The OMB Prize Memo

Tuesday, March 9th, 2010 - 23:29
OMB deputy director for management ,Jeff Zients, released a 12-page memo, “Guidance on the Use of Challenges and Prizes to Promote Open Government.”

Chris Mihm interview

Friday, November 21st, 2008 - 20:00
"The question of the long-term fiscal challenges that we face is really one of the most pressing issues that the Congress faces as it makes decisions. It's one of the most pressing issues that we face in our capacity as citizens when we think about elected leadership."
Radio show date: 
Sat, 11/22/2008
Intro text: 
Chris Mihm
Magazine profile: 
Complete transcript: 

Originally Broadcast August 16, 2008

Washington, D.C.

Announcer: Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness.

You can find out more about this center by visiting us on the web at

And now The Business of Government Hour.

Mr. Kamensky: Good morning. This is John Kamensky, senior fellow of The IBM Center for The Business of Government, sitting in for Albert Morales this morning.

Our nation faces a range of key public policy trends, challenges, and opportunities which are likely to shape our society, the place of the United States in the world, and the role of the federal government in the decades to come. At a time of large and growing long-term fiscal imbalance, shifting demographics, concerns over economic sustainability and national security, the nation requires a government that's results-oriented and accountable.

The U.S. Government Accountability Office, or GAO, works to improve the performance and to ensure the accountability of the federal government for the benefit of the American people.

With us this morning to discuss GAO's efforts in this area is our very special guest, J. Christopher Mihm, managing director of the Strategic Issues Group at the U.S. Government Accountability Office.

Good morning, Chris.


Mr. Mihm: Good morning, John.

Mr. Kamensky: Chris, before we get started, could you set some context by providing a sense of the history and mission of GAO? When was it created? What is its mission today? And who does GAO report to?

Mr. Mihm: The GAO is an independent, non-partisan agency, and we work for Congress. We're often called the "congressional watchdog," and our responsibilities are to investigate how the federal government spends taxpayers' dollars, and help the Congress execute its constitutional responsibilities.

We've been around since 1921. And for most of our history, we were known as the General Accounting Office. Several years ago, through a statutory initiative, we had our name changed to the Government Accountability Office, still kept the same brand, the GAO acronym, because it better reflected what we do today. And it's a wide range of policy analysis, program evaluations, audits, and investigations on behalf of the Congress.

We're about 3,100 people spread in 11 different offices around the United States. We do work on a bipartisan basis for chairmen and ranking members or by mandate and legislation. All of our reports, or the overwhelming majority of our reports, are available on our website at, and are available to the public free.

Mr. Kamensky: Could you tell us a little bit more about how GAO's organized about the size of the budget? You just mentioned that you had 3,100 employees, and that you've got 11 field offices. Are any of those field offices overseas or are they all here in the U.S.?

Mr. Mihm: They're all here in the United States. And as I mentioned, we have about 3,100 employees. Our budget is about $490 million each year. We focus an awful lot on the outcomes that we return to the American people and the taxpayers. We measure very carefully what the financial performance of the agency is. And last year, for example, we returned $46 billion in financial accomplishments to the taxpayer. That's a $94 return for every dollar invested in GAO.

Mr. Kamensky: Now, how is GAO organized? You've got several, what, operating groups?

Mr. Mihm: We have 13 different mission teams. Most of those mission teams are focused on major programmatic or organizational aspects of the Executive Branch, and so we have teams that focus on financial markets, focus on the defense and national security and homeland security areas, focus on the environment.

Strategic Issues is a bit of the team that I have the honor of leading. It's a bit of a different team in that we have cross-cutting responsibilities looking across the federal complex at a series of public management and governance issues that are broader, longer term, more strategic in nature.

Mr. Kamensky: Tell us a little bit more about your role as managing director. Like what are your specific responsibilities or duties, or some of the stuff that goes on under your area in terms of the themes or the issues, and how they support the overall GAO mission.

Mr. Mihm: We have a number of key programmatic areas or governance issues that we look at. We look at the nation's long-term fiscal crisis and budgeting, both from the budget process from the congressional angle as well as budget execution within agencies. And so we have responsibility for GAO's broad cross-cutting budget work.

We have responsibility for GAO's cross-cutting work on strategic human capital management, which is one of the high-risk areas for the federal government. We have lead responsibility for work that's being done now on the Decennial Census, work that's on tax policy, tax administration. We look at federal regulatory policy. We look at intergovernmental and, increasingly, intersectoral relations. Much of that work these days is focused on the federal efforts in rebuilding post-Katrina. And then we focus on broad performance management, strategic planning, organizational alignment issues within the federal government. Much of this work is done in partnership with our colleagues and other teams around GAO to make sure that we the agency are presenting an integrated and sophisticated approach to the public management issues that we face.

Mr. Kamensky: And what do you see as the top three challenges that you face in your position? How are you addressing these kinds of challenges?

Mr. Mihm: I think the top three challenges, and I think they're fairly consistent with what my colleagues across the office face, are first, a growing supply-and-demand imbalance -- you know, the available resources in order to do that. You know, the GAO budget has remained largely static, or at least, unlike many other agencies, has not kept full pace with inflation in recent years. Yet at the same time, the congressional demand for GAO audits and investigations has skyrocketed, which is a good thing. It shows that we're being responsive to the client and they're seeing value in what they're getting from the GAO. But making sure that we have a good understanding of congressional priorities, making sure that we're doing the work for the Congress that matters, and how we balance all that off is one of the big challenges that we face.

Second, directly related to that, is making sure that we are attracting, retaining, developing the high-quality talent that we need to be successful, not just today in terms of executing the engagements that we have, but also tomorrow, and tomorrow meaning 5, 10, 15, and 20 years out; making sure that we have in place, in other words, both a recruitment and retention strategy and development strategy that makes sure that people are engaged and having their career aspirations met by working at GAO in strategic issues.

The third challenge that we face is making sure that we are doing the right work on the important issues that confront the Congress. And that means making sure that the engagements that we do -- which is -- you know, what ends up eventually in a blue book, it's the term "engagements" -- make sure that the engagements are really delivering demonstrable results to the American people. That ROI number that I referred to earlier, making sure that we're getting financial results from that, making sure that we're getting non-financial accomplishments for that, making sure that our work is focused on demonstrable outcomes.

Mr. Kamensky: Could you describe for our listeners your career path? How did you begin your career and wind up where you are today?

Mr. Mihm: It's through a very odd route. I was -- both in undergraduate and in graduate school, I was a political philosophy major. I was -- in graduate school I was on a Ph.D. track to eventually get a doctorate, and then I was looking forward to teaching. And then I had the wonderful opportunity -- I was at the University of Virginia for graduate school -- I had the wonderful opportunity of taking a couple of courses from Don Kettle, who is now with the Fels Institute at the University of Pennsylvania. And it's one of those kind of life-changing set of courses that I was exceedingly fortunate, as I said. And that caused me, and with a variety of other reasons, to really change my focus and think about -- more about GAO.

We were very fortunate at that point at UVA that Fritz Mozier was in residence at UVA. And he was the preeminent scholar on GAO at that point. And so we had pretty much a direct transmission belt into GAO if you did well at UVA, and I was very fortunate to do that.

So I've been at GAO about 25 years now and it's just a fantastic place to work. What I have found is obviously, first and foremost, it's the quality of the colleagues that you have at GAO and the people that you get to work with. I mean, every single day, every single meeting that I go in to, I'm just re-impressed about the intellect, experience, sophistication of my colleagues at GAO. Likewise, it's the ability to work on a variety of wide-ranging issues that really matter.

And then the third thing that I find so appealing about GAO is how much we do try and track the results of our work. We work so hard to make sure we understand the results that taxpayers get from their investment in GAO.

Mr. Kamensky: That's really cool. Now, how has your previous experience prepared you for your current leadership role? And how has it shaped your management approach or leadership style?.

Mr. Mihm: I think the single most important thing that has prepared me is I've been very, very fortunate at just about every point in my career to have a good set of mentors and supervisors and leaders for myself that I could try and model in very imperfect and inadequate ways. But nonetheless, see what they were doing and then do my best to take from that and give back and use that as my approach to management.

One of the key things that I learned from managers all throughout that I've had the honor to work for is the important of collaboration, the importance of bringing people in to decisions, both to get the best guidance and perspective that -- from people when I have to make a decision, but also to get buy-in from those that would be affected by that decision. And I've always found that to be the key to any good decision I've ever made, is making sure that I've reached out and brought in the right set of people. And fortunately, there have only been a few cases, but in those few cases that I know of that I thought, geez, I didn't handle that right, if there's been a comment element, it's been I didn't involve the people I could have and should have involved in that decision.

Mr. Kamensky: Well, that's great advice.

How does GAO improve government performance and accountability? We'll ask Chris Mihm, managing director of Strategic Issues at the U.S. Government Accountability Office, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Kamensky: Welcome back to The Business of Government Hour. I'm your host, John Kamensky, and this morning's conversation is with Chris Mihm, managing director of Strategic Issues at the U.S. Government Accountability Office.

Chris, could you tell us a little bit more about GAO's 2007/2012 strategic plan and the performance framework that turns its mission into method? Specifically, what are the seven key themes that provide the context for the plan? And what role did you and your office play in developing this plan?

Mr. Kamensky: In terms of the mission into method -- I like that as a question, by the way -- is that we like to say that our strategic plan begins and ends with the Congress. And so at the beginning of our strategic planning process is that we have a very disciplined way of going up and sitting down in a bipartisan, bicameral way with congressional clients and making sure that we have a good understanding of what their needs, what their priorities, what the big issues that they expect to confront in the coming years.

We then have the responsibility of going back and crafting that in the context of other external forces that we think that are shaping the nation and shaping governance. And that gets into the key themes that you were asking about, things like changing security threats, sustainability concerns across a variety of areas, concerns about economic growth and competitiveness, global interdependency, forces of societal change, quality of life concerns, and then concerns relating to science and technology.

And from those key themes, the priorities that we get from our conversations with the Congress, we've devised four broad strategic goals for us -- that the first is to provide timely quality service to the Congress and the federal government across current emerging issues dealing with the well-being of the American people, basically domestic policy-related issues.

The second strategic goal is to provide service that responds to changing security threats and challenges of global interdependence, basically an international focus.

The third is, and the strategic goal where I do most of my work, is to help transform the federal government and how it does business to meet 21st century challenges.

And then the fourth is an internal goal for us, and that's to maximize the value of GAO by being a model federal agency and world-class professional services organization.

We want to be a model for a wide range or the entire range of public management issues. But whether it be human capital, strategic planning, acquisition, that's both good in its own right to assure the Congress that they're getting return on investment in GAO, that we're efficient, but it's also we feel it's appropriate that if we're going to be telling other agencies what to do through making recommendations, that we're doing it -- we're holding ourselves to at least that high a standard in our own internal management.

From this strategic framework, we identify a set of performance goals and then what we call key efforts, what most would be strategies in kind of the Government Performance and Results Act, GPRA, context. And we then go back to the Congress and make sure that -- and then validate with them, make sure that we've heard them accurately, that we have a good understanding of what sort of engagements that they're going to be looking for in the coming years. And then from that, we publish the strategic plan up on our website and obviously available to the American people.

We also make sure that we publish each year a performance and accountability report that provides both the Congress and the American people with a report card on how we're doing. What are they getting from GAO in terms of its performance? And so we believe in transparency and accountability for ourselves as well as for others.

Mr. Kamensky: That's great. One of the things that I've noticed is that GAO over the past few years has been reporting that the federal government faces large and growing structural deficits, mainly due to rising health care costs and demographic trends of the aging population, and that this is placing the federal government on what GAO calls an imprudent and unsustainable long-term fiscal path. Could elaborate a little bit on some of these factors and the long-term fiscal challenges and what's being done or can be done to address them? And what's GAO doing specifically to increase public understanding of this issue?

Mr. Mihm: The question of the long-term fiscal challenges that we face is really one of the most pressing issues that the Congress faces as it makes decisions. It's one of the most pressing issues that we face in our capacity as citizens when we think about elected leadership. Since the early 1990s, we have been running simulations that have been looking at a variety of long-term projections. The bottom line of this is that you can play with various assumptions about tax cuts or not tax cuts or alternative minimum tax or not alternative minimum tax or how we deal with that. The bottom line of it, though, is that despite what you do with those assumptions, because of rising health care costs and demographics, that is the retirement of the baby boom generation and, in particular, the intertwining of those two issues, as you mentioned, we're on an unsustainable fiscal path.

And there's a number of very difficult decisions that decision-makers -- that we as taxpayers need to make in the coming years. The sooner we get started on this, the better, but decisions associated with what do we want government to do, what size do we want government to be, and who do we want to do government's business, and how do we want government to be financed.

We issued back in January of this year under Comptroller General Walker a report that he authored out called "A Call to Stewardship." And what that offered was a series of process reforms, not the hard policy reforms that need to take place, but a series of process reforms that Congress and the Executive Branch could do to start teeing up, to start offering up the information and start facilitating the types of hard decisions that need to be made. And that's something that's, again, available on our website. And as I mentioned, it's called "A Call to Stewardship."

Mr. Kamensky: For example, what might be one of those process reforms?

Mr. Mihm: Well, we think there's a number of things. One, for example, would be that we need a set of key national indicators. We're one of the few developed countries that doesn't have a set of key outcome indicators so that we can understand the nation's position and progress across a wide range of social, demographic, and other key policy areas. We believe that those would help then decision-makers know how we're doing now in an absolute sense, how we're trending, and how we're doing relative to other countries to help inform policy decisions, inform strategic planning, inform budget and appropriations decisions.

Another key one is that we've long suggested to Congress that they consider the formations of various commissions to help deal with some of these intractable issues. There's a variety of proposals that have been kicking around on the Hill and that the Comptroller General Walker when he was around talked an awful lot about. How you structure those is obviously a call for the Congress, but it would -- something that would provide the Congress a vehicle for beginning to grapple with some of these hard decisions. That's just two of them.

Mr. Kamensky: And those sound like things that the new Congress and the next president may wind up having on their plate.

Mr. Mihm: We would hope so, yes.

Mr. Kamensky: Another thing is that a lot of federal agencies across the government have attempted embarking on large-scale organizational changes, for example, the defense business transformation effort. And at the same time, agencies have these longstanding management problems that GAO has identified, and they've been on your high-risk list for more than two decades in some cases that are undermining their ability to get their missions done and achieve results. GAO's proposed creating a chief operating officer or chief management officer in federal agencies. How would agencies go about setting up a position like this? And sort of what's the status of this kind of a proposal?

Mr. Mihm: The chief operating and chief management officer concept is kind of new to the United States, but it's certainly not new to the rest of the world. In fact, most of the market-driven democracies, a notion of a chief operating officer for executive agencies is the predominant form of service delivery in many of those countries, and so it's a tried and tested approach that's been used overseas. Vice President Gore, as part of the National Performance Review and the notion of performance-based organizations, imported a version of that here.

The basic idea here is that there are a series of management issues, exactly what you were mentioning, that are longer term, more intractable, more transformational in nature; that it is unrealistic to expect political appointees who come to Washington with often a 12- to 24-month tenure, with a policy orientation rather than a management orientation, it's unrealistic to expect them to be able to devote the time, the energy, the scarce political capital in order to address these issues.

And so what we've looked for is what are elements? What can be done to elevate attention to these transformational issues, to integrate the various functional management stovepipes of the chief financial officer, the chief human capital officer, the chief acquisition officer, all the various -- the CXOs, the chief suite -- what can elevate? What can integrate? And then what can institutionalize? What can help us make sure that we maintain momentum on changes and put in place action plans that can transcend the tenure of any individual political appointee?

One of the notions that we've come up with is this notion of a chief operating officer, which would be a very senior position within an agency, probably on a term appointment, probably with a good performance contract. If she or he met the objectives and the management objectives in their performance contract, there should be sizeable rewards for that. And if they don't meet those objectives, they should be expected to achieve excellence elsewhere. And so the idea here is to create mechanisms that we can elevate, integrate, and institutionalize attention to important management and transformational challenges.

Mr. Kamensky: Have any agencies done anything like this?

Mr. Mihm: Well, there's certainly an awful lot of work that's being done in kind of consideration in the context of Department of Homeland Security. Over at the Department of Defense, obviously, there's been a lot of talk and even some statutory language that's been considered on that. So we are seeing progress on this and I think that's very healthy.

It's not as though that every agency is going to need a COO the way I was describing it a moment ago. A lot will turn on what are the particular management challenges that an agency may face? What is the culture of that agency? Some may need that person at the very top level. In other cases, it could be an assistant secretary for administration, for example, or an undersecretary for management that fulfills that critical role. What's most important is that we have some mechanism in place in agencies to really identify plans for long-term transformation and to sustain those plans across the political leadership.

Mr. Kamensky: One of the areas that you've been following over the course of your career has been the Census Bureau. And that also is in your purview in your current role now. The Decennial Census, which is held every 10 years and the next one will be 2010, is basically the foundation for measuring the nation's population, and would contribute to, for example, the key national indicators that you mentioned. It's a constitutionally mandated activity. It's used to apportion congressional seats, redraw congressional districts, and also to allocate hundreds of billions of dollars in federal aid between states.

Could you tell us about what your efforts have been in identifying opportunities to have a more cost-effective Decennial Census? And maybe you can tell us a few of the key GAO recommendations that'll help improve the 2010 Census.

Mr. Mihm: I've been very fortunate to be able to work on Census issues beginning with the -- in the mid-1980s, and so I had an opportunity to work on the 1990s Census, the 2000 Census, and now back being able to do some work on the 2010 Census. The Census is just a fascinating undertaking. I mean, it has incredible importance, as you pointed out just a moment ago. And so it's the -- what I've always found, it's this wonderful intersection -- almost a perfect storm of very, very difficult public management issues: you know, something that's done once a decade with hundreds of thousands of temporary employees; of politics because of its -- of the importance of apportionment and issues associated with the undercount; and the third leg of that kind of perfect storm is of science, and that is the sense of how the responsibility that we place on the -- we as the American people place on the Census to accurately capture and report on the changing nature of American society, changing nature of families, changing nature of how people characterize or set themselves in terms of ethnicity, and the rest. Intellectually, it's just a fascinating enterprise.

Having said that, it's also exceedingly difficult for the managers over at the Census Bureau that actually have to run this thing. And I would not envy them for a moment the great challenges that they face.

In March of this year, we put the 2010 Decennial Census on our high-risk list. And as you know, those 28 programs that, in our view, are most vulnerable to waste, fraud, abuse, or, in the case of the Census and other areas, that if they are not successfully executed could significantly undermine the cost of the federal government, the performance of federal programs, and the confidence that the American people have in government.

The big issue that the Census Bureau faces this time is they had been relying very, very heavily on the use of handheld computers for absolutely critical parts of Census-taking. Those have broken down and we think wisely the Census Bureau is now moving away from key parts of that. That leaves open, though, that they are now having to go back to a paper-based what they call non-response follow-up. That's the -- when the Census-takers come to the house of the tens of millions of houses of tens of millions of people that didn't respond through the mail. That's something they've done before, but they haven't tested in this Census cycle. And so the integration of that is going to be an enormous challenge. It also will add a billion dollars or more to the cost of the Census this time around, which is another reason we put it on the high-risk list.

So it's a very, very difficult, very sensitive operation that they're under, but also an exceedingly challenging one. We're fortunate that this Census cycle, that we have really aggressive and thoughtful congressional oversight on that. And that's always been one of the keys that we've been urging, that to make sure that we have congressional oversight during the Census cycle when it matters, that is when there's still time for the Census Bureau to make adjustments. And again, we're very fortunate on a bicameral basis with obviously the House, because of apportionment issues kind of taking the lead, has had real good oversight and very thoughtful oversight on this.

Mr. Kamensky: Another area that's in your purview is the tax system. The Internal Revenue Service developed the concept called the "tax gap" as a way to measure the extent to which taxpayers actually comply with their federal tax obligations. The tax gap measures the extent to which taxpayers don't file their tax returns and pay the correct amount on time. Would you tell us a little bit about what GAO's efforts are in conjunction with its sister agency, the Congressional Budget Officer, to pinpoint specific solutions to reducing the federal tax gap?

Mr. Mihm: The gross tax gap is $350 billion. About $55 billion of that, $60 billion, will eventually be collected. And so the net, you're looking at about a $300 billion tax gap, 290 to $300 billion tax gap.

The important thing there is that this is money that the Congress and the Executive Branch have already determined ought to be collected. So we're not talking about tax increases in anything. So going after this money or making sure the proper amount of taxes are paid is a real fairness issue for everyone else who does pay their fair amount of taxes, because it places an additional burden on them because some people are not paying, and to the tune of 300 to $350 billion.

Mr. Kamensky: But that's also about the size of the annual deficit.

Mr. Mihm: You could get an awful lot to -- our point is that when you're dealing with money that big, you don't have to get the whole $300 billion. In fact, you couldn't get the whole $300 billion. We wouldn't want to live in a society that would have that level of scrutiny into people's private lives. But with money that big, if you get 10 percent, you're talking $30 billion.

One of the things that we did in September a year ago, is we sat down with the Congressional Budget Office, as you mentioned, as well as the Joint Committee on Taxation, and had a forum on the Hill. Invited participants from the tax practitioner community, tax experts, the IRS obviously, to talk about strategies for addressing the tax gap. You know, how can we go after this? And understanding we're not going to get the whole thing, but what is it realistic to get and how can we go after this? We ended up issuing a report on that. And, again, like everything else, to keep plugging the website, that's available on

But the basic issue here is that we need a multi-prong strategy in order to address the tax gap. Part of it is we need additional enforcement resources. You know, IRS needs to do, in a sense, more enforcement and better targeted enforcement.

