In 2001, as DoD began work on the 2001 Quadrennial Defense Review (QDR). One of the DoD's major management challenges was to instill financial discipline within the department. The weaknesses in DoD's financial management systems, operations, and controls were many and pervasive. Accordingly, the mandate to transform the way DoD did business was a key theme of the 2001 Quadrennial Defense Review. In response to the QDR's mandate, the department launched the DoD Financial Management Modernization Program (FMMP), which began an exhaustive review of the department's business activities and infrastructure. It was clear the department's problems could not be solved simply by 'fixing' financial systems, since financial systems are consumers of the transactional data routinely produced as part of the department's larger business operations. To get at the problem data produced by these other operations, the department expanded its review to encompass the many other systems and control processes that feed information into DoD financial systems. This expanded effort, renamed the Business Management Modernization Program (BMMP), focused on standardizing both data quality and flows for DoD-wide business operations through the development of a Business Enterprise Architecture (BEA). In addition to defining common business requirements and structures, the BEA was to provide a blueprint for the end state of successful business transformation—the "to-be" environment for business systems.


Emerging results indicated the department needed both a broader solution set and full-time management of business transformation activities to sustain reform momentum. Accordingly, Section 2222 of the FY 2005 NDAA directed the department to institutionalize the BEA and provide Congress an enterprise transition plan that details a schedule for divesting legacy business systems and fielding new enterprise solutions. Section 2222 also established a new governance process for business systems in the Defense Business Systems Management Committee (DBSMC). This senior board, chaired by the Deputy Secretary of Defense, certifies that each new business system investment of more than $1 million is both compliant with the BEA, and is needed to support a priority national security capability. The scope of Section 2222 requirements was later expanded as part of the FY 2010 NDAA to ensure that appropriate Business Process Reengineering occur for each defense business system investment.


To further institutionalize the department's focus on defense business transformation, in October 2005 the Deputy Secretary of Defense established the Business Transformation Agency (BTA). The BTA was given the responsibility for integrating the work of the department's Principal Staff Assistants across the department's core business mission activities. Additionally, the BTA was given acquisition oversight of 18 of the Department's enterprise business programs.


In November 2006, the Government Accountability Office (GAO) proposed establishing a permanent DoD official with the authority, experience, and tenure to drive change and be accountable for overseeing the department's business operations. While crediting departmental progress to date, the GAO said a Chief Management Officer (CMO) was needed to reconcile the competing priorities that could impede DoD's progress in its transformation efforts.


In May 2007, the Secretary of Defense used his discretionary authority to designate the Deputy Secretary of Defense as the CMO of the Department of Defense. Subsequently, the Congress codified the department's action in the FY 2008 NDAA, formally acknowledging the Deputy Secretary of Defense as DoD CMO, establishing a new Principal Staff Assistant position, the Deputy Chief Management Officer (DCMO), to assist the Deputy Secretary, and naming the Under Secretaries of the Military Departments as CMOs of their respective organizations.


The department formally established the DCMO through a DoD Directive on October 17, 2008. As part of this directive, the Department assigned the DCMO responsibility to better synchronize, integrate, and coordinate the business operations of the Department of Defense to ensure optimal alignment in support of the warfighting mission. Additionally, the Directive gave the DCMO specific duties in strategic planning, performance management, process improvement, and defense business systems oversight. Since that time, the DCMO's responsibilities have continued to grow.


On July 1, 2010, the Senate confirmed Elizabeth A. McGrath as the department's first DCMO. Ms. McGrath brought extensive experience to the position, having previously served for more than 25 years as a DoD civil servant and member of the Senior Executive Service.


On August 9, 2010, the Secretary of Defense (SECDEF) announced the elimination of the Business Transformation Agency (BTA) and the transfer of Policy Integration and Oversight functions and activities to the DCMO. By centralizing the management of business operations improvements in one organization, the DoD could obtain increased integration of its business operations and greater efficiencies. On October 1, 2011, the BTA was disestablished and the DCMO began operating as a new organization with increased capabilities.