Spies fear a consulting firm helped hobble US intelligence – POLITICO

Insiders say a multi-million dollar McKinsey-fueled overhaul of the country’s intelligence community has left it less effective.

America’s vast spying apparatus was built around a Cold War world of dead drops and double agents. Today, that world has fractured and migrated online, with hackers and rogue terrorist cells, leaving intelligence operatives scrambling to keep up.

So intelligence agencies did what countless other government offices have done — they brought in a consultant. For the last four years, the powerhouse firm McKinsey has helped restructure the country’s spying bureaucracy, aiming to improve response time and smooth out communication.

Instead, according to nearly a dozen current and former officials who either witnessed the restructuring first-hand or are familiar with the project, the multimillion dollar overhaul has left many within the country’s intelligence agencies demoralized and less effective.

These insiders say the efforts have hindered decision-making at key agencies — including the CIA, National Security Agency, and the Office of the Director of National Intelligence.

They say McKinsey helped to complicate a well-established linear chain-of-command system, slowing down projects and turnaround time, and applied cookie-cutter solutions to agencies with unique cultures. In the process, numerous employees have become dismayed, saying the efforts have at best been a waste of money and, at worst, made their jobs more difficult. It’s unclear how much McKinsey was paid in that stretch, but according to news reports and people familiar with the effort, the total exceeded $10 million.

Agency spokespeople and a former official pushed back on the criticism, arguing that it was too early to judge the results of the changes.

Additionally, some of McKinsey’s multimillion dollar contracts have been awarded without a competitive bidding process, a move meant to speed up timelines but one that critics say enabled the consulting firm to offer formulaic fixes without fear of losing any business.

The result, analysts and agents say, is that some officials are being frustrated in their attempts to battle increasingly swift and complex threats — Russia is launching disinformation campaigns that reach thousands of people in seconds on social media, Iran is hammering oil and gas companies in cyberspace, Chinese hackers are pilfering government records, terrorist networks have fractured and retreated to encrypted networks and North Korea is furtively building out its nuclear program.

In each case, bureaucratic changes that slow response time or hamper intelligence collection capabilities could cause the loss of company secrets, private government data, the democratic process and even American lives. Already, some projects at the NSA have been cut or delayed as a result of disgruntled employees leaving the agency.

The logo of the CIA is seen at the agency's headquarters on in Langley, Virginia | Pool, Olivier Doulier/Getty Images

“At CIA, they shattered longstanding structural constructs that people had invested their whole careers in,” said Larry Pfeiffer, a 32-year intelligence veteran who now serves as the director of the Michael V. Hayden Center for Intelligence, Policy and International Security at George Mason University. It resulted in “a coordination nightmare” that was widely considered to be “very heavy-handed,” added Pfeiffer, who left government before the restructuring but remains in close contact with current officials.

Pfeiffer said he doesn’t know “a soul at CIA or NSA who would tell you that the reorganizations have made things better.”

“That’s exactly what happened,” a former CIA operations officer said.

The issue has made its way to Capitol Hill, where an aide to the House Intelligence Committee said the panel, which oversees the nation’s intelligence apparatus, said the complaints surrounding the reorganizations and McKinsey's role "is something that the committee is following and doing oversight over."

McKinsey declined to comment on any of its work for the intelligence community, citing a policy of not discussing its clients publicly.

Agency spokespeople and a former official pushed back on the criticism, arguing that it was too early to judge the results of the changes and insisting that McKinsey positively assisted in a supporting capacity.

The restructuring is “a work in progress,” said an ODNI spokesperson, but one that has shown “a number of positive early returns.” And while ODNI has leveraged McKinsey’s expertise in “change management and organizational design,” the firm’s role was “limited,” he said, and the project was run primarily by ODNI’s internal leadership team. The sentiment was echoed by an NSA spokesperson and one former CIA official.

The current NSA Director, Gen. Paul Nakasone, is in the process of trying to reverse some of the restructuring that has occurred in recent years according to one former official.

McKinsey is one of the world’s most successful consulting firms. Nearly a century old, the elite firm has over 100 offices worldwide, nearly 30,000 employees and has advised presidents and fueled Wall Street’s rise. McKinsey has also produced some of America’s most high-profile corporate executives, including Facebook’s Sheryl Sandberg and Google CEO Sundar Pichai, not to mention Democratic presidential hopeful Pete Buttigieg, mayor of South Bend, Ind.

But the firm, which even has an internal hedge fund, has also come under scrutiny in recent years for its work with authoritarian and corruption-plagued governments in China, Saudi Arabia, Turkey and South Africa. And in the U.S., activists have criticized the company’s work with U.S. Immigration and Customs Enforcement, although McKinsey has said its work at ICE does not involve implementing the Trump administration’s immigration policy. Last year McKinsey was also awarded a multi-million dollar contract with the U.S. Customs and Border Protection.

The bad headlines that McKinsey has faced in the last year has led to “soul-searching” among some employees, according to one person who left the firm in 2017 but remains in touch with his former colleagues. “Should we be serving X client in Y country and Z country?” this person said. “Those are questions that they should be asking.”

Still, when the intelligence community started looking for outside consultants to help with its reorganization, McKinsey was a logical choice, given its long history of helping government agencies with all manner of logistical challenges. Intelligence agencies were angling to break down any communication silos, given the modern threats that cut across numerous corners of the spying world.

The NSA hired McKinsey to help with a restructuring project nicknamed “NSA21,” launched in 2016 during Adm. Mike Rogers’ time leading the agency.

The National Security Agency (NSA) headquarters at Fort Meade, Maryland | Saul Loeb/AFP via Getty Images

One outcome was to merge the agency’s offensive and defensive cybersecurity teams, a nod to the increasingly complex nature of digital threats. But the decision exacerbated simmering tensions with the private sector.