Second, we need to improve the customer service. Even though the amount of -- the effect that customer service has or improved customer service has on reducing the tax gap hasn't been well documented, there is at least an intuitive sense, and to the extent that data are available suggests that better customer service is actually going to help. That's basically going after or assisting the people who want to pay the right amount of taxes, but make an honest mistake, you know?

The third thing is that we probably need some changes in legislation to have additional information reporting. And one of the things that we've been focusing on here is information reporting associated with capital gains. And as we all know, when we fill out taxes out -- or at least I'll speak personally -- when you fill out taxes each year, figuring out the basis of stock sales and how all that factors in the tax is always an enormous challenge. So those are the three key strategies that we think need to be put in place.

Mr. Kamensky: A third area that is in your purview in Strategic Issues is assessing the implementation of the federal government's pay-for-performance systems. Could you tell us a little more about what pay-for-performance is, and what are some of the positive effects of implementing it as well as some of the drawbacks? And what are some of the best practices that you've seen in your review of the implementation in some agencies?

Mr. Mihm: The single most important thing that we found when we look at pay-for-performance efforts is that you just can't overlay a pay-for-performance scheme on an agency's existing performance management system and expect to have success in this. It's that in very many cases, agencies don't have in place a sound performance management system, and by that I mean one that is linked to organizational results, creates a line of sight for individuals between what they're doing and outcomes. They don't have in place a performance management system that's been validated, that has credibility with staff and supervisors and managers, and then if you try and overlay a pay scheme on that, it fails and people say, ah, it shows that pay-for-performance doesn't fail. And so the first thing that people need to -- the agencies need to do is to make sure that they have a good performance management system in place.

The second thing then they need to do is make sure that they don't implement pay-for-performance as just a one-off management improvement. Rather, it needs to be part of a package, a larger package of reforms an agency puts in place, designed to improve the performance and change the culture of the organization to be more results-oriented.

The third thing that agencies need to make sure that they do is that they need to make sure that they fund the program adequately. I testified on the Hill not too long ago, and which I was mentioning that if you want to kill pay-for-performance, the way to do it is to try and do it on the cheap. And, in fact, it takes quite a bit of investment, in a sense, up-front investment in new performance management systems and technology. But it also takes investment in training, in making sure -- and that's continuing training, not just in the rudiments or the tools and techniques of how to do performance appraisals under the new system, but on basic management, on how do you have conversations with adults about expectations and how do you have conversations on feedback and how do you link daily operations to external results. All of this is part of the larger package of things that need to take place if you're going to be successful in a pay-for-performance scheme.

I think one of the most important things that pay-for-performance does in an organization, if successfully implemented as part of this larger array of reforms, is, first, it gives you an opportunity to reward your top performers, to recognize them. It's a powerful retention device. And I think what's also very important is that, especially with the younger generation that's now coming into the public service, they have an expectation that their pay will be linked to their performance and to their contributions. And so a pay-for-performance system sends the right set of signals to people that you're trying to recruit and retain, and that is that the signal is that we value and reward high performance.

We have it in GAO, and obviously we've been very successful with it. We haven't been perfect by any means, and our way isn't the only way to go. But we've been very successful with it, and I wouldn't trade our approach for -- certainly for the GS system.

Mr. Kamensky: How best to manage through transitions?

We will ask Chris Mihm, who's the managing director of Strategic Issues at the U.S. Government Accountability Office, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Kamensky: Welcome back to The Business of Government Hour. I'm your host, John Kamensky, and this morning's conversation is with Chris Mihm, managing director of Strategic Issues at the U.S. Government Accountability Office.

Chris, GAO's at a crossroads of sorts these days. David Walker, who served as the Comptroller General of the United States and head of the GAO for almost a decade, just left a little earlier this year. And how there's a need to select a new Comptroller General. Chris, could you give us an overview of the selection process for Comptroller General? And what are the critical elements of a selection process and who's involved in this process?

Mr. Mihm: The process for selecting the Comptroller General was established by the GAO Act of 1980. And then under the Act, the Comptroller General is appointed by the President with advice and consent of the Senate. When a vacancy occurs for the CG, Congress establishes a commission to recommend individuals to the President. In this case, the commission consists of the Speaker of the House, the President Pro Tem of the Senate, the majority and minority leaders of the House and of the Senate, and then the chairman and raking members of our two authorizing committees, which would be the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform.

And what they do is they get together and they must recommend at least three individuals to the President. The President may request that the commission recommend additional individuals. However, the President then selects an individual from those recommended by this congressional commission to be Comptroller General. The President's nomination must then be confirmed by the Senate. And so it kind of begins with the Congress, goes to the President for selection, and then goes back to the Senate for confirmation. And as you mentioned, it's a 15-year, non-renewable term.

You mentioned we're at a crossroads. I mean, we were obviously extremely fortunate that Dave Walker was the Comptroller General for the 9-1/2 years. He's since left, obviously, to head the Pete Peterson Foundation. We're also, though, extremely fortunate that we have as an acting comptroller General Gene Dodaro, who is a lifelong GAO person. He's been a leader of the organization for many, many years. He was the chief operating officer under Dave Walker. We have a strategic plan in place. We have a set of annual performance goals in place. And for us, it's full speed ahead on our initiatives.

Mr. Kamensky: Given that this is an election year, could you tell us what GAO's role and responsibilities are during a government that's in transition? Specifically, what role does GAO play in facilitating a smooth transition between administrations, and what kind of plans do you have in place this time around to assist during the transition?

Mr. Mihm: This, as you know, is just a very important political transition. I mean, they're all important obviously, but this is going to be the first presidential transition that we've had obviously in a post-9/11 environment since the creation of the Department of Homeland Security. It's the first presidential transition in over 40 years where the nation has been at war. So there's a whole series of extra sensitivities in making sure that we have successful hand-offs of power. We need to keep in mind that the terrorist attacks in Madrid, the Glasgow bombings were all done during times of presidential transitions. The terrorists understand that those are typically times of vulnerabilities for democracies.

Our particular role in this has been established in the Presidential Transition Act, and that is to be available and to provide briefings to transition teams. We also, though, understand that we have a broader responsibility to help the Congress prepare for the new Congress and to help the Congress prepare for its oversight and decision-making that it will need in conjunction with the new administration.

Specifically what that means is that we're now going through and pulling together through our wide body of work -- we issue over 1,000 reports a year in GAO. And on transition need fear, we're not going to be delivering 1,000 reports to them. But we're going through the wide body of work that we've issued and identifying what are those key programmatic and management issues on an agency-by-agency basis that we need to be able to get to the transition team in the new administration when they come on? What are the key open recommendations that we have that need additional action? You know, what are the key vulnerabilities based on our work that they may face when they take office on day one?

And we're making sure that we package that in a way that's digestible and usable to a transition team, which, as everyone that's been through those tells us, is just going to be inundated with information. Must of this information will be provided in a web-based environment to them. We'll also have a series of one-pagers or shorter things, and obviously offer the briefings to them. And then make sure that we're also, as part of that supporting the Congress, as I mentioned, since we are a congressional agency, making sure we're supporting the Congress in its oversight, in its authorization, appropriations decisions as it moves forward with the new administration.

Mr. Kamensky: Within government, we're seeing an increase in the multi-sector workforce, which is public and private sector and nonprofits. And it's marked by a mix of contract as well as government employees. What kinds of changes, like in the size or the competencies, the hiring process, should be made to more effectively manage a multi-sector workforce?

Mr. Mihm: Well, the first thing that needs to take place is that we need to make sure that we understand that the delivery of public programs, in many cases, the federal contribution, the number of feds, the FTEs, full-time equivalents as it were, may actually be a small or even the smallest part of the what's involved in the service delivery on that. And so one of the things we need to make sure of is that we maintain a sense of transparency over all the various partnerships and contractors that are involved in the delivery of public services.

The second thing in terms of the size and competencies in the hiring process is that for federal employees, it puts an increasing premium on skills and collaboration, in communication, in negotiation, in working across various sectors. The old hierarchical models of being able to tell someone below you that you want something done and then having faith that that will be done are really breaking down. You know, the skill to success now -- what leadership is now is being able to get work done through others who don't work for you. So skills and collaboration are needed.

The 30-year model is of coming in right out of graduate school or right out of college and then retiring 30, 35 years later. That's not the predominant way that young people today -- or not just young people, many people think about public service. We need to make sure our organizations are agile enough in order to respond to the market demands

Mr. Kamensky: Well, following on that and looking internally inside GAO, would you tell us about GAO's recruitment and retention efforts? You've got programs, like the Student Intern Program and the Executive Exchange Program. How do they factor into your recruitment and retention strategies? And what other kinds of initiatives are you pursuing in this area?

Mr. Mihm: We focus on 50 or more major graduate programs in the U.S. for our analysts, which is our predominant professional category. First, we assign individual senior executives responsibility for establishing relationships with people on those universities. It is made very clear to us that this is not just something they'd like us to do or other duties as assigned. This is a core part of our responsibility and a core accountability for us is to established these types of relationships. So we invest recruiting efforts within line managers as a key part of their responsibility.

The second, and directly related to that, is that it's not just -- the responsibility's not to develop recruiting relationships, but college relations relationships. And so the -- when I go to a university, very few of those visits, very few of -- little of the time that I spend up there is on actual hard recruiting. Most often it's about talking about GAO. And so it's kind of branding the organization that way. To what extent are agencies offering themselves up and saying, hey, we can offer you a speaker or we've done some stuff that -- you know, issued some reports that may be of interest to you? That's how you brand the organization and get the competitive advantage.

In terms of the specifics that you were asking about on the intern program, a successful GAO internship is really the predominant way of getting a full-time offer into GAO. We view it as just a great opportunity for us to get to know and see people that we think could be good possibly for full-time employment. We just find it to be just an absolutely wonderful device to be bringing people in.

The Executive Exchange Program is actually used less, and it was designed to be used less. What this was designed to do was to bring in or offer an opportunity for top talent from the outside, where we have a critical skills gap on a particular set -- a particular project or initiative, to have them come in, spend some time in educating and working with us so that we can get value from them, while at the same time hopefully giving them a deeper appreciation of kind of life inside government. I mean, it's been used, as I said, by design to a much limited extent, but to the extent we have had the opportunity to use it, it's been very successful.

Mr. Kamensky: Well, with your background and expertise, could you outline some of the critical best practices involved in leadership development and cultivating future leaders within federal government or public sector more broadly?

Mr. Mihm: The single most important thing in leadership development is making sure -- and the onus on this ought to fall on the individual -- is making sure that they identify good mentoring relationships and people that they can look to and consult with and that can give them the good advice and tell them when they're doing well, but also be willing to say, hey, you're a little bit off track here or I think your judgment was -- you know, you didn't handle this exactly right, to make sure that you have those people throughout their career. And it doesn't have to be a very formal type of mentoring device. And yet I have found just incredible value from those types of relationships. I think that's the most important type of leadership development that we can have.

The other type of -- you know, the kind of more formal things that we found very important is certainly putting people in positions where they'll have an opportunity to stretch, to really go in new directions, to test or try and develop skills that they may not have had before. So that's something that we do explicitly certainly at all levels, but at -- you know, of leadership development, but explicitly as part of the SES Candidate Development Program.

Mr. Kamensky: What does the future hold for GAO?

We will ask Chris Mihm, managing director of Strategic Issues at the U.S. Government Accountability Office, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Kamensky: Welcome back to our final segment of The Business of Government Hour. I'm your host, John Kamensky, and this morning's conversation is with Chris Mihm, managing director of Strategic Issues at GAO.

Chris, we talk with a lot of our guests about internal and external collaboration. What kinds of partnerships are you developing now to improve operations or outcomes at GAO and across the federal government? And how do these partnerships kind of change over time?

Mr. Mihm: Boy, I'm glad you asked about that. What's been fascinating to me is to see the shift in the unit of analysis in much of the public management literature over the last 10 to 15 years, probably even 15 to 20 years, away from a focus on government and much more to a focus on governance. Which is the recognition that meaningful public outcomes -- virtually any outcome, you know -- isn't accomplished or done or caused by any one organization and certainly not one federal agency working alone. But rather it's done through patterns of relationships of several federal agencies, very often state and local governments; very often, as we were discussing earlier, contractors; very often the not-for-profit sector and NGOs. It's how these all work together. Networks is another part of the -- is what it's often called. How these all work together and how you improve the working of those together much of the literature is suggesting is really the key to improving government performance in the 21st century. That certainly is the -- you know, that is the governance conundrum, as it were.

The key to success then on these types of issues is collaboration, both in -- and we look at that both in an external sense of how can the federal government better collaborate, but that's also something that we take very much to heart when we think internally. And in the narrowest sense, it's something that we work on very much in strategic issues, making sure that we're -- my team at GAO, making sure that we're reaching out to our clients -- or our colleagues rather across the office that are on other mission area teams; making sure that we have the benefit of their most sophisticated thinking; making sure that they have the benefit of some of the things that we're looking at and we're finding as well.

Externally, we also establish partnerships, primarily with the good government agencies or good government organizations -- the Partnership for Public Service, the National Academy of Public Administration, Association for Government Accountants, obviously The IBM Center for The Business of Government, and other arms of some of the major firms -- to make sure, first, that we have, as appropriate, an understanding of what each of us are working on. And then second, identify to the extent that there are opportunities for collaboration, for reinforcement of messages.

Now, all of this has to be done while maintaining the appropriate degree of institutional independence and the different perspectives that each of these organizations have, and just sharing what are we working on? What are you hearing are some of the emerging issues? What do you think is coming down the pike? It provides a great opportunity.

Concrete example of that is when the President in the early days of this administration, when they were -- OMB was putting together the President's Management Agenda for the human capital standards, OPM invited us over and said we had just done a guide on basically a maturity model on strategic human capital management. And OPM called us over and invited us in, along with OMB, and said let's see if there are opportunities to work together and see if they could be informed in on this. And that was a great partnership that we thought paid dividends in terms of the agencies that they've just got one consolidated set of advice or guidance from the administration, advice from us that they could act on, on strategic human capital issues.

Mr. Kamensky: Oh, and what's really interesting about that is that after several years of putting those standards into practice, just a few months ago, those were put into formal OPM regulations. So they are now standard guidance for agencies across the government.

Chris, in the theme of external partnerships and stuff, last year you became the 18th chairman of the board for the National Academy of Public Administration, which you mentioned a little earlier. Could you tell us a little bit more about the mission and the purpose of the National Academy? And what are your responsibilities as chairman?

Mr. Mihm: I'd be very, very happy to. In fact, I have often said that the single moment in which I have been most honored in my professional career was being elected as a fellow at the National Academy of Public Administration in -- back in 2001.

NAPA is a congressionally chartered organization of the -- it's a fellowship-oriented or a fellowship organization of the nation's top experts in public management at the federal, state, local level, and increasingly the not-for-profit level, and in the academic worlds. The basic bottom line of NAPA is it's leaders advising leaders. Our congressional charter requires that we be available to advise the Congress and Executive Branch agencies on a full range of public management issues and to offer them perspectives based on experience, guidance, and independent research that we may do.

As chairman of the board, and I've been chairman a little bit over a year now, my responsibilities are fundamentally on behalf of the board to create an environment in which we are deeply engaged in the daily activities of the academy, and that the academy is drawing on the best talents and guidance and perspectives of the board. We're very fortunate that we have a president and CEO, Jenna Dorn, to lead us into a series of new and just fascinating issue for us. And she has underway a major initiative looking at interagency collaboration and Web 2.0 technologies that I think is just going to pay great dividends for the academy or, more importantly, pay great dividends for agencies.

And so, again, my major role is to make sure that we have in place the procedures and processes to -- that we are drawing on the best talents of the fellows and that the fellows are deeply engaged in the work of the academy.

Mr. Kamensky: Separate vein, there's currently a variety of pay systems in the federal government, all the way from the 1949 era General Schedule system to the more recent pay band systems that are intended to be more market- and performance-based with broader job classifications than in the old General Schedule system. How do you think the next administration should handle issues regarding pay, classification, performance management reforms?

Mr. Mihm: You can get much of the performance improvement that you will get from a pay-for-performance system just by having in place a good performance management system. And by that, the good is meaning one that has credibility with staff and managers. The most important thing that we think that can happen is for Congress to provide legislation that would provide or allow authorities of what we call the "show-me test," which is that agencies would be authorized to go to pay-for-performance, but only after they have demonstrated, meeting a set of clear criteria, spelling out in the legislation, of what needs to be in place before they could go to pay-for-performance.

We are moving to a pay-for-performance and more market-sensitive pay. And we believe you we should and, inevitably, we will have to, but if we're going to do that, that agencies have in place the infrastructure that they will be successful in that.

Mr. Kamensky: Okay. Well, that's very interesting.

I'd like to transition now to the future. Recently, The IBM Center for The Business of Government released its report called "Ten Challenges Facing Public Managers." And those 10 challenges provide a snapshot of what we see as 10 big challenges that face public managers in the decade ahead. Would you give us a sense of the key issues that you think will be affecting the federal government over the next few years? And on a broader basis, what are some of the major opportunities or challenges that GAO will wind up encountering? And how do you think that GAO will evolve in responding to this over the next few years?

Mr. Mihm: Well, geez, that's a huge question. Let me begin by saying, and I'm obviously aware that I'm on your radio program here, but I just thought the report on challenges facing -- "Ten Challenges Facing Public Managers" was just excellent, you know? And I thought it was excellent substantively. And I think equally important that it was excellent in that the 10 challenges were distilled into a short, readable, digestible format, and didn't require 1,000 pages afterwards. So congratulations to your colleagues that worked on that.

Having said that, many of the issues that I think that you touched upon are things that are consistent with -- in the IBM report are consistent with things that we've been identifying in some of our work and that I think will be enduring challenges. They're things we've been talking about over the last hour or so.

Certainly the long-term fiscal. That's important both in its -- obviously both in its own right, but it's also important in the sense that it bathes everything else. The color of that is -- you know, bathes all other issues in which we think about what government we want and what size we want government to be.

I think the governance notion that we were talking about earlier will also be huge. When you look at the public management successes and public management failings in recent years, they've all been at the center of those either success or failure from a governance perspective. And the failures are obviously those that are more well known in terms of 9/11, the failure to connect the dots, as the 9/11 Commission referred to it. The response to Hurricane Katrina, which is -- you know, I mentioned earlier, Don Kettle is someone that I've learned from at every point in my career, referred to as perhaps the country's greatest public administration failure. That, in essence, was an inability for organizations at the federal, state, local level, not-for-profit, for-profit sectors to work well across organizational boundaries and the recovery began to get better when those government issues began to -- governance issues began to get better. The nation's preparations for -- in the event of pandemic influenza -- all completely dependent upon organizations working together.

So the long-term fiscal, the governance issues that we view as kind of the two biggest buckets that are out there.

Mr. Kamensky: Chris, given your dedicated service to GAO over the years and your time in public service, what advice would you give to someone thinking about a career in public service?

Mr. Mihm: Well, I firmly believe, and I've said this very often, that this is the most exciting time in at least a generation to be involved in the public service. And it turns on the two things that I mentioned just a moment ago: the long-term fiscal challenges and the governance issues. And the challenges that federal managers face, the decisions that federal decision-makers face in the Executive Branch and in Congress are really unprecedented in the scope that they confront. The need for good information, the need for good managers, the need for good people to help us navigate our way through these enormous challenges that we as a country face in the next 5, 10, 15 years is just enormous. And so it's an exciting time and a very challenging time to be involved in public management. So that's the first point that I would make to people.

The second point that I would make is that the importance of service is that it's increasingly through efforts like the administration's with their PART process and the President's Management Agenda, through all the heroic efforts that agencies have been making under the Government Performance and Results Act, we are getting these lines of sight in agencies where individual programs are better able to show demonstrable results from their work. That's something that people can come into government from and have complete confidence that what they're working on is improving the lives and livelihood of their fellow citizens. And that's a very, very big deal for people.

And so it's both kind of the intellectual excitement and the -- just the opportunity of being part of something big, as well as the opportunity to return something to our fellow citizens, I think are two very important reasons to be involved in the public service.

Mr. Kamensky: Well, Chris, that's really great advice. We've reached the end of our time and that'll have to be our last question, but I want to thank you for fitting us into your business schedule. But more importantly, I'd like to thank you for your dedicated service to our country and public service.

Mr. Mihm: Well, thank you, John. It's been just a great pleasure to be with you here this morning. And again, for anyone that's interested in GAO and wants any of the reports that your tax dollars go to, That's everything right there.

Mr. Kamensky: This has been The Business of Government Hour, featuring a conversation with Chris Mihm, who's the managing director of Strategic Issues at the U.S. Government Accountability Office.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who may not be able to hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.

For The Business of Government Hour, I'm John Kamensky. Thank you for listening.

Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m. And visit us on the web at There you can learn more about our programs, and get a transcript of today's conversation. Until next week, it's

Steven Preston interview

Friday, April 25th, 2008 - 20:00
Steven Preston
Radio show date: 
Sat, 04/26/2008
Intro text: 
Steven Preston
Complete transcript: 

Originally Broadcast April 26, 2008

Washington, D.C.

