a strategic approach to outsourcing decisions of the Department of Defense

Abstract

It is a common belief that government organizations are generally less effective and efficient than commercial entities. Among the prominent problems that need to be addressed in this context is the process leading to a decision regarding how to source activities. Consequently, current publications and laws require government activities to compete with commercial contractors. Also, a preference for outsourcing military activities is often expressed. This MBA project investigates how applicable economic principles that govern the sourcing decision in the commercial world are to the military. It further reviews the laws that regulate the decision making process for the military. The project then evaluates how these different factors should impact the process and whether recent outsourcing decisions, especially for Operation Iraqi Freedom, reflect valid economic criteria. The MBA project determines that valid economic principles are applicable to the military, but they are not always used correctly or to the advantage of the government. Additional socio-economic and military factors also have a significant influence and need to be weighed against the economic principles, stressing distinctions between the military and a commercial company. Those differences and their potential effects are not adequately addressed in the publications regulating the decision making process.