"The overarching goal will be to preserve a U.S. military capable of meeting crucial national security priorities, even if fiscal pressure requires reductions in the force's size," Gates said Wednesday during a news conference.
President Obama announced last month his framework for tackling the nation's long-term debt and deficit reduction.
Obama set a goal of holding growth in base national security spending below inflation for the next 12 years, which would save about $400 billion, "the preponderance of which would come from the Department of Defense." Gates said.
"In my view, we must reject the traditional approach of applying across-the-board cuts, the simplest and most politically expedient approach, both inside this building and outside of it," Gates said, explaining that kind of approach keeps overhead and maintains a force structure "on paper."
The review, he said, would be guided by the National Security Strategy, the National Defense Strategy, the National Military Strategy, the Chairman's Risk Assessment and the Quadrennial Defense Review to ensure the focus is on strategic policy choices and corresponding changes in the Pentagon budget.
The review would develop specific program options that fall in one of four categories, Gates said.
The top priority will be to look for efficiencies that continue cost- and money-saving efforts begun last year, the secretary said.
The second grouping will involve a serious examination of established policies, programs, processes and mandates driving the increases in defense operating costs, he said, "to include the way we deliver healthcare, compensate military personnel, provide retirement benefits, sustain our infrastructure, and acquire goods and services."
The third category would contain options that would reduce or eliminate marginal missions and marginal capabilities, Gates said.
The final category would be specific alternative modifications to the Quadrennial Defense Review strategy that "translate into options for reductions in force structure or capability needed to execute the strategy," he said.
"Obviously, if you're going to change strategies or missions, that has implications for the amount of equipment that you buy," Gates said. "But everything in terms of looking at these strategic equations, if you will, has to do with the amount of capability that you buy or that you invest in."
Gates said he wants "hard choices" between investments and how they fit strategically to bubble up and be discussed.
"[The] easiest thing is to say, 'Cut defense by X percent,'" Gates said. "And I think that would be the most dangerous approach of all."