Announcer: Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at And now The Business of Government Hour.


Mr. Morales: Good morning. I'm Albert Morales, your host and managing partner of The IBM Center for The Business of Government.


Small business ownership can be the gateway to opportunities for all Americans. In fact, in just over four years, two-thirds of the eight million new American jobs were created by small businesses. These entrepreneurs foster an economy driven by innovation and their passion, along with the organizations dedicated to serving them, clearly reflect the American spirit of ingenuity and opportunity.

With us this morning to discuss his department's effort in support of American small business is our special guest, Steven Preston, administrator of the U.S. Small Business Administration. Good morning, Steve.

Mr. Preston: Good morning.

Mr. Morales: And joining us in our conversation, also from IBM, is Paul Kayatta, partner in IBM's Public Sector General Government Practice. Good morning, Paul.


Mr. Kayatta: Good morning, Al. Hello, Steve.

Mr. Morales: Steve, let's start by taking a moment to provide our listeners with an overview of the Small Business Administration, or sometimes referred to as the SBA. Can you tell us a bit about the history and the evolution and its current mission today?

Mr. Preston: Sure. And I think, Al, you did a great job of sort of giving us a sense of the importance of small business in our country. Roughly, they're half of our economy. They're most of our job creation and a lot of the innovation that drives our economy. And because of that, the SBA was created in 1953 as an independent agency to support small businesses in any number of ways.

Now, what that means today is that we provide guarantees for private loans to small businesses. That helps our banks and other lenders reach a little bit harder to reach small businesses who need capital to grow. It means that we train and counsel small businesses around our country. Every year, we have programs that touch about a million entrepreneurs a year to help prepare them for ownership or help them through issues they face as a small-business owner. We also help small businesses if they want to sell their goods or services to the federal government. We help prepare them for that process and learn how to bid on contracts.

And then the other thing we do, which is a little different than our primary small business mission, is we are America's government bank for disaster victims -- not only small businesses, but homeowners. So, for example, today we have over $6 billion with homeowners and business owners in the Gulf of Mexico, helping them rebuild their lives after the 2005 hurricanes.

Mr. Morales: That's great. That's a broader mission than I had thought. So can you provide us then a sense of scale and tell us a little bit more about how the SBA's organized, perhaps the size of its budget, number of full-time employees, and your geographical footprint across the country?

Mr. Preston: Sure. Right now, there are effectively two parts to the agency: the disaster side and the non-disaster side. The non-disaster side has slightly over 2,000 employees. Now, the disaster side, the size of the employee base depends on what we're dealing with. So, for example, today we've got about 1,200 employees, but after Hurricane Katrina, we had over 4,000.

In addition to that, in our training and counseling operations, we fund third parties that provide those services for us. They have about 13,000 counselors around the country. And then we work with about 4,000 banks and non-bank lenders. So we have a large base of employees, but we also have a large network that is not employed by us, but works with us to deliver that mission.

Our budget, it takes somewhat over $800 million to run the agency in any given year, but many of our programs are actually self-funding. I think the other thing to note is when you look at all of our guaranteed lending programs and other programs we have to get capital to small business, there is about $85 billion worth of capital in people's hands around our country that is supported by the SBA. So we're a very significant part of getting capital to small-business owners.

Mr. Kayatta: Now that you've provided us with a great sense of the organization, perhaps you could tell us a little bit about your role as the administrator of SBA. Could you describe for us your specific roles and duties?

Mr. Preston: Yeah, well, you know, as head of the federal agency, my duties are fairly broad. But I look at them really probably in a couple of baskets. First of all, I think I need to be the point of accountability for high-quality service delivery by our agency. At the end of the day, we're a service organization that helps Americans. And I feel like I need to make sure that every penny that's spent on the agency is a penny well spent and that we are a high-quality organization delivering that service. We've had a lot of challenges along the way, but I think we've made a lot of progress.

As such, I need to be an important advocate for our employees, and the work that they do. And I also think I need to be a very visible advocate for small businesses in our country. We are consistently facing policy issues, like health care, like tax policy, like export policy, that are very relevant to the small businesses in our country. So as head of the agency, it's important for me to understand what's taking place on the legislative agenda and the regulatory agenda, and ensure that we're doing everything we can to make sure the voice of small business is heard.

Mr. Kayatta: So you've gone over several of the challenges that you're addressing. Could you tell us what you think your top three challenges are, and how are you addressing them?

Mr. Preston: Well, you know, when I came into the position, I came in about 11 months after Hurricane Katrina. And we provide loans to disaster victims, and those are low-interest loans on very favorable terms, and we had just a tremendous backlog at that point. So job number one for me when I came into the agency was to ensure that we got those funds into the hands of disaster victims and then that we ensure that we could reform the agency in a way that would ensure that we could support disaster victims in the future. As people say, hope for the best, but plan for the worst. So we have dramatically changed the process of making a disaster loan at the agency, which has required extensive reengineering of processes, bringing more technology to the table, coordinating with federal and state and local groups much more effectively.

And the other thing we did is we're trying to move our disaster operation -- we actually already have -- from feeling like a large bureaucracy to a friendly organization. So everybody who applies for a disaster loan right now is going to get a case manager, somebody they can talk to about how to submit their loan, the person can help them through the process. We want to be a helpful, responsive body. So that was the big challenge and I'm thrilled with the progress we've made there.

I'd say, secondly, we face similar operational challenges that have made it difficult for us, I think, to deliver the service that we do with the type of quality that we need to. And so we've applied many of the same learnings to other areas in the agency to become a much more customer-friendly organization in our lending programs, in our procurement programs, and in all sorts of other things.

And I'd say the other thing is, you know, when I came into the agency I think we had some real employee morale issues. The government surveys on employee satisfaction indicated that the SBA had a lot of challenges in that area. So I've been very focused on ensuring that our employees are trained to do their jobs effectively, that they have the tools to do their jobs effectively, and that they have a work environment that really makes them look forward to coming to work every day. And we've made a lot of progress on that front as well. A couple months ago, we got results from an employee survey that was roughly a year after we brought the new team in, and we saw very dramatic improvements. So we're thrilled with the progress we're making there as well.

Mr. Morales: Steve, I understand that prior to coming to SBA, you were an executive in the private sector. Could you describe your career path for our listeners and perhaps let us know how you got started in government?

Mr. Preston: Yeah, it's probably more of a zigzag than a straight line. You know, I came out of business school with a finance MBA and went to work in investment banking. I worked on Wall Street for a number of years, from sort of the mid-'80s to the early '90s. It was very exciting. I learned a tremendous amount. It was, I think, just a great place for a young person to be who wanted to learn about financial services and the markets and dealing with corporate issues. But I really decided I wanted to be part of building something in a different way. I always felt that my clients were having more fun than I was by being part of building an organization, so I became the treasurer of one of our clients. And it was a very large company with a lot of very complex financial challenges. And then I ultimately moved from there to become the chief financial officer of a Fortune 500 company, and then ultimately an operational leader there.

So my pathway has sort of gone from being a provider of financial services to companies to working as the financial and strategy person within the company on to roles where I actually was focused on improving the operations of the company to help it provide better service, to help it do that more efficiently, and to improve the growth of the company. When the opportunity to come to the SBA, which, as I mentioned earlier, is a large service organization that has had some operational challenges, when that opportunity came up, it made a lot of sense to me to take it.

The mission, also, made it, I think, particularly compelling. Like a lot of Americans, after Hurricane Katrina, you know, I watched the footage from my living room and, you know, I prayed for those people and I, you know, sent money and just wished I could do more to help. And sure enough, the opportunity came up to really pour what I had built over almost a 25-year career in financial and operational roles into an agency that directly impacted those people's lives. So I just felt like if I was looking for a sense of mission I couldn't have gotten a better one.

Mr. Morales: So, Steve, as you reflect back on these experiences, how have they prepared you for your current leadership role as administrator and perhaps shaped your management approach and leadership style? And if I may, what management lessons have you learned and brought to the SBA culture from these private sector experiences?

Mr. Preston: Okay, great. Well, I think I can probably wrap all of those questions up in a handful of thoughts. First of all, if you're leading an organization and you want it to go somewhere, you have to really paint a compelling vision of where you're going to take that organization. And that compelling vision is something that has to live and breathe within the organization. And so, when I very first came into the role, I spent a lot of time understanding what we needed to do as an organization, who we needed to serve, and how we needed to serve them, and working closely with the employee base, listening to them, and the customer base, listening to them, in bringing that forward.

Then I think once you paint that compelling vision for people, you need to make sure that everything you do in the organization lines up behind it: launching major initiatives to support that vision, tracking the progress, fervently supporting the progress in those initiatives; every month or periodically, whatever, looking at the progress and making sure that things don't get off track; looking at compensation programs and reward programs that support that; and then continually being up front in front of the organization reinforcing where you're heading and why you're heading there.

The other thing I've learned over my career that I've definitely employed at the SBA is if you're going to have an effective service organization, you need to have motivated employees that care about what they're doing and you need to provide those employees with the training to do their jobs and the tools to do their jobs. Because if they're motivated employees and they care about what they're doing, the last thing you want to do is put them in an environment where there's poor morale, where they're not trained to do their jobs, or they don't have equipment or whatever. So you really need to focus on the employee base and their ability to serve the mission as sort of square one in being an effective service organization.

Mr. Morales: That's fantastic. What about SBA's reform agenda? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.

Steve, from my conversations with government executives, anytime you drive broad organizational change you need this compelling vision that you talked about earlier and you need to drive it through your teams. Now, applying that back to SBA, can you give us a brief overview of SBA's actual strategic plan and can you describe the vision that underlines and unifies your strategic goals?

Mr. Preston: Yeah. I think there are a handful of things that we're very focused on right now. First of all, we've really worked very hard, as I mentioned a little earlier, to ensure that we're prepared to handle whatever disaster might affect our country and, in doing so, get capital to people to help them rebuild their lives. It's not very difficult, frankly, to get people within the agency to see that as a heartfelt mission that they care about deeply. And the people in our disaster operation really want to serve well. And so I think an important thing to do there has been to help them understand how what they do in their jobs helps us deliver that mission effectively.

The other part of the mission, which I often refer to as our "reform agenda," is to look at all of our programs and services and make them easier to use, more customer-friendly, more compassionate in how they're delivered, and much more efficient, frankly, because there's a tremendous opportunity for us to improve the efficiency of the organization. And what I tell people often about that portion of the vision is, look, we can have the greatest product or service in the world -- whether it's guaranteeing loans to help people get capital, whether it's a program that helps them with procurement -- but if they're extremely difficult to use, if there is a ton of paperwork to fill out, if it takes us very long to make decisions or get back to people, if we're overly bureaucratic, people will not use the program. It might be a great service, but if it's too tough to use, they won't come to us and they won't seek our help.

I was talking to somebody about this recently and I said, gee, you know, when you look at opening a bank account do you look at the interest rate or do you look at the ease of use? You know, is there a branch nearby you? Do you like the electronic banking? Is that easy to use? Can you get information on your account? If they forgot to send you your statements every month and you had to drive six miles, getting another, you know, half a percent on your savings account may not make a big difference. So it's very important for us to understand that ease of use, simplicity, and responsiveness is a big part of quality service in helping America's small businesses because these people have big jobs that consume a tremendous amount of their time. They need us to respect that as we're delivering the service.

Mr. Morales: Now, Steven, I have to admit here that I cheated a little bit by doing some research on your plan and it seems like it's guided by four core pillars. Could you elaborate on these pillars along with your vision that complement the reform agenda that you described? And in so doing, could you give us a brief introduction to the reform agenda for SBA?

Mr. Preston: Yeah. What I found not long after I came to the SBA is it was important for us, in setting the vision and in establishing initiatives to fulfill that vision, it was important for us to agree on what we needed to talk about. What are sort of the guideposts for making decisions? And we came up really with four key things.

First of all, we decided our agenda had to be outcomes-driven. It couldn't be about how many loans we processed or, you know, how much paperwork we shoved. It had to be about the value we created to people. And so what are the outcomes we're driving? Are we helping people get back into their homes? Are we helping small businesses get capital ultimately? So not let's just talk about the process, let's talk about the value we're creating, so outcomes-driven.


Number two, everything we needed to do had to be customer-focused. What I talk to people about is, when we look at a new opportunity, I say we have to start with the customer and work back from the customer because that's the person we're serving. And our customer is a taxpayer, whether it be a small business or a disaster victim.

The third thing we talked about is being employee-enabled. We need to enable our employees to deliver that service because, if we don't, we won't be able to do it effectively.

And the fourth thing, we couldn't figure a pithy or short term to come up with, but it gets to the notion of having an agency that's transparent around what we're doing. We're a government agency. We've got to be open and transparent about how well we're doing. If we're not doing well, we have to be honest about it. We have to be accountable and we have to be efficient. It all gets to the concept of stewardship and openness in management. So outcomes-driven, customer-focused, employee-enabled, and then the last one we kind of call transparent, accountable, and efficient.

Now, as we look at applying that to sort of the reform agenda, we can use those guiding principles and we can look at each one of these programs to say do we know what outcome we're driving and are we set up with our initiatives to improve that outcome? Does that outcome really affect the customer the way we want it to? Do we have programs in place to support our employees to deliver that service with a high quality or are we disabled at that level? And finally, are we really accountable in how we're delivering the service? Are we measuring it right? Are we driving toward the right goals? And are we honest about how well we're performing?

So that's kind of how the four pillars apply to the reform agenda.

Mr. Morales: That's great. Now, you know, earlier in the first segment, we talked a little bit about the growth of small businesses over the past several years. What's interesting is, over the last three decades, the number of employees at large Fortune 500 companies has actually been declining. Could you elaborate a bit on your efforts to improve the economic environment for these small businesses?

Mr. Preston: Certainly. There are a number of things that we focus on in that regard. Right now, obviously, we are seeing somewhat of a challenging time in our economy, and one of the things that we are concerned about is the ability of small businesses to get capital. So we are working very hard to meet with hundreds of banks around the country to make sure that they understand our programs fully, that they're using them in a way that will help them get capital to small businesses, and that if they have any problems in working with us that may discourage them to use our services, that we're taking care of those issues, that we're being a good partner with them. So it's very much about outreach and improving our service quality to the banks so that they, in turn, will adopt our programs and get capital to small businesses.

Now, the other thing that's very important during this period of time is often small businesses, they're facing something that they haven't faced before: potentially a decline in sales or, in this case, in the current environment, higher energy costs, or challenges like that. Our network of counselors can sit down with those small businesses and actually help them think through how to address those issues. Should they be thinking about an adjustment to their prices? Are there strategies that they can have to bring down their energy costs? We're also about to launch a program that will help small businesses learn how to become more energy efficient because it is an increasing cost for them.

Mr. Kayatta: In rural areas, small businesses account for two-thirds of all jobs and in inner cities, small businesses provide 80 percent of all the employment. So entrepreneurship can be a very valuable vehicle in these communities. Could you elaborate on SBA's efforts to develop new products and to serve these underserved markets?

Mr. Preston: Yeah. This is a very, very important focus for us because in areas of our country where we see higher poverty and higher unemployment, we want to make absolutely sure we're doing everything we can to support entrepreneurship. And the reason for that is very, very simple. If new businesses can get a foothold, if small businesses that are existing there have the resources and the support to grow, they will create jobs, they'll bring investment, they'll improve the physical face of neighborhoods and in a way that is sustainable and lasting and, in many cases, growing. So we are working very hard to drive our services to areas of our country that need it the most so they can get lasting change.

Now, how are we doing that? First of all, we're providing goals for all of our offices around the country to increase our presence in those areas, and those goals have shown real fruit.

Secondly, we are rolling out products that are specifically designed to help people in those areas. For example, many small community banks are reluctant to use our services, our guaranteed lending services, because they're concerned about dealing with the government bureaucracy, and it can be challenging for them if they don't have a lot of staff. So we're rolling out an entirely new program for them that has a simplified application; they can do it online. We give them a customer support desk if they have any questions. And we promise them that we'll turn around their loans in a few days. We want to make it easy and supportive for them, and we'll be signing up small banks that reach many rural areas as a result.

And another thing that I would mention is a very exciting initiative we are launching right now called the "Emerging 200." We've chosen 11 cities in the country for a pilot called the "SBA Emerging 200." These are cities that have experienced job loss in the inner city. We are going to those areas and we're bringing in 15 to 25 small businesses that have a profile of a growth company. It looks like they've got an idea that could really ramp, but it looks like they also need a lot of help. So we're putting them through an intensive program for six to eight months. They'll get classroom training. They'll get one-on-one counseling if they want it. We'll give them business connections in the community. We'll provide them with introductions and support with lenders and investors. But we want to make sure that these companies in our inner cities that have potential to grow dramatically have every bit of support from us to become successful. And if they're successful, if you have 20 companies, for example, in Baltimore, which is one of the cities, or in Memphis, which is one of the cities, and they begin creating new jobs, that abets more economic activity. Hopefully, next year, we'll have another class of people coming in. And it can begin to change the face of neighborhoods and communities around our country. So we're very, very excited about the launch of the Emerging 200.

Mr. Kayatta: As you mentioned earlier, the SBA manages a loan portfolio in the range of $85 billion. To that end, OMB's Improved Credit Management Initiative requires agencies to strengthen the way that they award and service loans, manage portfolios, and collect debts. Would you tell us about the department's management and strategy for improving its credit management capability?

Mr. Preston: Certainly. This is a very important initiative and I'm thrilled that OMB has focused so heavily on this because the federal government does have a lot of financial resources out there and it's critical that we're managing those very tightly. Really what it requires is a focus to make sure that you have the right policies in place to manage those portfolios and that you are being very diligent about following those policies. And so in our case it's required us to really look at the whole pathway, the life of a loan, to make sure of how we're servicing loans, how we're managing the portfolios, how we're collecting the debt, that those things are all managed tightly, that we're tracking them, and that they're done in compliance with the OMB directives.

Now, over time what we're doing in addition to that is we're rolling out new systems to be able to support us so that we can do it much more efficiently and in a way that allows us to kind of get all of our information and all of our management processes in one place.

Mr. Morales: Steve, you've been talking quite a bit about your work in the area of disaster recovery. What lessons has your organization learned in the aftermath of the Gulf experiences? But more importantly, what are some of the major improvements to SBA's disaster operations that you've made that ensure the agency is stronger in the face of any future national emergencies?

Mr. Preston: Well, we've learned a number of things and I think these are the areas where we really have focused on improving. First of all, on a very base level, I think it's important to realize that when somebody has gone through a disaster, in many cases they're absolutely shell-shocked. It is a very, very difficult situation. I've been in many of our disaster recovery centers after a tornado or a flood. Sometimes people come in, they look entirely dazed because they're just in shock. We need to be a compassionate, helpful face and voice to them when they come into our process because they need help in getting through the process of doing a disaster loan when they've lost so much.

Some people will say to me, how can it be efficient to give people that kind of support? Isn't it expensive? And what I typically say is, no. A, it's the right thing to do but, B, it is efficient because if you invest 15 or 20 minutes with an individual, taking him through the process, helping them understand what they have to do, it saves all of us a tremendous amount of time in getting the documents correct. Before we were frequently shipping documents back and forth because they're weren't filled out right or we didn't have enough information. So helping people at the front end the compassionate way can also be more efficient. That's number one.

Number two, I think we have to have a system in place that allows us to ramp our capacity very quickly in a major disaster. That means that we have to have a way to hire people very quickly. It means that we have to have a way to ensure that we have systems in place to handle high volume. And it means that we need to have facilities to put those people in those systems. So we have a very detailed surge strategy in place. And, in fact, we'll be testing it in a simulation to test all of our disaster capacity in various events. And we have thousands of reservists around the country right now that are ready to be called up, and that's very important.

And the third thing I would highlight is we're not alone when something like this happens. There are many people out there to support us and there are also people that we have to coordinate with so that we can both do our jobs more effectively. So we've dramatically improved our coordination with other federal agencies. We have put in place protocols to improve our coordination with local groups. And we've also, believe it or not, we have a field network around the country that delivers non-SBA disaster services. It delivers lending and all the other services which is separate from disaster. We haven't always coordinated between those two, but we have a wealth of resources with almost a thousand people in the field that know their local chambers, know the local banks, and know the local media outlets. So we have protocols in place now to coordinate with our other SBA resources on the ground to leverage their resources. And that is very important because in a situation like this, everybody needs to lock arms and work together closely if they're going to effectively deliver the services to the disaster victims.

Mr. Morales: That's great. That sounds like you're taking a very proactive position against any future occurrences. Steve, another critical area is our country's veterans. Could you tell us more about your efforts to ensure that veterans receive fair access to federal contracts and that veterans get the capital and technical assistance they need to be successful as small-business owners? What are some things that you do in this area?

Mr. Preston: Well, this is a very important area to us and it's an area that we've invested a lot of focus. Because not only do we all feel a heartfelt commitment to the people that have served us in the military, it's also important to remember that these people, men and women who've served us so well, have learned critical skills that make them great entrepreneurs. They've learned disciplines, they've learned hard skills. In many cases, they've learned how to sacrifice to build something. Those are all great things to pour into a small business and veterans make very successful small-business owners. So we've got a number of programs that provide training and technical assistance to veterans. We have veterans centers that specifically focus on delivering those services around the country. And we also have partners that have special veterans programs, whether it be through small business development centers or our SCORE partners, which some people know.