Pfeiffer said McKinsey complicated this restructuring, pushing changes that led to an overabundance of voices and perceived inefficiencies. And the reorganization made the mission more muddled, former employees said, expressing frustration with new “mission centers” that combine the traditionally separate analysts and operators.

As a result, some projects intended to make intelligence collection more effective were pushed back or put on ice altogether, The Washington Postreported last year, as disgruntled employees left the agency.

The current NSA Director, Gen. Paul Nakasone, is in the process of trying to reverse some of the restructuring that has occurred in recent years, according to one former official. “It’s seen as a nod by Nakasone that the Rogers reorganization went too far,” he said.

Greg Julian, an NSA spokesman, pushed back on the characterization of the restructure.

National Security Agency Director Gen. Paul Nakasone prepares to testify before the House Armed Services Committee's Intelligence and Emerging Threats and Capabilities Subcommittee in the Rayburn House Office Building | Chip Somodevilla/Getty Images

“NSA21 was the first major corporate reorganization of the Agency in nearly two decades,” Julian said in a statement. “The organizational changes, completed more than three years ago, made NSA stronger and enabled it to remain positioned to defend against threats facing our nation.”

Julian added that “as is the case with any organization, we continue to refine and make adjustments as NSA must be poised to nimbly respond to an ever changing adversarial landscape. Our work to help secure the 2018 midterm election is a prime example of ever changing mission priorities.”

Another government official with direct knowledge of NSA21 also downplayed McKinsey’s role in the project. While McKinsey provided “consulting support to aid in the standup of the new structure, NSA leadership came up with the blueprint,” the person said.

The CIA, which hired McKinsey in 2015, went through similar changes that irked many at the agency, according to current and former employees.

A former senior intelligence official who witnessed CIA’s reorganization, for example, said the changes there affected turnaround time for intelligence reports, which is a critical factor in decision-making. He also complained about the newly created “mission centers,” saying that, ironically, he had “greater connectivity” to analysts before they were forced to share a room.

“It’s become a place there that having meetings passes for making progress,” the ex-official added.

“Once they [McKinsey] get their hooks into you, they may be the best service organization there is at creating new work for themselves” — Duff McDonald, a former New York Times reporter

But not everyone agreed with how much of a role McKinsey had in the restructuring, or with the negative assessment of the changes.

A former CIA official who witnessed the transformation said the reorganization “was overwhelmingly led by a team of senior CIA officers,” and noted that the CIA changes “were big and have largely survived” under President Donald Trump “because they were needed and were very widely accepted and praised.”

Notably, the CIA, now led by director Gina Haspel, hasn’t reversed the changes. Doing so would only have created more headaches for the agency, according to the former senior intelligence official who witnessed CIA’s reorganization.

“I remember Gina saying it would be too disruptive, you’ve spent a lot of money, and you’ve turned the organization on its head and then you’re going to give the organization whiplash and you’ve got a mission to do,” he said.

Another former CIA official said that organizational change “takes an average of seven years, so any attempts” to evaluate its effectiveness “prior to 2022 will neither accurately evaluate impact nor serve the interests of the IC.”

An entrance to the NSA headquarters in Fort Meade, Maryland | Saul Loeb/AFP via Getty Images

ODNI, which brought McKinsey on board for its own restructuring, suffered from many of the same restructuring issues that employees complained about at the NSA and CIA, according to several current and former intelligence officials.

One person who witnessed the changes at ODNI said “there’s a lot of people inside these organizations asking, ‘Why did we need to hire a consulting firm to conduct a reorganization when there was no problem to solve?’”

In all, the firm has secured close to $1 billion in government contracts in just the last 10 years. Their work with the intelligence community goes back at least a decade — the firm played a central role in helping the FBI transform its intelligence mission in 2005 in response to pressure from the White House to restructure the bureau’s budget.

“They were receiving a generous consulting fee, but did not appear from my vantage to bring any particular expertise to the task,” said Stephen Slick, a veteran intelligence official who served as the National Security Council’s senior director for intelligence programs and reform in 2005.

With the more recent intelligence community restructuring, officials have also been vexed by what appears to be a lack of a competitive bidding process — McKinsey seemed to seamlessly transition from working with CIA, to NSA, to ODNI via “no-bid” contracts, these people said, despite lingering skepticism over the firm’s effectiveness.

A no-bid, or “sole source,” contract is a contract awarded without competitive bidding. The former senior intelligence official who witnessed the CIA reorganization said that “really struck people.”

Ross Marchand, the director of policy at the Taxpayers Protection Alliance, said that no-bid contracts are becoming increasingly common across the federal government, especially at the Pentagon — which has awarded McKinsey millions of dollars worth of contracts over the last decade.

“It’s a way for the government to cut corners, because a competitive bidding process can take a lot longer than just awarding a contract,” Marchand said. He noted that the practice tends to facilitate complacency on both sides.

Indeed, the former senior intelligence official who witnessed CIA’s reorganization said that McKinsey “usually comes in with a goddamned formula — they claim to customize but they don’t. They are extremely formulaic. You can tell that they’re following a script.”

The former McKinsey employee defended the practice, describing the system as simply “sharing best practices” from one organization to another. But Duff McDonald, a former New York Times reporter and author of “The Firm: The Story of McKinsey and Its Secret Influence on American Business,” characterized it as a deliberate strategy to win repeat business.

“Once they get their hooks into you, they may be the best service organization there is at creating new work for themselves,” McDonald said of McKinsey. “Their repeat business is a sight to behold.”

But it’s also a way for agency leaders to “outsource tough decisions,” he added. “They are a scapegoat for hire.”

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