The other thing we've done is we've designed specific lending programs to reach members of the military community who need capital to grow. First of all, last year, we launched something called the "Patriot Express," which combines the best elements of all of our loan products into one. And the thing I love about the Patriot Express is it's not just for veterans. It's for reservists, it's for National Guard members, and their spouses. Military service is a family affair. Small business ownership is a family affair. And we're supporting the entire military family in doing this. Since our launch last summer, we've made over $100 billion in Patriot Express loans around the country, which is very exciting.

The other thing is a great program we have, but, very frankly, we've had a hard time telling people about it. It's something called the "Military Reservist Economic Injury Disaster Loan," maybe because it has such a long title. But effectively, what we say is this: If you're a reservist and you work for a small business and you get called up for active duty, if that small business is in some way injured economically by the fact that you were called up for active duty, that small business can apply to the federal government through the SBA for a 4 percent business loan. And on those loans we can go out as long as 30 years. So this is a great loan product for small businesses that are disrupted by the sacrifice that our reservists are making for our country.

Now, Congress just passed a bill and the president signed it earlier this year that allows people to pre-apply for these loans before they get called up. So if you're a reservist and you work for a small business, you should give us a call and pre-apply for one of these loans, so that if the small business is impacted somehow by your being called up, your paperwork's in place and we can kick in and support the challenges that the small business faces as a result of it.

Mr. Morales: That's a fantastic program. How is SBA ensuring accountability and managing for results? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.

Steve, it's my understanding that in an effort to increase the transparency and accountability in small business contracting, SBA and OMB issued a small business procurement scorecard. Could you tell us a little bit more about this scorecard and what it tracks? But more importantly, could you elaborate on the overall federal performance in this area and what lessons are you learning?

Mr. Preston: Well, you know, just by way of background, the federal government has a mandate -- it's not a requirement, but it's a strong mandate -- to purchase at least 23 percent of what they buy from small businesses. We're the largest buyer of things in the world and so this is an important part of providing an opportunity to small businesses. But as I always say, it's not just about fairness, it's about good business. Because small businesses are often more flexible, they're often cheaper, they give everything they have, so it's good business to do business with small business.

But what we did was the following. We wanted to make sure that we were doing everything we can to help the other federal agencies meet their small business procurement targets, but also hold them accountable and to be honest about how we're doing. And so what we did is we launched a scorecard. Every one of the larger federal agencies has a small business goal: a percentage of their goods and services that they buy that should come from small business. And for also some different types of small businesses, we also have goals. For example, businesses owned by service-disabled veterans, they have goals for that. We were just talking about veterans.

What we do now is we rank every federal agency against their goals and then we also rank them based on the progress they're making to improve their performance. And then once a year, we issue a scorecard. And some people get green if they're doing well and hitting their goals, some get yellow, and a lot of them have gotten red. All of our views are that, you know, if somebody's not hitting their goal, we have to be honest about it. We're the federal government and this is a mandate. Let's be honest about it and if we're not hitting the goal, then let's put a pathway in place to achieve that goal.

Mr. Morales: Now, Steven, we talked earlier about reform and accountability. So specifically, what types of reengineering efforts are you embarking to address some basic operational issues such as reducing error rates, reducing backlogs, and reducing decision-making bottlenecks within the organization?

Mr. Preston: Well, you know, I think probably a very good example of that would be in our lending operations. As I mentioned before, we guarantee bank loans and credit union loans and other private lenders. If we need to make good on that guarantee, effectively what happens is the bank sells the loan back to us and we buy it and then we make good on it. Well, there have been many challenges in that operation. The backlogs at one point were very, very long. Our policies were confusing. It was difficult for the banks to interact with us, and so we did a number of things.

First of all, we made sure to clean up our policies, to make sure that they made sense, and then we rewrote all of our standard operating procedures and sent those to the banking community. It doesn't sound very exciting, but in a process like that you've got to make sure that the rule book is clear and the rule book wasn't clear. And the banks were asking us to make sure that we were crystal clear on how we did these things.

Then we actually took a look at how we do the process of purchasing a loan. It's almost like a little manufacturing operation except, you know, you've got a loan going through it. There were a lot of issues there that needed to be cleaned up to make it more efficient, to make it more consistent, to improve the processes. And then in addition to that, we needed to improve the technology so that we could support the improvement of that process.

The next thing we did is we instituted a customer service desk in our processing centers, so that the banks would have a place to call if they needed help or had questions.

And then the last thing we did was we undertook a very significant retraining program, not only for the people processing the loans, but for people in our field offices. And the reason for that is this: The banks are out there in the field and our people are out there in the field, and we wanted to make sure that we could have our people go physically to a bank if they were confused about our process, sit down with them, and help them work through it.

When we analyzed the bigger problems we had here, one of the biggest problems we had was a lot of the banks were sending in information that was incorrect or incomplete or they didn't understand the process. So we decided we had to train our people in the field to sit with banks and help them get it right the first time.

The other thing we do now is everything is tracked. I know what the backlog looks like. I know how old it is. I know which banks we're having challenges with. I know how much production we're doing. We have metrics on all of these responsiveness and efficiency measures, which we never had before, so that we can actually manage it effectively.

And the last thing we did is we told banks that we were going to make the process easier. And if they complied with the new process, we would deliver a promise to them of getting them their money in 45 days. Well, we have done that and right now we're getting them their money on average in about 25 days.

Mr. Morales: Wow, that's fantastic.

Mr. Preston: We're hitting the bank promise and we're getting tremendous kudos from the industry, so we're very excited about that.

Mr. Kayatta: Steve, could you tell us about some of the most critical issues that face small businesses today and what you're doing to assist them through those issues?

Mr. Preston: Well, right now, based on what we're seeing in the economy, I mentioned a little earlier that a lot of small businesses, especially those that have vehicle fleets or large facilities, are hurting from the increase in energy costs. Another thing that small businesses have been facing for a number of years, which is so difficult, is the increase in health care costs. Many people don't think of the health care challenges we have in the country as being a small-business issue, but many statistics would show that 70 percent of our uninsured workforce works for a small business. And the smaller a business is, the less likely they are to offer health care. So we have to make sure we understand how to work to improve the health care system to allow small businesses to offer it to their employees or for those employees to be able to buy it directly on a reasonable basis.

So for businesses that are specifically impacted by this economy or these costs challenges, we offer a lot of counseling services to help them think through how to address them in their business, how to manage their costs more effectively, how to manage their labor more effectively, how to manage cash flow more effectively, for example.

The other thing we're doing right now is making sure that we're doing everything we can to help them get capital they need. If they need working capital to grow or help through a challenging time, to make sure our guaranteed lending operations are getting to those people and supporting them.

Then the last thing I'd say that we're doing probably more so now than ever is making sure that we do everything we can that the voice of small business is heard on the policy front. We need to make sure that we're advancing the health care policy improvements that I mentioned. Right now, exports are very much on the agenda. A lot of people don't realize that almost 30 percent of our country's exports come from small- and medium-sized businesses. So we're working very hard to help people understand that because many of the trade agreements that are being contemplated right now are very good for small business, will open up those markets for them, add new jobs, and help them address the issues they face in the economy today.

Mr. Kayatta: So there's certainly a lot of opportunity in the whole world of international trade, and you talked about collaboration as well. Could you describe the Resource Partner Program and how it's working to fulfill the mission?

Mr. Preston: Yeah. And specifically in trade, our resource partners in the small business development centers and women's business centers and our partners at SCORE, which is a network largely made up of volunteers, many of those people have specific expertise in foreign trade. And they will sit down with a small business and help them think through what they need to do if they're looking at foreign markets to expand.

We also, in conjunction with the Department of Commerce, work very directly with small businesses on exporting to specific countries. So if somebody comes in the door, they can go to a U.S. Export Assistance Center and get help with respect to a particular country. For example, if they want to export to Portugal, we can help them understand it and then the Department of Commerce actually has resources in Portugal that can help them.

The last thing I would say right now is we are kicking off a series of trade symposia around the country. Just recently we had one in Miami, in a town outside of Miami actually called Hialeah, and we had 400 small businesses come to learn more about exporting. We brought small businesses that were successful exporters to speak in a roundtable to share their experiences. I talked about the value of free trade agreements in exports. We had a number of service providers that explained what services they could provide to help them out. We had a number of banks there to help them with their financing issues. It was a very, very exciting day for those businesses. And many of them were really encouraged by the opportunity they have to reach foreign markets.

We also do provide financing through our guaranteed programs for small businesses who need to build working capital to support their exports or if they export financing for the actual shipments.

Mr. Morales: So many people may not know that some of SBA's former clients, if you will, included such notables such as Intel, Apple, Amgen, Ben & Jerry's, and Federal Express, just to name a few. Given such success stories and these American icons, could you highlight perhaps, if you can, some up and coming success stories that you see in the near future?

Mr. Preston: Yeah, there's a great one. I mentioned Miami just a second ago, our trade symposium there. I had a chance to visit with an exporter down there who ships products all around the world for installation into industrial kitchens. And he has installed kitchens throughout Asia, in Latin America. Sometimes you really don't even know what's out there until you actually start seeing these small businesses and what they do. But, you know, he had a familiarity with China 20 years ago, and he set up an operation there and began installing kitchens in hotels that were being built and other industrial kitchens. Then he took it to a number of other countries, and now he's exporting to countries around the world.

A couple of months ago, I was in St. Louis, and there were two ladies who had started a business that develops software that blocks hackers from foreign countries who are trying to get into government computer systems. I mean, an incredibly valuable service to our country to protect our security infrastructure, and it was a small business with, you know, 10 or 20 employees that developed this software that's doing so much for our country.

So we forget how varied and valuable and innovative so many of these companies are. When you start hearing the stories, I got to tell you, it's just so encouraging. And that's, you know, actually one of the great things about this job is I get to go around the country and meet many of them.

Mr. Morales: That's exciting. It must give you a great sense of pride to see some of these organizations starting up and doing so well with what is seemingly a very small set of resources.

Mr. Preston: Well, you know, one of the other things I had the opportunity to do is speak with my counterparts around the world, who either lead commerce departments or small business departments in other governments. And frequently, people will say, well, how do you do it in America? You know, how come your small business culture is so energetic and so rich and it drives your economy? What should we do?

And I tell them about our programs and I tell them about our policies, but then, you know, I stop and I say, but small business is in our DNA. That's who we are as a country. We are an entrepreneurial culture. Kids grow up many times thinking about owning a business. They join Junior Achievement. They go to college and they take courses on entrepreneurship. Many of our best known Americans started out as small-business owners that they built into big businesses. And so it's so important that we have policies in our country that support the small-business owners, that support the people that have a dream and want to build that dream because it is the backbone of our economy. It drives innovation and competitiveness for our country around the world.

Mr. Morales: That's fantastic. So what does the future hold for SBA? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.

Steve, I'd like to transition now to the future and talk a little bit about what you see as some of the major opportunities and challenges that your organization will encounter in, say, the next two to three years, and how you think SBA will need to adapt to meet these challenges.

Mr. Preston: There's a lot in that question. One of the things I'd say is we have to be ready for whatever changes might happen because some of them will be unexpected. And one of the things we're doing right now is to work throughout our employee base to put in place tools to help people address challenges, known or unknown, help people learn how to manage change, to envision positive change, and then to actually sponsor it and manage it. And so it's important for an organization to have a flexible mindset. That's a lot of what we're doing.

More specifically, things that we know that are coming down the pike, we have a significant population that's eligible for retirement, and it's not only unique to the SBA. Much of the federal government faces that issue. So what we are trying to do is actually look at that as an opportunity for our people. Because as people retire, we understand that we're losing a lot of talent and a lot of knowledge, but it also creates opportunities for other people for promotion. So we're rolling out very extensive training programs to ensure that people have the skills to do the jobs that they're in today, but also to prepare them for the jobs that may arise in the future.

We're also rolling out a process where every employee who elects to can do an individual development plan with their manager. That individual development plan looks at their strengths, opportunities for improvement, and then puts in place a pathway for them to be able to address those areas for improvement. We're then taking all of that information and building employee development programs designed around specialized training, potentially internship-type programs that would help these employees along their development pathway.

Mr. Morales: So along those lines, Steven, could you tell us a little bit about some of the major training initiatives, such as SBA University? And how do you ensure that your employees have the appropriate training and skills to meet some of these upcoming challenges that you described?

Mr. Preston: Well, training is so important and I think it's the easiest thing for an organization to cut when there's a budget challenge, but it's one of the most important things, I think, for any organization to protect. What we have done is, this last year, we designed something called SBA University, which was a one-week, off-site experience for employees to ensure that they had the fundamental skills to do the jobs that they're in as well as the tools to be more effective in addressing opportunities going forward. And we worked very extensively throughout our network of experts to design a curriculum that was very relevant to our programs and very relevant to the challenges we face. At this point, our entire field organization of almost a thousand people have been through at least one week of SBAU. People in our processing centers have been through it. And this summer, people in our headquarters operation will be going through SBAU.

The other thing it's designed to do is to ensure that people in management positions have the skills to manage their people effectively. We want to make sure that we have a management culture that fosters development and growth as well as productivity, as well as service quality. So those are the kinds of things we're doing there.

Now, through the individual development plan process, we will then use what we learned from our people in terms of their development needs and design a much longer term, much broader training strategy for the organization that will, I believe, provide a sustainable quality culture for the organization for many years to come.

Mr. Morales: So, Steven, to take advantage of this moment on radio, what advice could you give to a budding entrepreneur who may be out there listening to this show?

Mr. Preston: What I'd tell a budding entrepreneur is a few things. First of all, understand what you don't understand. Think about what it's going to take to be successful and understand where your challenges are going to be, and then get out there and get help. Make sure you've thought about your markets, you've thought about the capital you're going to need for that business, you've thought about what it's going to take to be successful. And then when you're honest about where you're strong and where you're not strong, make sure that you fill in your blind spots. Because we want to take all of that excitement and all that energy and all that commitment that you're going to be putting into that small business and make sure it's successful.

The other thing I'd say is it takes a lot. You know, I've often said every dollar of equity an entrepreneur puts in their business is matched with $10 of sweat equity. That's going to be very important to be a small-business owner. You really got to give it all you have and be realistic about the challenges.

I was interviewed recently by somebody who said, gee, you know, if somebody wants to have a more relaxed life and more free time, wouldn't you recommend their getting into a small business and owning a business? And I said you know what? That's just the opposite. It takes blood, sweat, and tears. But you know what? That's why our small-business economy is so powerful. It's because we have people who give it all that they've got.

Mr. Morales: And I've got to believe the rewards are even greater on that side.

Mr. Preston: They're terrific. And it's not just a job for people. It's their lives and it's their passion, and that's what makes it so exciting.

Mr. Morales: So, Steve, as a follow-up now, what advice would you give to a person who perhaps is considering a career in public service, whether that be at a local level or at a federal level?

Mr. Preston: Well, the advice I would give is based on the fact that I just think it is an incredible honor to be able to serve in a capacity that helps other people, that serves Americans in either delivering services to them or doing, you know, so many things that our government does for people that's valuable. I think it's very easy to get a sense of mission and a sense of value in work if you go into public service. And so what I would do is say, think about what you can give. Think about how you can move the needle. Think about how you can provide value to other people through that. And think about, you know, the skills that you build in the private sector or someplace else, how they can be effective in doing that.

Mr. Morales: That's great. Steven, unfortunately, we have reached the end of our time. More importantly, Paul and I would like to thank you for your dedicated service to our country in supporting the small business community.

Mr. Preston: Great. Thank you very much. And certainly, if there are any potential entrepreneurs out there or any small-business owners that have any challenges that they'd like us to help them with, please come to the Small Business Administration. You can find us at

The other thing I would like to encourage small-business owners out there to do is to look at some of the provisions in the stimulus package that was passed earlier this year. There are many tax advantages to investing in your business in 2008 that you may not be aware of, that could be very good for you and very good for our economy. So thank you very much.

Mr. Morales: Great. Thank you, Steven. This has been The Business of Government Hour, featuring a conversation with Steven Preston, administrator at the U.S. Small Business Administration. My co-host has been Paul Kayatta, partner in IBM's General Government Practice.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who may not be able to hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.

For The Business of Government Hour, I'm Albert Morales. Thank you for listening.

Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m., and visit us on the web at There you can learn more about our programs and get a transcript of today's conversation. Until next week, it's

David Walker interview

Friday, September 2nd, 2005 - 20:00
“We must recognize that we’re on an unsustainable path. It’s not a pretty picture. We had deficits over $560 billion last year. We're now mortgaging our children’s future. There needs to be increased transparency from the financial and fiscal standpoint.”
Radio show date: 
Sat, 09/03/2005
Intro text: 
Managing for Performance and Results; Financial Management; Leadership; Strategic Thinking; Innovation; Collaboration: Networks and Partnerships; Organizational Transformation...
Managing for Performance and Results; Financial Management; Leadership; Strategic Thinking; Innovation; Collaboration: Networks and Partnerships; Organizational Transformation
Magazine profile: 
Complete transcript: 

Thursday, February 24, 2005

Arlington, Virginia

Mr. Lawrence: Good morning and welcome to The Business of Government Hour. I'm Paul Lawrence, partner in charge of the IBM Center for The Business of Government. We created the Center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can visit us on the web and find out more at

The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business.

Our special guest this morning is David Walker, Comptroller General of the United States, and head of the Government Accountability Office.

Good morning, David.

Mr. Walker: Good morning. It�s good to be with you again, Paul.

Mr. Lawrence: Thank you for joining us. And also joining us in our conversation from IBM is Al Morales.

Good morning, Al.

Mr. Morales: Good morning, Paul.

Mr. Lawrence: Well, David, let�s start by talking about GAO. Could you tell us the history of the Government Accountability Office, the vision and the mission?

Mr. Walker: Well, the GAO has been around since 1921. We are a legislative branch agency; we were created the same time of the Bureau of Budget, which is now called the Office of Management and Budget. And initially, we were called the General Accounting Office, but now we�re the Government Accountability Office.

Mr. Lawrence: And how do you describe its size in terms of its budget? And you know, I'm interested in the skill set of the employees.

Mr. Walker: Well, we have about 3200 employees; 70 percent of whom are in Washington, D.C. The balance are in 11 other cities around the United States. Our budget is about $460 million a year, and the skills and knowledge is very diverse. You know, candidly, we probably have about the most diverse array of skills and knowledge of any organization in the world.

Mr. Lawrence: And what I always find interesting is, who do you report to?

Mr. Walker: The answer is I report to the Congress, but no one particular individual. As you know, there are 100 members of the Senate, 435 members of the House, and we do have an Oversight Committee in the Senate and the House. In the Senate, it�s Senate Homeland Security and Governmental Affairs; in the House, it�s House Government Reform, but there isn�t a single person that I report to.

Mr. Lawrence: You mentioned in your answer to the last question that GAO has just changed its name. Why was the name changed?

Mr. Walker: Well, there are a number of reasons. Number one, we were not in the accounting business; we�ve never been in the accounting business, and so the word "accounting" was not reflective of who we are and what we did. And it caused confusion with regard to recruiting; it caused confusion with regard to new members of Congress, with regard to new Cabinet-level officials who have never been in Washington before. And so my view was, and it was shared by a vast majority of the people within GAO, is that we needed a name that more accurately reflected who we are and what we do.

And we have three core values: accountability is who we are and what we do; integrity is how we do it; and reliability is how we want the work to be received. So we went from the General Accounting Office to the Government Accountability Office, which enabled us to maintain our brand acronym, which is GAO.

Mr. Morales: David, what are the specific roles of the Comptroller General of the GAO?

Mr. Walker: Well, I am the Comptroller General of the United States and head of the GAO, and as Comptroller General of the United States, I am the de facto chief accountability officer of the United States, and obviously, the CEO of the Government Accountability Office.

Mr. Morales: Great. That�s a very large responsibility. Can you describe the previous positions and experiences that you had prior to being appointed to the Comptroller General?

Mr. Walker: I�ve had about 20 years in the private sector with PricewaterhouseCoopers, that should sound familiar, and also with Arthur Andersen, as well as in consulting with an international consulting and executive search firm. I also have had positions in the executive branch. I was head of the Pension Benefit Guarantee Corporation, Assistant Secretary of Labor for Pensions and Health, and also served as trustee of Social Security and Medicare while I was with Arthur Andersen, so a pretty balanced public and private sector background, more private sector than public, but by the time I get done with this job, it will be about half and half.

Mr. Morales: Can you describe to us how the experiences you�ve had in both the public and private sectors help shape your current role?

Mr. Walker: I think there�s no question that my experiences both from the public and the private sector have helped me to be more effective in my current job. You know, there are a lot of transferable knowledge and skills that you can get between sectors, but there are some important differences between the sectors, too. One of the things that I know -- that when my position was open, and when I was competing with about 59 other people for appointment, that there were a lot of people who were involved in the appointment process who really wanted somebody who had both public and private sector experience, who had a proven track record of success in both sectors; recognizing that you need new ideas, you need people who are coming in from the outside who can challenge the status quo. At the same point in time, you need people who understood government and that there were different cultures, and there were very important differences between the public and private sector that you need to be aware of in order to be effective.

For example, in the public sector, you have many more bosses; you have a lot more constraints on what you can do; you live in a fish bowl. And generally, a lot of the top executives, especially in the executive branch, don�t stay in their jobs very long. And so it�s actually much more challenging to be successful in the public sector than it is in the private sector, but that�s a real opportunity as well.

Mr. Morales: You�re nearly halfway through a 15-year term; why does this position carry such a long term, and what are some of the challenges with this type of assignment?

Mr. Walker: Well, my term is the longest of any position in the federal government that has a term. Second place is the Federal Reserve Board; third place is the director of the Federal Bureau of Investigation, the FBI. And the reason being is because the idea is that you want to have at least one person in government who has a long enough term that you can think long-term, and take on complex and controversial issues that may take years to effectively address. And so that�s the reason for the 15-year term.

But I think you have to couple that with the fact that the Comptroller General of the United States can only be removed by impeachment for specified reasons, and so therefore, once you�re in, it�s very difficult to be removed. And that provides you a degree of job security to be able to speak truth to power, tell it like it is, say what you mean, mean what you say, et cetera.

Mr. Lawrence: I know our audience would be interested in terms of the other changes you have been making at GAO besides the name. I think you�ve been involved in a lot of transformation, and in a relatively short period of time. Could you tell us about some of the changes that have been taking place since you took over?

Mr. Walker: Well, GAO has always been a great agency; it�s always had great people and it�s had strong and effective leadership, but one of the things that I found when I came to GAO was that it itself needed to engage in a fundamental transformation of what it did and how it did business. And I gained agreement among our top executives early on in my tenure to a very simple concept: leading by example. Since we were the agency that audits, investigates, evaluates others, my view is that we should be as good or better than anybody else that we audit, investigate or evaluate; we should practice what we preach. And as a result, our people have rallied to that, such that we are recognized externally by others as being the best or among the best in strategic planning, organizational alignment, human capital strategy, financial management, information technology, change management, knowledge management, which helps us do a better job, but also enhances our credibility.

Mr. Lawrence: That sounds like pretty radical change. Maybe you could take us through a couple of steps; I am wondering, sort of, how you got everybody there, because getting people on the same page for change is the first step, and then whether many of the same people continued with you or you had to make some changes in people as well.

Mr. Walker: Well, first, obviously, to the extent that you make significant changes, you have to be able to make a compelling case for change. You have to convince people that the status quo is inappropriate, unacceptable, unsustainable, whatever is the case. And that�s a challenge, but if something needs to be done, it�s especially challenging when you talk about an organization that doesn�t change that much; an industry, government, that, by definition, is fairly rule-bound. You know, fortunately, I was able to make that case as to why we needed to make changes and why it was in everybody�s interest to be able to do that, but as you know, whether you�re in the public sector, private sector or not-for-profit sector, you have to start at the top, and you start with the new people.

And so as a result, I gained agreement of the executives, and during the last six years since I have been at GAO, we�ve hired a lot of new people. In fact, over 40 percent of the people who work at GAO today have come to work since I�ve been Comptroller General of the United States. So by starting at the top and starting with the new people and working to the middle, you can end up achieving a lot in a fairly short period of time.

Mr. Lawrence: Now, I remember once you told me this math, so if I don�t get it right, it�s just from my recollection: that prior to your arrival, GAO�s budget and the headcount had been either reduced or was flat. Could you tell us what�s changed in that area?

Mr. Walker: Well, in the five years before I joined GAO, the Agency was downsized 40 percent, and it had a virtual hiring freeze for about five years. So at the time that I joined, less than five percent of the employees had been with the Agency for less than five years, and so therefore, that was a challenge for a variety of different reasons. You know, we had a development gap in the pipeline, we had succession planning challenges, we had a variety of skills imbalances, et cetera. And so we took that very seriously and took it on to be able to deal with it.

I am pleased to say that since I�ve been at the GAO, the Congress has, I think, treated us well. I think they�ve treated us as well or better than others, and what I have tried to do is to make sure that we have modest budget requests, that we don�t try to build up the base and try to just ask for what we think we need; don�t play games on the budget; and generate a very, very strong rate of return, or return on investment. Last year, our return on investment was $95 to one, an all-time record, number one in the world; nobody�s even close.

Mr. Lawrence: How did you engage the Congress of the United of States? In a previous answer, you told us there�s 535 individuals. I mean, how did you do that?

Mr. Walker: Well, you obviously have to be able to respect the views of every single member of Congress, no matter how long they�ve been there and whether or not they�re a freshman, or -- you know, where they�re from and what committees they�re on. And at the same point in time, you spend a disproportionate amount of time with the leadership of the Congress and the chair and ranking members of various committees; in particular, the committees that are our oversight committees, the ones that I mentioned before. So one has to end up allocating your time, you know, strategically, and that�s what I�ve tried to do.

Mr. Lawrence: It�s interesting, especially when you think about your comment earlier about not having a boss.

What are the challenges of the 21st Century, and what do they mean for citizens and government? We�ll ask David Walker of the GAO to take us through this when our conversation about management continues on The Business of Government Hour.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning�s conversation is with David Walker, Comptroller General of the United States and head of the Government Accountability Office.

Also joining us in our conversation is Al Morales.

Well, Dave, according to the GAO report, Challenges of the 21st Century, that just came out recently, where are we headed now as a nation in terms of fiscal conditions?

Mr. Walker: Paul, it�s not a pretty picture. Last year, we had an operating deficit of over $560 billion; we had a unified deficit of over $400 billion.

Of that unified deficit, less than 25 percent had anything to do with Iraq, Afghanistan and incremental Homeland Security costs, and yet we had strong economic growth. But more importantly than where we were last year and where we are this year is where we are headed. We face large and growing structural deficits due primarily to known demographic trends, namely the retirement of my generation, the baby boom generation, and rising health care costs. And it�s a serious problem; it�s getting worse, and we need to start doing something about it.

Mr. Lawrence: Can you take us a little bit more through the problem of deficits? I mean, how does it affect government programs, and its impact on the American citizens?

Mr. Walker: Sooner or later, you have to be able to match your revenues with your expenses. And right now, what�s going on is we are mortgaging our children and grandchildren�s future, because we are not matching revenue with expenses. There is no free lunch, and ultimately, the crunch will come, and that crunch will come in the form of significant increased budget pressures on existing government programs; significant additional pressures for higher taxes; which could have, you know, adverse economic growth consequences. And ultimately, we�re talking about, you know, our competitive posture and the quality of life of Americans in future years.

Mr. Lawrence: Before I ask you about your recommendations, I�d like to drill a little bit further into what would it look like if the conditions continue, I mean, sort of, unabated? I mean --

Mr. Walker: Well, we run several simulations, long-range budget simulations, several times a year at GAO; we�ve been doing that since the early 1990s. And depending upon whether you want to go with an optimistic or pessimistic scenario, the bottom line is, even under the optimistic scenario, we face large and growing structural deficits that we�re not going to grow our way out of. Under the pessimistic scenario, we could be doing nothing more than paying interest on federal debt by 2040, 2042. That�s obviously not an acceptable outcome. I think the likely scenario is between the optimistic and pessimistic, but the bottom line is this: we face large and growing structural deficits that are too great to grow our way out of, and tough choices are going to be required.

Mr. Lawrence: In terms of those scenarios -- and maybe you can help me calibrate them -- one expectation of the future is the quality of life increases. If we were to reach a point in the pessimistic scenario where we were just paying interest, would that mean the quality of life would be equal to a period of time in the past? Is that kind of what we�re taking about?

Mr. Walker: Well, realistically, what we�re talking about is you�re not going to be in a scenario where all you�re doing is paying interest on debt. If you don�t end up restructuring the base of government, the likely outcome to that is tax levels that are two and a half times as great as they are today. Well, think about, you know, if your federal taxes went up -- you know -- two and half times what they are today -- by the way, that doesn�t count state and local, which also face, you know, challenges as well in the out years. And so that, obviously, would have a significant adverse effect on economic growth; it would have a significant adverse effect on quality of life issues. And right now, you know, the miracle of compounding is working against us. Debt on debt is not good, and time is working against us, and so it�s important that we act soon.

Mr. Lawrence: All right, now let�s go to the recommendations. What were some of the recommendations to turn the current situation around?

Mr. Walker: Well, in our report, we recommended the fact that we need to increase the amount of transparency with regard to where we are from a financial and fiscal standpoint. That means revising and enhancing current financial reporting. It also means revising and enhancing reporting dealing with the budgetary process. We�ve recommended a number of budget process reforms; to reconsider PAYGO rules on both the spending side as well as the tax side; to look at some type of spending caps; to look at triggers for mandatory spending that would prompt needed action by the Congress because now we�ve got a situation where over 60 percent of the budget is on autopilot, and it�s growing every year. And so there are a range of proposed possible reforms that we lay out in the report as a beginning.

Mr. Morales: David, in a keynote address, you mentioned that key indicators can help inform strategic planning, enhance performance and accountability reporting, and improve decision-making. Can you describe to us what these key indicators may be, and what ways the U.S. can adopt these key indicators at a national level?

Mr. Walker: Well, Al, it�s amazing to me that the U.S. Government that spends, or will spend in fiscal 2005-2006, about $2.5 trillion, does not have a set of key national indicators in order to be able to assess our nation�s position and progress over time, and relative to other countries. Other countries have this; some states and local and localities have it, and we need a set of outcome-based indicators, a dashboard, a portfolio, if you will, of indicators that deal with economic, safety, security, environmental, social indicators, in order to do just the three things that you said: to help inform strategic planning; help enhance performance and accountability reporting; and help to facilitate that baseline review that we�re talking about in the 21st Century Challenges Report, that needs to be undertaken.

Mr. Morales: You mentioned other countries. What other countries have these national indicators?

Mr. Walker: Well, some examples would be the United Kingdom, Australia, Canada, and New Zealand, as well as the European Union.

Mr. Morales: You mentioned in the 21st Century Challenge Report the need to engage in a baseline review of the entire federal government. Why must there be a review of the entire federal government?

Mr. Walker: Well, basically, what the report notes is that to a great extent, the current federal government is an accumulation of policy, programs, functions, and activities that have arisen over a number of years and that in fact are based on conditions that existed in the United States and around the world in the 1950s and 1960s, and that we have not engaged in a fundamental review and re-examination of discretionary spending, of entitlements and mandatory spending, and tax policies and preferences, in decades, and that the assumption has been that the base of government is okay and the great debate that occurs every year is are you going to plus up something a little bit, or cut something a little bit.

But the fact of the matter is the base is not only not okay, it�s not well-aligned with 21st Century realities, and it�s not sustainable. So we need to engage in that fundamental review and reassessment. And in our report, we raise generic questions that should be asked about every major policy, program, function, activity, and over 200 illustrative questions that need to be asked and answered. Hopefully, it will stimulate discussion and debate on this very important issue.

Mr. Morales: How can policymakers examine and engage in the review of federal government?

Mr. Walker: Well, one of the things that we have in the report is there are a variety of ways this could be done. I mean, for example, we clearly need more rigorous oversight; we clearly need to make sure that the reauthorization process is substantive; we clearly need to re-look at which programs and policies are working and which ones aren�t working as part of the annual appropriations process. And so those are just three examples, but we may also have to, in some circumstances, have additional studies conducted by GAO or others as input. Commissions may be necessary or appropriate in order to deal with particularly complex and controversial issues.

So there are a variety of different means and vehicles that I think we are going to have to be using. And candidly, I think we�re talking about an effort that could take as long as a generation to effectively address all of the issues that are going to have to be addressed.

Mr. Lawrence: It�s hard not to think about the big challenges facing our country without thinking about Social Security and health programs. What�s your perspective on the status of these programs in the United States?

Mr. Walker: Well, both Social Security and our health programs are unsustainable in their present form. Social Security represents a large and growing problem; health care is a much bigger problem. For example, the Social Security has an estimated unfunded obligation of about $3.7 trillion in current dollar terms for the next 75-year period. That�s how much you�d have to have today invested at Treasury rates to close the gap between projected revenues and expenditures. Medicare alone has a gap of $27-28 trillion, so about eight times greater. And yet Medicare is only a subset of the much broader problem. Clearly, we�re not going to be able to get back on a sustainable path and a prudent course unless you reform entitlement programs, and these are the two biggest entitlement programs.

Mr. Lawrence: You�ve talked about entitlement reform before and said that it�s essential, and problems with Social Security are not that difficult to solve. What do you mean by this?

Mr. Walker: Well, first, the imbalance in Social Security is much less than the imbalance in Medicare. Furthermore, what I have found over the years in my speaking and other interaction opportunities with the American people around the country, of all ages I might add, is that people who are retired or nearing retirement are the ones most fearful of change; whereas young people are discounting Social Security and in many cases don�t think they�re going to get it at all.

Therefore, that means you have an opportunity. You have an opportunity to restructure Social Security in a way that will leave current retirees and near-term retirees alone; that will make progressively greater changes to the program the younger the person is; and has an opportunity to be phased in over a number of years and exceed the expectations of every generation of Americans. In other words, everybody will get more than they think they�re going to get -- not more than they�ve been promised -- more than they think they�re going to get. And after all, if you can exceed expectations, I call that a win.

So I mean, frankly, it�s going to be a lot easier to do that for Social Security and we need to get on with it because time is working against us. And if we can reform Social Security, that will end up improving our credibility with the markets and enhance confidence to be able to deal with much more difficult issues.

Mr. Lawrence: That�s fascinating. You described quite a lot of challenges in just a short period of time.

How is GAO changing and facing its own challenges? We�ll ask David Walker of GAO to take us through this when The Business of Government Hour continues.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning�s conversation is with David Walker, Comptroller General of the United States and head of the Government Accountability Office.

And joining us on our conversation is Al Morales.

Mr. Morales: David, in GAO�s strategic action plan for FY �04 through �09, I understand there are eight themes. Can you give us an overview of these eight themes?

Mr. Walker: Sure. These themes are themes that represent trends that have no geopolitical boundaries and also cross all different sectors: public sector, private sector, not-for-profit sector. Things like long-term fiscal imbalances; changing security threats in a post-cold war environment; increasing global interdependence; the changing nature of the economy from the Industrial Age to a knowledge-based economy; a variety of demographic trends; fewer and fewer workers supporting more and more retirees; longer life spans, more diverse country; rapidly evolving science and technology; a variety of quality of life issues, such as education, the environment, work, family, urban sprawl, and changing governance structures, where more and more issues have to be handled on a multilateral basis, and between different levels of government and crossing different sectors in order to achieve positive and sustainable outcomes.

Mr. Morales: Can you tell us about the four goals of GAO�s strategic action plan?

Mr. Walker: Well, we have four primary goals. The first two goals are tied to the Constitution of the United States. You know, there�s not a lot of things that people agree on here in Washington, but hopefully one of the things that will stand the test of time is the Constitution of the United States. So the first two talk about supporting the Congress in meeting its Constitutional responsibilities in areas dealing with areas under the Constitution; the third one talks about us trying to help the federal government transform what it does and how it does business. And the fourth one is about GAO being a model federal agency and a world-class professional services organization.

Mr. Morales: How does GAO plan on measuring performance and progress against these goals?

Mr. Walker: Well, we have a number of performance metrics and many of them -- in fact, most of them are outcome-based metrics. For example, we have certain ones that can be quantified, like financial benefits; to the extent that institutions or -- whether it be agencies or departments, or whether it be the Congress as an institution -- if they adopt our recommendations, then does it save money, does it free up money for re-deployment to higher priorities? Last year, $44 billion, $95 returned for every dollar invested in GAO.

But we also have other non-financial benefits, things like safety, security, privacy, you can�t measure in dollar terms, but they�re significant and so we do it in descriptive terms. We look at, you know, pipeline statistics, to what extent are we making recommendations? What percentage of the recommendations are adopted? How frequently are we being asked to testify? Because these are kind of leading indicators, if you will, that can give us a sense as to whether or not we�re going to develop, we�re going end up having positive outcomes over a reasonable period of time. So we�re very, very results-oriented, and everybody is focused on how can we maximize value and manage risk; how can we minimize resource requests and maximize return on investment.

Mr. Lawrence: David, I know you�re interested in human capital. It dates back on probably your entire professional career. So could you tell us about GAO�s human capital strategic plan?

Mr. Walker: Well, first, we�re only as good as our people. We�re a knowledge-based enterprise. We�re a professional services organization, and as I said, we�re only as good as our people. So we take our people very, very seriously; we not only have an overall strategic plan, we have a human capital strategic plan. We have very aggressive recruiting efforts. We do a lot with regard to trying to maximize the chance that the people that we hire will stay with us at least three years, because history has shown if they stay with us at least three years, the likelihood they�ll stay with us long-term increases dramatically. We are an empowerment organization; our employees are very much involved in providing input on all the major issues that we have to deal with as to who we are and how we conduct ourselves as an employer. For example, one of the things that we have is a democratically elected Employee Advisory Council that I meet with and my fellow Executive Committee members meet with at least once a quarter, typically more frequently, to be able to talk about issues of mutual concern and how can we make GAO a better place.

Mr. Lawrence: It�s always interesting to hear a leader like you talk about dealing with people. It seems so obvious that many organizations don�t. I�m just curious about your perspective as to why they don�t deal with that; that training tends to be one of the things that�s cut and people don�t pay attention to their most important asset.

Mr. Walker: Lack of enlightenment, and myopia might be two good reasons, I would say. You know, there are a lot of people, in fact, almost everybody will tell you people are our most valuable asset, but you know, actions speak louder than words. And I think that you need to look at the facts and circumstances and find out whether or not they practice what they preach.

Mr. Lawrence: Interesting. Now, GAO has a human capital office, and what I am always curious about is when you think about human capital and even HR, it was once just a support function, and now people are beginning to think about it more in terms of strategy and managing. How are you making that work at GAO?

Mr. Walker: Well, first, I believe there are a number of factors that are critically important in connection with any particular transformation effort: you know, people, process, technology and environment, for example, of which I believe people represent the most important. People are the source of all innovation, all technological enhancement; they are ultimately the ones that make things happen. And so I think you have to put people first. You have to make sure that the human capital function is strategic, that it is well-aligned with the overall strategic plan, that they are working in partnership with the major operating entities and units to try to achieve positive results. It�s a fundamental philosophical change, and I believe very strongly that it�s necessary.

Mr. Lawrence: Some would say, and you might call them cynics, that gee, you can�t do a lot around human capital and government; we�re constrained by pay, we�re constrained by conditions, we can�t offer stock options. I mean, how do you address this sort of criticism?

Mr. Walker: Well, I think 80 percent plus of what needs to be done in the human capital area in the federal government can be done without changes in laws. I find many times, people end up assuming they can�t do something because it�s never been done before, or they�ve got regulations that they promulgated where they�ve shot themselves, and therefore need to step back and basically re-examine what they can do. I�ve done that at GAO. I mean, there are many times when I wanted to have things done, I have asked why can�t we do it? Or stated differently, here�s what I want to do, can we do it? And I�ve pressed on a number of occasions: show me the law that says we can�t do this or what type of legislation might we need in order to be able to do this, if it makes sense to do it? And I find there�s a lot of that.

One of the critical missing links I find is, everybody now wants to move more towards market-based and performance-oriented compensational arrangements. But what I find is there are very few agencies that have modern, effective, and credible performance management systems, including performance appraisal systems. And if you don�t have those, and if they�re not linked to the strategic plan, tied to desired outcomes, and if they don�t have adequate safeguards to prevent abuse and minimize the chance of discrimination, then you�re not going to be able to effectively deliver on a performance-based compensation system. And so everybody is out there saying they want it, but they don�t have the infrastructure in place. We have the infrastructure in place; it isn�t perfect, and never will be, but it�s clearly the best in government.

Mr. Lawrence: In an earlier answer, you mentioned the fact that if folks stay with you for three years, they�ll stay longer. Is there any one or two critical things that have to happen in their first three years to make them stay?

Mr. Walker: Well, most people that we hire today are highly educated. For example, over 90 percent of the people that we hire for our mission side have Master�s degrees and some have Ph.D.s, and really from the top schools in the country. So they want to be able to make a difference. They want to be constantly learning; they want to be challenged. That�s the real key, and so you need to make sure that you do that.

Now, obviously, people want to be paid fairly, and if somebody�s primary motivation is compensation, then they may not want to come into government, although our people make pretty good money, quite frankly. You can have a very good standard of living by working at GAO and many other government agencies. But if somebody measures success primarily based upon net worth rather than self worth, then they might not want to come into government.

Mr. Morales: David, you mentioned in an earlier answer that since you�ve arrived, 40 percent of the organization is new. Where do you attract people from to join GAO?

Mr. Walker: We have very aggressive recruiting programs, in particular at the entry level. We take it just as seriously as any professional services firm does. We have targeted universities, where we have executives that are assigned responsibility for those universities; to develop relations with the key faculty, with the Dean, with the placement office. We try to end up giving speeches and do other types of activities with the university. We have an internship program which is critically important to our recruiting effort. We hire 200-300 interns a year; that gives them an opportunity for them to look at us and us to look at them. We have an ability to make timely offers to those interns. We don�t have to compete those jobs; if somebody works with us at least nine weeks, then we can hire them on a non-competitive basis.

And so there are a number of things that we�ve done, not only with regard to how we�ve recruited, but also from the standpoint of using student loan repayments; being able to review performance every six months rather than every year; making compensation adjustments every six months rather every year; having a very aggressive training and development program for the first two years that somebody�s with us. And when I talk about those six-month reviews and compensation adjustments, those were in the early years. After that, you go on an annual cycle. So we do a lot to hire the best people, treat them well, and give them a lot of opportunity to make a difference.

Mr. Lawrence: You talked about a lot of very interesting programs. What kind of external recognition has GAO gotten?

Mr. Walker: Quite a bit. Obviously, one of our objectives is to lead by example and be as good or better than anyone else. A couple of examples that I would give off the top is our strategic plan has been widely acclaimed externally. Our performance and accountability reports have won awards every year that we�ve sought to apply for consideration; for example, the AGA being one. CIO Magazine just rated GAO as one of the top 100 information technology organizations in the United States, including the private sector. And so we�ve got a lot of external recognition.

I know that Harvard Business Review is doing a case study on GAO now. In fact, I think IBM is doing a case study on us now, if I�m not mistaken, with regard to our transformation. So quite a bit; there�s no doubt that we would be green across the board in executive branchspeak, if we were part of the executive branch. But our objective is not just to be green, it�s to be as good or better than anybody else that we audit and evaluate and to stay that way. And to stay that way means continuous improvement. I mean, sometimes it�s tougher to stay there than it is to get there.

Mr. Lawrence: Maybe we'll change the G to Green instead of Government.

We've heard about the challenges facing our nation. What does the future hold as we address these? We�ll ask David Walker of GAO for his insights and advice when the conversation about management continues on The Business of Government Hour.


Mr. Lawrence: Welcome back to The Business of Government Hour. I�m Paul Lawrence, and this morning�s conversation is with David Walker, Comptroller General of the United States and head of the Government Accountability Office.

And joining us on our conversation is Al Morales.

Well, David, can you elaborate on how the debate about our fiscal future is ultimately not about numbers, but about values?

Mr. Walker: Well, first, we�re talking about very big numbers. When you�re talking about total liabilities and commitments of $43 trillion, those are huge numbers. It�s tough for people to be able to relate to it, but my point is that, yes, numbers are involved, but the real important thing is two other dimensions: values and people. Values like fiscal responsibility and stewardship to future generations, needing -- having a responsibility not just to leave things better off when you leave than when you came, but better positioned for the future; and people from the standpoint of our children, our grandchildren and future generations of Americans. Those are the type of issues that will move people to act. Numbers won�t do it by themselves; it�s about values and it�s about people.

Mr. Morales: Dave, we spoke earlier of the major fiscal challenges that the U.S. is facing. What can Americans do now to mitigate the circumstances?

Mr. Walker: Well, a couple of things. One, I think they have to recognize that we are on an unsustainable path from a fiscal standpoint. There are going to have to be dramatic changes, and that individuals ultimately are going to have to assume more responsibility in the future than may have been the case in the past. They need to plan, save, and invest for retirement, among other things.

Yes, Social Security will still be there, but it�s going to be reformed. Yes, Medicare will still be there, but it�s going to be more dramatically reformed over the years. And secondly, I think what they need to is they need to exercise their civic responsibility to become informed and involved with regard to a lot of the issues that we�re talking about in order to play a meaningful role in the coming debate about that baseline review and the future of government.

I think it�s particularly important for young people to be informed and involved, because ultimately, we�re talking about their future. And ultimately, they�re going to bear the burden if others fail to act in a timely and responsible manner. They�re going to get what we call a double whammy. They�re going to end up paying much, much higher tax rates, get less, and have less choice about what they think the proper role for government is. And it�s important they recognize that reality and act.

Mr. Morales: In turn, what can government leaders do today to address the fiscal challenge debate?

Mr. Walker: Well, the first thing that we have to do is face the facts and recognize that we are on an unsustainable path. You know, you can�t solve a problem until you admit that you have a problem, and that it�s more prudent to deal with it sooner rather than later. So that�s the first thing. Secondly, I think we have to make sure that we have more transparency over where we are and where we are headed. I think we need to have some process reforms with regard to the budget process. And in that regard, the first thing you do when you�re in a hole is to stop digging. And then I think we have to engage in this fundamental review and reassessment of the base of government, to figure out what�s the proper role of government in the future; how should it do business; and how are we going to finance and pay for whatever the revised role and responsibilities might be?

Mr. Morales: What advice can you give to government leaders working on their financial statements today?

Mr. Walker: Well, financial statements are important, but frankly, not enough people are reading the financial statements of the U.S. Government. That�s part of the problem. I think you have to keep in mind that we�re dealing with the people�s money. We have a stewardship responsibility; we serve a public purpose and work for the public good, and that the taxpayers have a right to make sure that we�re handling their funds in a responsible manner.

And part of that is an appropriate transparency and accountability mechanism in the form of annual financial reports and audited financial statements. But it�s not just with regard to financial reporting; it�s also performance reporting. You know, the taxpayers have a right to know what kind of results have been achieved with the financial, human, and other resources and authorities that agencies have. And so I think it�s important that we not just look at financial statements and continue to make progress there, but we also have to enhance our performance reporting in order to provide more meaningful information that hopefully people will pay attention to.

Mr. Lawrence: David, as you�ve talked a lot about the challenges, this morning, we face, I�ve heard a lot of sort of what I might characterize as pain now for gain later. And I�m sort of wondering if you think that�s correct, and if so, it seems like a pretty hard equation for people to work their way through naturally. How would you reflect on this or give people advice to think about it?

Mr. Walker: Well, this isn�t easy. Nobody said it was going to be easy, but it�s essential and, you know, sometimes I think back to the old Popeye show. I remember Wimpy, you know, �I�ll gladly pay you Tuesday for a hamburger today.� Well, we�re eating a lot of hamburgers and we�re delaying the day of reckoning, and I think that�s got to stop. We�ve got to get serious, we�ve got to remember what those values are, we�ve got to be able to see the faces of our kids and our grandkids and think about future generations to do that. But I believe, in America, anything is possible with persistence and dedication and leadership and commitment. And I am confident that ultimately, we will end up effectively addressing these. What I�m concerned about is when we�re going to start. And I believe it�s critical that we start now.

Mr. Lawrence: In the last segment, you talked a lot about GAO, and I was reflecting on one answer you gave to hiring. And you spoke a lot about hiring entry-level professionals. Does GAO hire experienced folks, or have you hired experienced folks?

Mr. Walker: We do, and we do to a greater extent today than we did before I was at GAO. While a vast majority of the people that we hire will end up coming in at the entry level, we have brought in a number of people with various skills and knowledge that we need, including at the highest levels. For example, our chief administrative officer, who also serves as our chief financial officer, came in from the outside. Our current general counsel came in from the outside, although he didn�t come in in that position. A number of top executives did.

And we�ve hired people in the middle as well, who have skills and knowledge that we need. In part because of that gap in the development pipeline that I talked about before, where when I came to GAO, we hadn�t hired very many people at all in the five years before I was there, and therefore, there was a development gap. And I think it�s important to bring in people from the outside in order to be able to get people with different experience, different perspectives, in order to try to help facilitate the change necessary.

Mr. Lawrence: I know in the first segment, you described your career and you�ve been in the private sector and in the public sector, too, but I think if people will reflect on it, they would describe you as a public servant. And I guess I�d be curious about the advice you�d give to someone interested in a career in public service, and maybe even with a focus on finance, because I think you�ve talked a lot about the financial aspects of government in our talk this morning.

Mr. Walker: Well, if I talk about the federal government, for example, but I will say that public service is a lot more than federal government. You know, it�s federal government, state government, local government, and frankly, it�s more than government. It�s not, you know, not-for-profit organizations, NGOs if you will, there�s a lot of public service that can be done there. But if I focus on the federal government, what I would say is that the federal government represents the largest, most complex, most diverse, arguably most important entity on the face of the earth. It�s 20 percent of the U.S. economy, the only superpower on earth, and therefore, you need to have top-flight talent running that type of enterprise. There are tremendous challenges, tremendous opportunities in the federal government. Individuals can assume a lot of responsibility very early. They can make a difference that involves billions of dollars and millions of people. It�s rare that you get that opportunity.

You know, I�ve had the pleasure and privilege of being able to have responsible positions both in the private sector and the public sector. And I�ve enjoyed every job that I�ve had. And I enjoyed the private sector to a great extent. But I�ve never enjoyed anything more than public service. You know, obviously, my wallet�s not as well off as it used to be, but my head and my heart are much fuller than -- well, I -- certainly, my heart is; not my head, hopefully. I mean, my -- I know a lot more, let�s put it that way, and I feel a lot better about what I�m doing. So it�s a real opportunity to make a difference for your fellow citizens and for the future of our country.

Mr. Lawrence: David, that will have to be our last question. Al and I want to thank you for joining this morning and fitting us in your very busy schedule.

Mr. Walker: Well, Paul and Al, I want to thank you again for being a repeat customer. And don�t forget that GAO website, Thanks.

Mr. Lawrence: Thank you, David.

This has been The Business of Government Hour, featuring a conversation with David Walker, the Comptroller General of the United States and head of the Government Accountability Office.

Be sure and visit us on the web at There, you can learn more about our programs and research, and get a transcript of today�s fascinating conversation. Once again, that�s

For The Business of Government Hour, I�m Paul Lawrence.

Thank you for listening.

Marion Blakey interview

Friday, July 1st, 2005 - 20:00
"The FAA is providing an important customer service and we have to match the demand. As air traffic increases and as aviation is an enormous driver on our economy, we must invest smartly in infrastructure, technology and the service to match the demand."
Radio show date: 
Sat, 07/02/2005
Intro text: 
Missions and Programs; Leadership; Strategic Thinking; Innovation; Financial Management; Market-Based Government...
Missions and Programs; Leadership; Strategic Thinking; Innovation; Financial Management; Market-Based Government
Complete transcript: 

Thursday, November 4, 2004

Arlington, Virginia

Mr. Lawrence: Good morning and welcome to The Business of Government Hour. I'm Paul Lawrence, partner in charge of The IBM Center for The Business of Government. We created The Center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can learn more by visiting us on the Web at

The Business of Government Radio Show Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is Marion Blakey, Administrator of the Federal Aviation Administration.

Good morning, Mary.

Ms. Blakey: Good morning. Nice to be with you, Paul.

Mr. Lawrence: Thank you. And joining us in our conversation, also from IBM, is Dave Abel.

Good morning, Dave.

Mr. Abel: Good morning, Paul.

Mr. Lawrence: Well, Marion, let's start by filling our listeners in on the FAA. Could you talk to us about its mission?

Ms. Blakey: Well, the FAA's mission is to ensure that the traveling public, when they're flying, can be assured it's safe and efficient. We run the largest, most complex aviation system in the world. Of course, Air Traffic Control is a big part of that. But we also do a great deal in terms of setting the regulatory standards for what aircraft operators must meet; new aircraft coming into the system, and we also work, of course, to make sure those operations day-in and day-out are inspected and overseen in a way that, again, ensures safety.

Mr. Lawrence: How do you describe the size of the FAA; the network, the people, the budget. How would you describe it?

Ms. Blakey: Well, it's an agency of about 48,000 people scattered all over the country and around the world, really, because, as you can imagine, aviation is a global business, and that's the business we're in. The budget right now is around $14 billion, so again, one that both ensures the ongoing operation of the system and makes investment in the modernizing of the system and the future generation of the system.

Mr. Lawrence: 48,000 people. Can you give us a little bit about the range, the skills these people have? I immediately think of sort of heavy technical engineers, and the aircraft and the like, but I suspect it's much broader.

Ms. Blakey: It is broader. You know, we have a wide variety of professions involved. Everything from highly technical people who are pilots and engineers; people who can go on board an aircraft and inspect for all the right things; people who know how to control traffic and who are able, in fact, to look at the most efficient ways to design our air space. And then we have people who are policy folks, who are out there looking at issues of congestion management; what should we do in the future in terms of designing the revenue streams for a system like the one we have. Obviously, people who are in international fields, working with our counterparts in other countries around the world so that we have a seamless global system that works. A lot of different things. If you're an economist, if you're in policy, lawyers, all those are part of the FAA's workforce.

Mr. Abel: Marion, when you were describing the mission of the FAA, there's a vast number of stakeholders, and they fit into a number of different groups. What's the relationship with a couple of these groups? Let's start first with the airlines. What's the nature of the relationship between the FAA and the airlines?

Ms. Blakey: We look at the airlines as our customers. I think it's fair to say that because they provide the service to the vast majority of the American public that flies, we want to make sure that the service we're providing, both in terms of air traffic control and the overall approach we're taking in terms of operations in the system, meets their needs. At the same time, of course, we also regulate their work. We oversee safe operations, and so we place requirements on our customers as well. So it's a combination of things, but I think it's important to stress that it has to be a strong partnership, because after all, they're out there every day on the front lines and we're trying to ensure that they do the best possible job for the flying public.

Mr. Abel: How about some other organizations within the federal government, say the Department of Defense. I know there's a strong relationship between FAA and DoD. What's the nature of that relationship as well?

Ms. Blakey: Glad you mentioned it, because, you know, when you really look at the domestic air space, a lot of it is also devoted to military operations. Needs to be -- particularly in these days after 9/11, when the safety and security and surveillance missions are all caught up together. So we work very closely, particularly with the Air Force, as you can appreciate. We have military controllers out there who control some of the airspace as well as our own federal employees. And we try very hard to make sure that all of the regulations we do and requirements also meet the needs of our military. And in some cases like commercial space, we also work on commercial space launches, whether they take place from a federal Air Force facility or a private sector facility now.

Mr. Abel: I would imagine there needs to be a relationship with the Department of Homeland Security as well?

Ms. Blakey: A very close one, as you can appreciate. A large part of the work force that initially went over to the Department of Homeland Security came from the Department of Transportation. That's our parent agency. And, in fact, a number of them were involved with security on the aviation front at the FAA. So we've worked very closely, because they're the ones who have to assess what the threats are; they obviously do all of the surveillance in the airports of passengers as people get on the planes, but we're the ones who control the airspace. So we work very hard to make sure that when operational changes need to occur -- when there are, for example, areas where flights are restricted -- as you can appreciate, we've had a number of those with big events that go on, certainly during the Presidential election, we had to be certain when there were areas where we really didn't want to have flights at a low level over those areas, we work very closely with Homeland Security to figure out how to do that well.

Mr. Abel: Let's talk a little bit about your role. Can you tell us a little bit about the job and the responsibilities as Administrator?

Ms. Blakey: Well, I would like to say that this job involves sort of both being a pitcher and a catcher. I think the pitcher part, of course, is that you do try to look at the needs of the aviation system over the long haul. And a part of what I've spent a lot of time on is developing a strong business plan for the agency that looks strategically at where the system is going to go. I'm very proud to say that we are in fact developing a plan now that will be going to Congress in December for the next generation system of our aviation system here in this country. So there's a lot of that that's involved. But, certainly, day-to-day manager, and being, as I say, a catcher of the issues that you never expect and come your way; all of that's a part of it. I think most important, fundamentally, it is strong management skills that are required for the job.

Mr. Lawrence: Let's take a little look at your experiences before becoming Administrator of the FAA. Can you tell us about some of the previous positions that you held before this role?

Ms. Blakey: Well, I can. Certainly recently, they were all involved with transportation in various stripes. But, I'll tell you, I'm also very proud of having been a civil servant for many years. I started as a GS-3 clerk. Wasn't even a clerk-typist, because I couldn't type. So you can imagine I was pretty far down the totem pole. But liked government for many reasons including the broad scope of issues, the feeling that you really do have an impact on the lives of people all over this country. So I worked in a number of departments and agencies and had some great opportunities. Worked in the White House, Department of Commerce, Department of Education many years ago. But became fascinated by Transportation, and had the opportunity to head the agency that regulates the automobile industry.

I had a firm in the private sector that was all focused on transportation issues, a communications and public affairs firm that I'm proud to say flourishes to this day: Blakey and Agnew. It was Blakey and Associates then. But worked on a number of public policy issues with a number of corporations, all focused on transportation. And then came back into government as the Chairman of the National Transportation Safety Board that investigates accidents. It gives you a very fine appreciation, of course, as you can imagine, for the safety issues of our system. And I was very surprised but delighted to be tapped by President Bush to be head of the FAA. So I guess that's the quick version.

Mr. Abel: You mentioned that one of the responsibilities and one of the areas that you need to manage now is reacting to things that happen on a daily basis. How have those roles prepared you for the responsibility in FAA of management, of reacting to events on a daily basis?

Ms. Blakey: You know, you have to again try to look at the broad picture, and every day, frankly, go in and say, how am I going to move the agenda that I believe is important on the two, three, four things that you really set in front of yourself as goals and objectives in that job? It's very easy to get caught up in all of the pressures of the issues, concerns, problems that everyone brings to you. And so I do think you really have to start out, as I say, with trying to see if during that day and that week -- I can't say I accomplish it every day -- but at least during that week, you feel like you have actually moved toward the goals that you're setting and at the same time, trying to be responsive and nimble. One of the things that I certainly found in my years in the private sector is you have an appreciation for how important it is to be able to react quickly, to size something up, to make decisions.

Government doesn't always engender the kind of culture that prompts good, strong and efficient decision-making. And so you try, I think, in the kind of role that I play as Administrator, to try to make those decisions on a basis that then people below you can be responsive and react in a way that's timely.

Mr. Lawrence: Let's continue along that path. You were just contrasting the public sector and the private sector, and having been in both those sectors. How about some other comparisons in terms of management approaches from all your experiences.

Ms. Blakey: In terms of management in the private sector, of course, you do have the feeling of being much more nimble, much more able to react to forces quickly, and frankly, decisions are not ones that you have to look at a variety of overseers before you can make them in a way that holds. That is all very refreshing. I will also say that many of us in the private sector look at ourselves fundamentally as salesmen, as people who are advocates, as people who are promoting an agenda in a very direct way. It doesn't hold true for all jobs, but certainly ones that I have had. And I have prized that.

I have to tell you that I've enjoyed the opportunities to really set a marker out there and go for it in a way that -- sometimes within government, it's much more of a process. So those are the things that I would say from a private sector standpoint you can appreciate and try to employ as you move in to the public sector and to public policy. But of course, public policy, as I say, the opportunity to work with a variety of organizations, whether it's the Congress, OMB, the Administration, more broadly, other agencies, is a genuine challenge that also is very reinforcing, because again, the impact and scope of what you can accomplish that way is enormous. And that's something that I think many of us who have enjoyed our tenure during our life in government, it is all about that kind of scope and impact.

Mr. Lawrence: That's an interesting point, especially about the contrast.

Air travel is up significantly in the last couple of years, returning to the point where many airports are close to their pre-9/11 volumes. What does this mean for FAA operations?

We'll ask Marion Blakey, the FAA's Administrator when The Business of Government Hour returns.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning's conversation is with Marion Blakey, Administrator of the Federal Aviation Administration.

Joining us in our conversation is Dave Abel.

Mr. Abel: Marion, in the last segment, we talked a little bit about the size of FAA. I'd like to ask a little bit about the size of the FAA's mission. About how many people fly in commercial and private air carriers each year?

Ms. Blakey: Well, if you look at it basically in the area of commercial, because private is sometimes hard to know because a lot of those folks are out there flying VFR, and we don't tally them up each time they leave a small air field. But if we're talking about commercial passengers it is somewhat under 700 million. 689 million was the last figure that I had for the last year we were counting, which was, you know, pretty accurate.

Mr. Abel: Over the past two years since September 11th, we've started to see a significant increase again in the volume of people who are flying commercial aviation. What type of impact does that increase of volume or demand have on the FAA?

Ms. Blakey: Well, certainly, we have to stay up with demand, and since we are an operational agency, the more folks up there flying, typically, the more services we have to provide, the more people it requires to do it, et cetera. One of the interesting things that's a phenomena now in aviation is we have seen very different patterns of traffic since 9/11: much more point-to-point flying, much more use of regional jets. And so what that means from our standpoint is we have a high number of operations that we have to provide the air traffic control for, the services on the ground for, and yet they are not carrying as many passengers as they might have with the widebody's bigger aircraft that you saw more of before 9/11.

So there's a shift in the fleet. And as we're looking at some of the things that are coming at us, we're going to be seeing even more of that with what are called Microjets, the very small aircraft that are coming online in the next few years. And of course, then there's UAVs. So there's a lot out there coming at us.

Mr. Abel: So what are some of the things that -- in your strategy, what are some of the things that you're looking to be able to do over the course of the next couple of years to address this increase in demand of operations, in addition to the increase in passengers?

Ms. Blakey: It is to have the FAA be a very flexible agency in the sense of where we assign our work force, how we allocate our resources, because obviously, as there's a dynamic in the airline business and in aviation that's changing, we really have to stay up with it. As I say, we see ourselves as providing an important customer service, if you will, and so that means we have to match the demand. At the same time, we've also got to invest in the system, and a fair amount of time that I spend, of course, is looking at the way that we are investing in technology; are we getting a good return on that investment; are we modernizing our system. So that in fact, it's going to anticipate the requirements in the future, and frankly, use our air space and our airports and ground infrastructure ever more efficiently, because as traffic continues to increase, which it will, and as aviation is an enormous driver on our economy nationally and it will be internationally, we had better provide the infrastructure and the service that will match it, and that means we are going to have to invest smartly.

Mr. Abel: So if you think about it from a very simple perspective, in order to be able to manage the demand for air transportation, we have to look at flight delays and capacity. What are some of the things that the FAA is doing to be able to increase capacity at airports. Is it as simple as building more runways?

Ms. Blakey: Well, runways are a lot of it. I'll tell you, there's no substitute for pavement. And in fact, I am very pleased with the way our country is really stepping up and recognizing that, because it takes a lot of on the part of city fathers and communities to make the political headway and then the investment that's required to put in new runways. But we're seeing a lot of that. Over the course of the last five years, we've had eight major runways go in, and that's a big thing. You know, places like Houston, Orlando, Miami. We've got them coming in, you know, in places like St. Louis. It's a great thing.

And of course, Chicago O'Hare, one of the real challenges in our system, because so many of our flights go through Chicago -- they're planning a major modernization of O'Hare as well. So there's a lot of pavement that is involved in ensuring that we're going to have the infrastructure there to support the passengers that are coming through. At the same time, technology is a great part of it. We also need to really have a system that has new technologies there so that we can use the air space more efficiently. And we've worked pretty hard on that as well.

Mr. Abel: What are some examples of some of the potential new technologies that may help to be able to more efficiently manage the air space?

Ms. Blakey: One of the big things, basic. We have a change out going on on what we call the host, if you will, the central nervous system of our air traffic control system. This is a major thing. And as you can appreciate, over many years, that system was developed, the software was written. The software right now is still written in a language called Jovial. There aren't many people out there who write Jovial anymore. So we are changing all of that, and that is a big multi-billion dollar investment.

Another thing that we're doing is in the terminal air space. I'm sure some of our listeners have seen those round scopes; you know, the old air traffic control radar. You don't see that now. What you're seeing more and more is new, very impressive screens that look a lot like the big computer screens at home, full color; where we are not only able to fuse radar coming in from as many as 16 different sources, but we also are able to infuse weather information for the controllers. Other kinds of very critical information so that they're able to sequence flights and with greater and greater precision, control them.

Another thing that's going on which our listeners will begin to have the benefit of in January of this coming year is that we're reducing the vertical separation between flights in the air space. Now, I'm sure that might cause some concern for some folks. You know, lots of space is good, but the more efficiently we use the air space, obviously, the more we're going to be able to handle increased traffic without delays, with the kind of reliability people want. And the air space, the upper air space is now going to be used in thousand mile vertical separation rather than two thousand mile. It's done around the world. The United States is moving to that. And again, that's going to offer some real efficiencies.

Mr. Abel: You describe for us the increase in demand and the increased requirements on the FAA to be able to manage that demand. And the listeners may assume that that means that there's a lot more money to be able to manage the organization, but we certainly know that not to be the case. You've focused a lot recently on the efficiency and effectiveness of the Air Traffic Organization, or ATO. What is the ATO?

Ms. Blakey: The ATO is a new performance-based organization within the FDA that brings together several of our major, what were formerly lines of business, in an integrated streamlined way. The concept, of course, is to develop a organization that has layers, that is very service-oriented, and that operates to specific performance metrics. We have targets that we are setting for our organization that go to issues that reduce delay, on-time performance, using the infrastructure to the best possible capability there, and, of course, indications of safety and the kind of performance that we'll always require from that standpoint.

But we do believe that having those kinds of targets, and frankly, cost efficient measures. We are looking at cost accounting, being able to understand, really, for the first time, what it costs to undertake air traffic control of a given airplane. How much does it cost to control over an hour in upper air space the flight of an airplane? Because, obviously, as you're thinking about service and how you provide it and what things cost, you really do need to be able to get it down to unit cost. That's what the private sector does. And we can do it in government as well. It makes us much more accountable and transparent as to how we're using our resources. All of that is part of the air traffic organization.

Mr. Abel: What has been the impact of the implementation of the ATO so far. It's a relatively new organization. How's it going so far?

Ms. Blakey: Well, it's going well. We have been working very hard, for example, to streamline our operation at the top tier of management and in headquarters, dropping the number of layers from around 11 down to 5 or 6. We're doing a number of things to align the question of how you invest in new capital improvements in the system, with also the people who have to operate the system. It used to be that the FAA made research, acquisition investments in one part of the FAA and the folks who are operating the system were off in another part. When these new improvements, technologies, were then handed over to the operational folks, sometimes we found that they didn't align too well. Sometimes we found that the issues of how much it costs to maintain over time, how much it costs to really operate it, we did not have a good integration between those two sides of sound decision-making. So the Air Traffic Organization has now put those decisions again in the hands of people who have to both operate the system and have to think long-term about the return on investment. And by integrating that, I think we're going to get a much more efficient system.

Mr Lawrence: The FAA has several initiatives underway to better regulate and enforce safety standards, to include improving customer satisfaction. Could you tell us about these?

Ms. Blakey: Yeah, we have found all along that we needed to be more consistent in the way we provided interpretations of our regulations, the way we provided guidance on how those who are out there both developing aircraft, modifying aircraft, doing the kind of maintenance that's involved, what those standards and certification requirements were. And there has been the impression; certainly, that I think has been real in some cases that different parts of the FAA in different parts of the country operated differently.

The guidance was not always consistent, wasn't always as reliable as it needed to be. So what we've done is, we've provided to all of our organizations out there a required code that says these are the kinds of things that to be responsive to our customers, you need to do. And if someone comes in and believes that the guidance that they've been given, the decision they were given on a given issue problem, aircraft, they want to appeal it, it also provides the information to our customers on how you take it up to the next level, and guarantees a hearing, so that if there are issues of consistency from one place or another, as it moves up, we are able to address those and understand that they're there. That kind of accountability, I think, we're having good reactions from all those out there that the FAA touches and affects.

I'm also very proud of the fact that the customer satisfaction survey that we do has been consistently going up. We're getting good grades from pilots out there as to how well our Air Traffic Control is working, how we're touching a number of our customers now. And that matters to us.

Mr. Lawrence: Most FAA employees are in a pay for performance situation. What does this mean to the employees and its leaders?

We'll ask Marion Blakey of the FAA for her thoughts when The Business of Government Hour continues.


Mr. Lawrence: Welcome back to The Business of Government Hour, I'm Paul Lawrence, and this morning's conversation is with Marion Blakey, Administrator of the Federal Aviation Administration.

Joining us in our conversation is Dave Abel.

Mr. Abel: Marion, in our first segment, you talked about the need for you to balance between strategic planning and operations. We talked a lot in the last segment about the operations of the FAA and the increase in demand. Let's flip back and talk a little bit about strategic planning. How in the organization do you do strategic planning?

Ms. Blakey: Well, you know, it's pretty challenging in an organization that is really required to keep up with transactions, millions of them a day. In other words, unlike a lot of agencies of government, the FAA really operates a system, and both achievements and occasional mistakes are very public, so it's hard to pull back and then to say, nope, we're going to take a longer view, and we're going to set goals and then attach not only metrics to those goals so we can tell whether we are meeting them or not, but we're going to tie our budget to those goals and see what it's costing us, and see whether we can afford to do this and continue to keep up on it on a week-in week-out, month-in month-out basis.

The way we tackled it was that we decided that we would construct a flight plan for the FAA, a rolling five-year plan that was going to, as I say, be tied to performance measures and tied to our budget. That does, believe me, get the attention of all your executives in a hurry, because that means that everything is going to be run by a strategic plan, a business plan. As many of us know in government, I think there are probably strategic plans all over town that are gathering dust on shelves. You have one, you post it on your web site and that's the end of that.

Ours is one that we developed over the course of about six months. It was a very arduous process of really trying to determine what the kind of goals and initiatives were that would genuinely improve our system, that would genuinely advance safety, and how you would measure that; how you would measure our achievements internationally, because we wanted the FAA to be much more proactive internationally -- frankly, set the standards globally for aviation -- and how we were going to set standards of organizational excellence that really would put us first in government. That's the goal there, and we're not shy about saying so. But we work very hard internally, and then we had the plan in draft put out there for comment by all of our stakeholders, we hold town hall meetings, we encourage comments from our employees, and then we posted the plan on our web site and said we are going to be measured by this.

I hold meetings every month where all of our executive team comes together. We spend a full day together going over all of those metrics. Are we hitting it or we not? Are we making our numbers or are we not? And we are then accountable on a quarterly basis just like a corporation, for whether we're doing it or not. We use a simple system: red, yellow, green. For people who want to click into it, we have a good software-based system called PB Views that allows people to go as deeply as they want to into the specific initiatives and performance measures of the FAA, and see specifically how we're doing on those.

And because we do tie our pay at the FAA, the annual awards and bonuses that frankly are automatic just about everywhere else in government, in ours, we have to make our numbers. Last year, we didn't make all of our numbers, and as a result, we only awarded 85 percent of what is usually the annual increases, the quality step increases, all of that, which we combined for our organizational success increase. We only awarded 85 percent, because that was really what we made on our numbers. This year, for '04, I'm just doing the assessment right now with our executive team. We're going to do better than that. But we're still not hitting every goal, and that's because they're strict goals. But we intend it to be that way.

We have just published our new draft plan, we'll be rolling it out soon, and at this point, I'm pleased to say we've had over a thousand comments and suggestions on it. That's good, because that means both our stakeholders and, very significantly, our employees, 85 percent of the comments came from my employees; they've got ownership in it, and that makes a huge difference.

Mr. Lawrence: Who participated in the initial development of the plan?

Ms. Blakey: You know, it started out with executive-led teams. But then we worked it out through our facilities, and then we asked our customer base to come in and meet. The FAA is not short on having advisory groups and people we can count on to help us with good advice, and frankly, it really was a big group effort. I don't take any personal ownership in this. It's something that needed to be developed organically, and I think that's one reason why it's working.

Mr. Lawrence: Could you provide us with a couple of examples of things that you measure? What would be some example measurements that are in the plan?

Ms. Blakey: Well, I certainly can. One of them, for example, is to reduce the risk of runway incursions, two planes getting too close together on a runway, vehicles getting out there, and I'm proud to tell you that we set specific numbers that we were trying to drive down the numbers of those incidents, because we believe it has very fundamental affect on safety. Reduce the number of Alaska accidents. You might say why Alaska? Well, because, frankly, that was where we saw the greatest incidence of accidents and fatalities. Being a pilot in Alaska used to be a high-risk profession, largely because of terrain and weather. But we knew we could take on some of those issues with new technologies, and we did.

When I look at questions of how we operate the system, we looked at things like on-time performance; how are we doing from the standpoint of actually being within 15 minutes of the time passengers expect to arrive at the gate? We don't control it entirely. That's also a part of weather and the way the airline is scheduled. But we've got specific metrics. Frankly, that was one last year we didn't make. So I could go on, but that gives you some idea, you know. These are not soft goals.

Mr. Lawrence: You mentioned that a number of the employees; in fact, a large percentage of the employees, are rewarded based on being able to meet these metrics. Are they rewarded on meeting all of the metrics, or ones that apply to their specific job?

Ms. Blakey: We do it on two levels, if you will. I am proud of the fact that 75 percent of the FAA's workforce, and this includes our unionized work force to a very significant degree, is on a pay for performance system. We have what we call an organizational success increase, which means that out of the 30 goals that we have for the FAA, we're expected to meet 90 percent of those if in fact people are going to get the full OSI, as we call it. Then there are specific also awards that go for the more-detailed duties that each individual employee has. And those increases also are really tailored to their responsibility, so they vary from one part of the FAA to another.

Mr. Lawrence: As long as we're talking about the employees of the FAA, can you tell us a little bit about some of the human resources challenges you face in the organization today?

Ms. Blakey: Well, you know, I bet like much of government, from what I understand, we're dealing with an aging workforce, and that's not surprising, particularly for the FAA, because of two things. One is that when you think about the folks you want out there inspecting airplanes and providing oversight from the standpoint of certifying aircraft and all of that, needless to say, you draw on very experienced people. A lot of them come out of the industry. They're highly trained, but that means it is an older work force on the whole.

Another phenomenon was that for our air traffic controllers, the PATCO strike meant that large numbers were hired in the early '80s, because President Reagan fired over 10,000 air traffic controllers, and the need to replace those all happened within a few years. Those folks are reaching the maximum retirement age, which is 56, as the system is set up. So we're going to see large numbers mustering out over the next ten years. And that means we're going to be hiring lots of people, and we have to figure out a plan that both figures out how to begin to step that up, and how we can train highly efficiently so that you move people into the system well.

Mr. Lawrence: How long does it take -- when someone decides to become an air traffic controller, how long does it take before they can actually work in the system? Is it a long lead cycle or is it relatively short?

Ms. Blakey: It depends, of course, on the experience base that they bring. We recruit from the military, where they've been controlling live traffic; we recruit from schools around the country where they may have spent four years in an undergraduate degree learning a lot. But we also recruit people straight in. Average is three to five years to be a fully certified controller, particularly at the more complex facilities. Now, fully certified means that you can work all positions in some of our most complex facilities out there.

We think probably, as we need to step up the pace on this, we're going to use simulators, for example, which is something that has been highly successful, as you know, in the training of airline pilots. The FAA hasn't relied on it as much. We believe in simulating all sorts of circumstances that hopefully controllers will never see in their actual air space that they're going to control. We'll be able to bring people through the system more quickly, and that would be a good thing.

Mr. Lawrence: In 2002, the FAA won an award for the most improved government agency. I'd be curious about some other awards you've won as well, and I guess, sort of even, how you continue to improve to win these awards.

Ms. Blakey: Well, you know, we do focus on that a lot. I really do believe that it is important to have people recognize the excellent performance and the real steps that we're taking to be a performance-driven organization. For example, we were very pleased that we were, with the Department of Transportation, top agency of government in terms of the President's Management Agenda. Four out of five of the key scores, we were green on. So we were right up there in the very top tier, and the FAA drove a lot of that because we're a big part of the Department of Transportation.

The Association of Government Accountants, in this last year, gave us award for our performance in financial report. We're very proud of that. We're proud of the fact that we have had clean audits for the last three years, and believe me, we're working very hard to get another one this year. Customer satisfaction index, as I say, this continues to go up, and we're looking at expanding that so that we have the real measure of how people feel we are doing in terms of being responsive to their needs.

So all of these are the kinds of things that, you know, as I look at it, we're working very hard, I'll tell you this, to get off the GAO's high risk list. I'm sure there are folks out there who know government agencies are often targeted there. The FAA's financial performance has been there for a while, and I'm very hopeful that we're going to move off of that as a result.

Mr. Lawrence: That's interesting.

What are the implications for the FAA of things such as commercial space travel? We'll ask Marion Blakey from the FAA for her thoughts on what the future holds for the FAA when The Business of Government Hour continues.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning's conversation is with Marion Blakey, Administrator of the Federal Aviation Administration.

Joining us in our conversation is Dave Abel.

Mr. Abel: Over the past ten years, most businesses have gone global, but none more than commercial aviation. What is some of the impact now of the international nature of air transportation on operations of the FAA?

Ms. Blakey: Well, you know, it is a global system, and it is very much in the interest of the American flying public that we encourage open skies, the ability of not only of our carriers to fly routes all over the globe, but also to co-chair with foreign carriers so that in fact, you know, you don't have to have expensive service everywhere, because you could link up with a lot of others. That drives the price of tickets down, but at the same time, we have to be sure that it is not only a seamless system out there, but a very safe system. And parts of the world, as you know, safety challenges in aviation are much greater than they are in the United States. So we're trying to raise the bar on safety in a number of places.

We're also very convinced that American technology, American safety, is something we should be exporting. It's one of the great aspects of the fact that the United States has been a leader in aviation since the Wright Brothers. So in markets like China, for example, we're working very hard on both air traffic control systems and procedures, satellite-based systems. We have a satellite-based system now that we believe uses our GPS system, that will extend all the way from India through, we hope, China. Certainly Japan has already committed to it, and around the globe into the United States. It's going to be a great boon for aviation.

So we're working hard to expand those benefits, and frankly, that also benefits the United States economy in a variety of ways, our companies and our passengers. It's a big part of our goal these days.

Mr. Lawrence: Does the FAA have a single counterpart in Europe, or are there multiple organizations?

Ms. Blakey: I'm glad to say that with the European Union's advent, they have now developed an agency that's brand new called EASA, the European Aviation Safety Agency, that actually is going to be officially opening its doors in Cologne before the end of this year. So that's a good thing, because that brings all those countries together for us to work with on a joint basis. We are also encouraging safety on a regional basis in a number of parts of the world. Because, especially less developed countries with fewer resources, if they combine forces and we can provide them technical assistance across national boundaries that will work well in Latin America, in Africa and other parts of the globe. So that's another thing that we're doing. But we work very closely with our European counterparts

Mr. Lawrence: Now a bit earlier, you talked about some of the things that are coming in the future of commercial transportation, and just to pick out a couple of fun ones, you were present as Spaceship 1 completed its second trip into space earlier this year. What was it like to witness that?

Ms. Blakey: Wow, I'll tell you, that was the longest period of sustained goose bumps I've ever had in my life. No, it was fabulous standing out there in the Mohave in the early morning, freezing cold, watching that flight. When Mike Melville took it up, really into space, really expanded what has happened in terms of a privately developed, privately piloted aircraft that all of a sudden can go, not only into space, but come back, and has the capability to carry passengers. I was there with Richard Branson, who has decided that Virgin Galactic is going to begin carrying passengers into space in the next couple of years. So you can imagine, from the FAA standpoint, I see a lot of challenges coming together. I believe, of course this is very exciting in the future of aviation and aerospace, and we need to enable it. But there are issues of risks to passengers, issues, of course that we have to protect the safety of folks on the ground. So it's a challenge.

Mr. Lawrence: Do you have an organization today that's focused on space travel within FAA?

Ms. Blakey: Absolutely, our commercial space organization within our organization actually has ensured the safe launch of 167 commercial launches already. Now that we're getting into the reusable vehicle area, of course, that's got new challenges. But we're very proud of that track record.

Mr. Abel: You also mentioned a bit earlier a new type of travel called Microjets. What is a Microjet?

Ms. Blakey: It's a small, high performance aircraft. There aren't any out there on the market, but there are two companies, Eclipse and Adam, and there are several others coming along, which are using composite materials and very high performance small jet engines, to provide transportation for four to six people typically, that can be right up there with commercial jets. Glass cockpits, all of the kind of safety and navigation features that you really see, you know, in a Boeing 777. And what that's going to do is it's going to allow air taxis to flourish. Service to a lot of smaller airports, because a small number of people on a cost efficient basis can go on a non-scheduled basis point to point. Over time, it is really going to infuse transportation in this country with a lot more flexibility and cost efficiency than you have right now, when you're restricted just to the large commercial jets.

Mr. Abel: So if we put a couple of these together: we have microjets, space travel, increased demand for commercial aviation today, even just based on these regional jets versus larger jets we were saying before, how long can the FAA continue to operate as it is today, or are there plans for a new way of being able to business in the future.

Ms. Blakey: Well, Dave, I'm glad you asked that, because it's one of the things I've really spent a lot of time thinking about with some smart people. The system is not infinitely scaleable. In fact, we're getting to the limits of it. When you think about the fact that we use active ground to air control, voice communications, you can appreciate, as the traffic gets more and more dense -- UAVs coming into the system, a lot of things -- we're really going to have to change this.

The next generation system, we are bringing out a plan, in fact, again, before the end of this year, that I think is going to address what a next generation aviation system, both in terms of air traffic control, much more emphasis on satellite-based, satellite to aircraft, aircraft to aircraft separation; much more on automation; much more in terms of controlling traffic as managing exceptions with automation; looking to ensure the safety routinely, and in point of fact, we are also going to have to see a much better use of our infrastructure in terms of airport infrastructure, where do we need them for the years to come?

You know, it's not all going to be where it is right now. And so, the "build it and they will come," we've got to build it and anticipate where it's going to be. And so we're working very hard on those kinds of things, as well as what will a really stepped-up safety system be all about. The Europeans have already developed such a plan. So we're going to be moving out on this because, again, we believe that the leadership of the United States overall, both for our domestic health as well as internationally, depends on it.

Mr. Abel: What is the timing of a plan like that? What type of horizon would you look at as far as the time that it would cover?

Ms. Blakey: It covers out to 2025. That sounds like a long way away, but remember that the aircraft that are rolling off the assembly line right now will be flying in 2025. It typically can take as long as seven to twelve years to build a runway, so this kind of planning, it's not so far out there. And what I will also tell you is that this is an inter-agency process, which we rarely see in government. We are doing this with the Department of Defense, Homeland Security, Commerce, because, of course, they have the Weather Service, and weather's a big factor in aviation, along with the White House, in terms of our science and policy shop over there, so we've got really a lot of folks who are working with the Department of Transportation and the FAA on this. And NASA is a big part, of course, of that partnership as well.

Mr. Lawrence: Is there participation of commercial entities as well, airlines or cargo carriers, or other users of transportation as well?

Ms. Blakey: Absolutely. Our stakeholders really have to be involved and say, yes, we see the system serving us in the future, and that's going to be a big part of it, and frankly, such a plan will be governing our federal investments. One of the things that I think is exciting in this is, as we all know, the tremendous advances that have occurred in the Department of Defense in terms of the use of satellite-based navigation, air control systems that can translate into the civil side and benefit all of us. So this kind of joint effort together for surveillance, navigation, communication -- it's going to yield real dividends, and it will begin to govern our investments, not only looking at 2025, but in the near years, because you've got to have a smooth transition.

Mr. Lawrence: Marion, in our first segment you talked about your career beginning as a GS-3 and now working up to the Administrator, and cutting across both the public and private sector. What advice would you give to someone interested in a career in public service?

Ms. Blakey: Well, I would certainly say that I've found it tremendously personally rewarding. The mission orientation of the opportunities that you often have in government service; the ability to get up in the morning and know that you genuinely make a difference in people's lives. That's a tremendous engine, I think psychically for all of us in terms of -- do you like to come to work, do you care about what you do? Do you feel like you're making a difference? I can tell you that my career in government has really given me the ability to answer that affirmatively every time, but never more so than at the FAA, because we obviously have a mission that touches everyone's lives.

Anyone thinking about careers broadly, but certainly in terms of public service, I think it's also important to be open to opportunity. I would never have projected that my career would have taken the turns it has. I could not have anticipated some of the opportunities that one career in one agency would then lead to another. And it's been very exciting to realize that sometimes, the way that mentors, the way people see you that are above you in government, may not be the way you see yourself. But in fact, that opens opportunities; that opens challenges that you rise to.

And I have found government to be a wonderfully supportive environment from that standpoint, of being able to move into arenas, that as I say, I wouldn't have anticipated, but it's been tremendously rewarding. I would also say this: that I would encourage anyone who is interested in public service to look at the FAA. I'd like to see them go to, because there, they'll be able to see what we're doing. Look at our flight plan. See how we're doing on our performance. But they can also look at the careers we have at the FAA. I think they're terrific.

Mr. Lawrence: Thank you very much for joining us this morning, Marion. I'm afraid we're out of time. That will have to be our last question.

Do you want to mention the web site once again?

Ms. Blakey: The web site is And I'd love to have people go there. You can even get good information about how the system is doing on a given date. You can even access it from your wireless, from a PDA, to see how your airports out there are doing, if you want to know if there are delays in the system. It's a great site.

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Marion Blakey, Administrator of the Federal Aviation Administration.

Be sure and visit us on the web at There, you can learn more about our programs and get a transcript of today's fascinating conversation. Once again, that's

This is Paul Lawrence. Thank you for listening.

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Thursday, July 15, 2004

Arlington, Virginia

Mr. Lawrence: Good morning and welcome to The Business of Government Hour. I'm Paul Lawrence, partner in charge of The IBM Center for The Business of Government. We created the Center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the Center by visiting us on the web at

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is Michael Montelongo, Assistant Secretary of the Air Force for Financial Management and Comptroller.

Good morning, Michael.

Mr. Montelongo: Good morning, Paul. It’s great to be here.

Mr. Lawrence: And joining us is Glen Gram. Good morning, Glen.

Mr. Gram: Good morning.

Mr. Lawrence: Well, Michael, let’s start at sort of the context. Could you tell us about the Office for Financial Management and Comptroller and how it supports the mission of the U.S. Air Force?

Mr. Montelongo: Well, first of all, let me begin by saying thanks to you and the IBM team for doing what you’re doing. In other words, giving your listeners, really the insights of what government is doing to deliver more value to the American taxpayer. So I really applaud you for doing that.

Let me then answer your question and that is that the Air Force, the United States Air Force, the United States Air Force that serves the American public, is designed to protect the interest of the United States, to defend the interests of the United States using air and space power. And what our role is as financial managers is to primarily deliver the resources that the Air Force needs, the financial management services that the Air Force needs to accomplish that mission.

Mr. Gram: Mike, can you tell us a little about your role as the Chief Financial Officer of the Air Force?

Mr. Montelongo: Well, it really stems from what I just said, Glen, and that is that we’re primarily involved in delivering financial management services and analytical services to the Air Force at large. And then I have the additional role of being the primary adviser, financial adviser to the Secretary of the Air Force Jim Roach, who’s my boss, and my other boss, who is the Chief of Staff of the Air Force John Jumper. And I also provide that kind of advice and counsel, financial resource advice and counsel, to other senior leaders of the Air Force.

Mr. Gram: What’s the size and scope of your organization as you carry out those functions?

Mr. Montelongo: Let me just put in context to say that the Air Force is one of perhaps three or four business units, if I could use that lexicon or that sort of metaphor and analogue, in the Department of Defense, which is basically in many ways the oldest, largest, busiest, and some might arguably say the most successful organization on the planet. As far as the Air Force is concerned, we have something in the neighborhood of about 700,000 professionals that span the active duty, reserve, guard, and civilians that do the work of the United States Air Force.

When you look at what we are involved in, in some ways, you can describe us as the largest airline on the planet. We have a fleet of something like 6,000 aircraft, which is larger than really the fleets of Southwest, Northwest, Continental, United, American, and Delta Airlines combined. Of course, our aircraft is specialized, too, as you might imagine. And when you also compare us to the personnel, budget, and asset base of other companies, I just told you that we have a total of about 700,000 or so people, frankly, that’s more than IBM and General Motors combined, and I think it’s only Wal-Mart that exceeds the number of people employed that we have.

And in terms of budget, just recently I guess in this current budget cycle, we have something to the tune of a little over 120 billion. And when you compare that to the revenue base of, say, the largest six air carriers or airline carriers, we exceed that, and we also exceed the asset base for those carriers by a good amount. So we are a fairly sizable organization.

Mr. Gram: Well, that’s great. Can you tell us a little about your previous work experience prior to becoming this Chief Financial Officer, and how that work experience prepared you for your current position?

Mr. Montelongo: Well, I began public service quite early as a lieutenant in the United States Army, and this -- well, I guess I won’t tell you how long ago that was, but that’s how I started and did, frankly, a full career before I decided that it was time to then pursue another chapter in my journey. And from there, after doing a career in the Army, then went into the private sector, starting first in the teleco industry and then moving on into the consulting industry. And then this opportunity had come up and I was, frankly, very fortunate to have the opportunity and privilege to join the Administration and to serve in this capacity.

Mr. Gram: How different is that experience compared to the typical commercial sector experience?

Mr. Montelongo: Well, you know, in many ways it is quite comparable. And I think that as you have noted in previous conversations that you’ve had with other government officials, I think that they would probably tell you the same, that it’s quite comparable in many ways.

Where it differs I think is clearly in the fact that we don’t have a profit motive. It differs in the fact that the scale, as I just tried to paint for you, is quite different. And the cost of not performing, particularly in this area, in this context, in the Department of Defense, in the business units of the Department of Defense, whether it’s Air Force, Army, Navy, or Marines, the cost of not performing is proportionately I think higher than it would be, say, in the commercial sector. Because here we’re talking about, frankly, the national defense. We’re talking about lives at stake. We’re talking about defending the nation’s basic democratic principles and values. And so in that regard, the stakes are much higher.

But even though we don’t have a profit motive, we still have the pressure to perform. We have the pressure to succeed and win. There still are increasing demands for accountability, efficiency, effectiveness, and productivity. In some ways, I guess you could say that we have a CEO who’s the President of the United States; and we have a board of directors, which is the United States Congress -- as opposed to maybe 15 or so, we have 535 -- which makes things quite interesting, as you might imagine; and our shareholders are the American public. And I think that in some ways, one could arguably say that our shareholders and board of directors are every bit as demanding as any corporation’s stockholders or board of directors.

Mr. Gram: I appreciate that analogy. That’s a neat way of looking at things. What’s been your greatest challenge in your role?

Mr. Montelongo: I’m not sure that I could -- as I think about that, I’m not sure that I could necessarily limit it to a single challenge, because government -- public service in and of itself I think poses some very complex challenges. And I think -- and this is not necessarily a judgment call, but I think from the perspective that I see it doing this in the Department of Defense I think makes it even that much more challenging and complicated sometimes.

But I’ll tell you, as I think about it, maybe the way I would characterize it is that each day I have to fight the tyranny of the urgent versus the important. And that is, and I think you can relate to this, I mean, oftentimes I find that the urgent is always crowding out the important. And another way of perhaps manifesting this comparison between the urgent and the important is that I tell my folks that each and every day, we are involved in building the airplane while we’re flying it. We have to operate while also being mindful of creating the future.

We don’t have the luxury we just went through the Finals here, the NBA Finals with the Lakers and the Pistons. They have the luxury of timeouts, we don’t. We have to operate every day, today, fighting a war, if you will, but we also have to be, as I said, very mindful of creating the future so that when the future gets here this institution will be as ready as it is today to meet the nation’s needs.

Mr. Lawrence: Your description of the scale of the Air Force was very interesting and context-setting. I’m curious in terms of some of the management challenges that scale presents. How do you communicate with a group that large?

Mr. Montelongo: Interesting question. I think that you use several channels to do that. And the one that I -- my preference is face-to-face. So I make it a point -- I don’t travel as frequently, for instance, as my boss does, the Secretary of the Air Force or General Jumper, both of them do, they travel quite a bit. And in fact, they do that primarily to get the word out, to connect with our 700,000 strong workforce: airmen, civilian airmen, and so forth. And so in some ways, I try to mimic that as well visiting as many bases as I can so that I can connect and let those folks know, both let me say not only financial managers at work -- and I have about 10,000 of these folks who are distributed throughout the Air Force -- not only to connect with them and let them know that I care about them, I love them, I love what they’re doing, and I appreciate their contributions, but also the wider Air Force that’s not necessarily involved in the financial management: the maintainers, the logisticians, the civil engineers, all of those folks, the communicators. I go out there to try and reach out and touch them and let them know that folks like myself are back here in the Pentagon doing everything that we can to give them the resources that they need to do their jobs.

So it is a mixture of having face-to-fact connect; it’s a mixture of using these kinds of opportunities that we’re doing this morning to reach out and let folks know what we’re about, what we do, and how we’re contributing to the defense of the nation.

Mr. Lawrence: Interesting. Transformation is taking place within the Department of Defense, and the Air Force’s financial management organization is no exception. What’s the transformational plans for financial management in the Air Force?

We’ll ask Mike Montelongo of the Air Force when The Business of Government Hour continues.


Mr. Lawrence: Welcome back to The Business of Government Hour. I’m Paul Lawrence, and this morning’s conversation is with Michael Montelongo, Assistant Secretary of the Air Force for Financial Management and Comptroller.

And joining us in our conversation is Glen Gram.

Well, Michael, I understand the Department of the Air Force is in the process of transforming itself to include its financial management operation, and I guess I’m interested in learning about the transformation. My first question is sort of why now, especially while we’re at wartime? And I’m reminded of your analogy, just talking about building the airplane while you’re flying it. So it seems like perhaps a high degree of difficulty.

Mr. Montelongo: Actually a very great question. I must tell you, Paul and Glen, that I vividly recall 9/10, the day before 9/11. And on that day, the Secretary of Defense Don Rumsfeld gave I thought a milestone speech titled “Bureaucracy to Battlefield.” And basically in that speech he was outlining his plan. Actually at that point, it was more of an evolution of a plan that he had already introduced when he came into office, but this one was a bit more specific about taking sort of the negative aspects of bureaucracy that we’ve all heard about, that in many ways pose stumbling blocks and barriers to good government and effectiveness and efficiency, and diverting all of the resources that go to those kinds of barriers, if you will, over to battlefield, if you will, the tooth of the Defense Department.

So basically what he was doing was rallying the troops and exhorting all of us to say, folks, we really have to move forward here and begin to translate all of this stuff that we have been experiencing from a bureaucratic point of view into more productivity and more capability. So that’s the whole notion of Bureaucracy to Battlefield.

And then, all of a sudden, 9/11 hits. So one would think, as your question implies, gee-whiz, how can you continue to be on sort of a transformation journey while you’re also fighting a war? Well, I would tell you that the global war on terrorism increases the imperative for change. It actually makes it that much more imperative for us to do the kinds of things that the Secretary was laying out on 9/10, the day before 9/11.

The President and the Secretary laid out a vision when they came into office for a much more agile, nimble, flexible, lethal, and integrated force, supported by a business operation or a set of business operations, back office if you want to use that term, that are just as agile, just as responsive to the war fighter. And then my boss, Secretary of the Air Force, and General Jumper, the Chief of Staff of the Air Force, have basically taken that charter, that mandate to say in the Air Force, we’re not about necessarily platforms, we’re about building, sustaining, and strengthening capabilities.

Well golly gee-whiz, if that’s what the institution at large is trying to do, then it’s imperative upon me and my financial managers to support that kind of change, to support that kind of transformation. We have to be every bit as sophisticated in our financial service delivery as the weapon systems that we support and the war-fighting concepts that we support. That’s what transformation’s all about.

So for me, I have explicitly told our folks that when we grow up, metaphorically speaking, we have to be strategic partners to our commanders, to our decision-makers. We have to be the ultimate choice for financial and management information that is reliable, that’s timely, that’s accurate. And we have to be part of a world-class team that is delivering the absolute best in customer-focused financial services, but primarily what I call decision support services. That means, I want to make a distinction there, and I’m drawing a distinction between sort of the analytical capability that we can deliver versus transactional kinds of services.

Mr. Gram: Human capital, that is getting the most out of people and helping to promote top performance, is a major challenge in the federal government. How many people work for you and what are you doing to help them develop their potential?

Mr. Montelongo: Human capital, people stuff. Man, I’ll tell you, you’ve hit a button for me. That is a key piece that I spend a great deal of time on, because if we’re going to succeed at any of the kinds of things that I’ve sort of been outlining with you and our listeners, it’s going to be because we have dedicated, committed, skilled, competent people that are doing the nation’s work, frankly.

In my shop, I have something like 150 people, and that’s supplemented by partners in business, yourselves for instance, and you know this, Glen. And across the Air Force, and I mentioned this a little bit earlier, we have something like 10,000 individuals that are doing financial management work across the Air Force. And, you know, what we’re doing to manage their careers better, to give them the tools, the skill sets, the competencies that they need to succeed each and every day, we have embarked on what we’re calling a force development process, meaning that we’re now in the process of developing, training, educating, grooming, growing them purposely, purposefully, on purpose rather than sort of a pick-up game or an ad hoc game, which I think we had been doing in previous decades. It’s important that we do that.

Business, as you know, does or puts -- in some of the better organizations in business, put a premium on succession planning. And the idea being there is that you’re actually on purpose looking at your talent and strengthening that over time, and on purpose putting people into the right positions so that they can grow and ultimately take the reins of leadership in the organization. That’s what we’re doing with this whole force development concept in the Air Force and in financial management.

Mr. Lawrence: We noticed that your office is working with Harvard MBA summer interns. I’m curious about the objectives of this program and what type of work they do over the summer.

Mr. Montelongo: Paul, in addition to strengthening the folks that we currently have on the payroll and doing the kinds of things that I just outlined, we also have to be very mindful of bringing in new talent. You know this very well; one of the challenges the government at large is facing is the aging issue; that a good solid number, a large percentage of the public service workforce is in the retirement window. Now thankfully, we haven’t lost, at least in a large scale, that leadership capability, that skilled leadership capability just yet. But, I mean, as time goes on, it’s inevitable. So we have to be mindful to be sure that we can bring in some new talent.

My view is that we ought to have every bit of an opportunity to go after our fair share of America’s top talent. You know, we -- and I don’t want to make light of this, but certainly, you know, we’re in a war, global war on terrorism, but I also tell our people we’re in a war for talent. You folks are after the same talent that I want. In the past, we, I think, maybe unconsciously, have ceded the first-tier talent to business. So we haven’t aggressively recruited at first-tier schools, like Harvard or Wharton or Stanford or Chicago or any of those places. Well, I say we need to do that.

We need to visit these young people and say that in addition to the plethora of choices that they have to pick from, there’s another one that they haven’t heard, and that’s public service, and that that is every bit as rewarding and challenging as any other opportunity. And this an area, public service, of all the areas in American society that needs that kind of first-tier talent that is being produced at places like Harvard and all the other places that I was talking about. So what we’re doing is going through an experiment to see if we can introduce this young talent to government, to public service, and see what they think, because they’ve never met a government person before. They’ve never met somebody in uniform before. All they’ve heard is what they read in the papers, if you will.

And we also want to introduce our people to this top talent, because all they’ve probably heard is, oh, these are these young whippersnappers who think that they know everything and they’re Wall Street types who are, you know, arrogant and so forth and so on. Well, I got to tell you, this is our third year; we’re going into our third year of this experiment. We’re bringing in an intern this summer. Last year we had four, and the previous year we had one, and it’s been marvelous.

Those young people roll up their sleeves, go in, and they really do nuts-and-bolts work with our people, and they have impressed the pants off of our folks. Our folks really are marveled at the dedication and work ethic of these students. And in turn, the students, when they leave, the feedback that they’ve given me is that this has been an experience of a lifetime. Although we haven’t yet gone to a point where we’ve hired them, we’re looking to at least plant the seed in them that public service is an option that they may pursue in the future.

Mr. Lawrence: That’s fascinating, especially the people focus.

Transformation also involves technology and process. How is the Air Force addressing these? We’ll ask Mike Montelongo of the Air Force when The Business of Government Hour continues.


Mr. Lawrence: Welcome back to The Business of Government Hour. I’m Paul Lawrence, and this morning’s conversation is with Michael Montelongo, Assistant Secretary of the Air Force for Financial Management and Comptroller.

And joining us in our conversation is Glen Gram.

Well, Michael, in the previous segment, we talked a lot about people with the right skills and attitudes to make transformation work, but I’m also curious about technology. How is your organization using technology to promote transformation?

Mr. Montelongo: Paul, technology is part of a three-prong strategy or three-prong attack in our strategy to begin to make our change and transformation a reality. As you say, we did talk about the people a second ago, and that’s obviously a key element in making all this happen. Processes, streamlining them and making them efficient, that’s important. But having integrated systems that talk to each other is tremendously important so that we are not doing what we’re doing today, and that is relying on human interfaces to move information, to move data back and forth. So today, at the very extreme, we would have to download information from one system only to fat-finger it into another.

And as you well know, having the experience that you have in the private sector, all that does is introduce that much more error, not to mention the inefficiency and the time that it takes to do that. So we’re spending so much more time in this time-honored ritual called “data calls” than in spending the time -- in other words, by that I mean, and your listeners who work in government probably are chuckling because they understand what it means, unfortunately, but what that means is basically spending so much time collecting the data, collecting the information, going out manually using a telephone or whatever it is, e mail, to say, hey, folks, I need the following data because I can’t get it out of a system. I want people to spend most of their time analyzing, putting together courses of action so we have to fix our systems.

As you probably well know, the Defense Department launched on an effort that the Secretary asked us to launch a couple years back called the Business Management Modernization Program. And that really is a very bold and ambitious plan to basically modernize the business systems in the Department of Defense. And it’s a very ambitious one, because we have something like when we did the inventory of current systems that we have in place, we have over 2,000 first-tier systems that, in essence, are disconnected. They don’t talk to each other. They’ve got lots of information, lots of data that we need to run this organization, this institution, but they are not integrated comprehensively. And so the BMMP, as it’s been called over the last several years, is a key element in attacking the systems piece.

We have others that I’m concentrating on in the Air Force. One is basically putting in, for the first time, a general ledger, honest-to-goodness, 21st century accounting system into our Air Force, which we haven’t had. And that’s called DEAMS -- that’s the acronym, Defense Enterprise Accounting Management System.

And we’re also trying to make better use of tools that we currently have for self-service operation. We’re calling it My Pay. And basically My Pay is probably version one of what you and I use when we go to the website and do our banking, our personal finance stuff. And My Pay is the right solution, we just have to add even more functionality so that in the future, when our airmen need to basically do personal financial transactions, they can do it self-service rather than having to do it face-to-face as we do today.

Mr. Gram: Yeah, that’s a big change in the way things used to be.

Mr. Montelongo: Absolutely, culturally it is. We have to wean people off of that. But look, you know this as well as I do: when you look at what it costs on average for a face-to-face transaction, we’re talking anywhere between, I don’t know, $16 to $20 per visit. When you handle the same transaction in a centralized call center operation, now we’re talking maybe perhaps something along the lines of $7 to $10 per phone call. We do the same transaction on the web, it’s 5 cents a transaction. There’s a time for the personal face-to-face, there’s a time for perhaps the call center, and there’s also I think now, finally, a time to leverage this kind of technology, web technology, so that we can still deliver quality services, but at a much lower price point.

Mr. Gram: We know that you’re a proponent of cost and performance awareness. How do you change the culture and promote that type of behavior or those thought processes as you go through those changes?

Mr. Montelongo: Glen, in many ways, what that really amounts to is aligning the incentives that we currently have so that what we’re doing is promoting and encouraging and motivating folks to perform; in other words, to let them know that, at the end of the day, what’s going to count is not a set of inputs or how many transactions you did, but what was the outcome. What value did you produce? What service did you deliver? What product did you give to the war fighter? That’s what is going to be measured at the end of the day. That’s what people are going to be rewarded for at the end of the day.

So I will tell you that what the Secretary of Defense has done, and it was challenging, but partnering with Congress, has been able to enact -- I should say that this is something that the Secretary had asked Congress for and Congress has enacted and the President signed into law, is the National Security Personnel System, which basically is going to upgrade the current personnel system that we have for our civilians so that basically we can do the kinds of personnel actions with much more agility and nimbleness than we have in the past.

You know, so the ability to hire people on the spot, which is something that we haven’t been able to do except for maybe certain circumstances. I know that some of my people, for instance, tell me that when they go to job fairs, the company at the booth right next to them is able to on-the-spot hire somebody, give them their bonus or loan forgiveness or whatever the case may be, whatever package it takes to bring that person on board, and then we, on the other hand, tell our folks here’s all this paperwork that you got to fill and it’s going to take a couple of months to process. I mean, it’s ridiculous.

I told you before we’re in a war on talent. And so I think our NSPS, when we finally implement it and get it executed, is going to give us the kinds of flexibility that we’ve been seeking so that we can, in fact, again, going back to what I was saying a second ago, motivate our folks and let them know that they’re going to be rewarded for behavior that stresses performance.

Mr. Gram: That sounds like that system will go a long way towards leveling the playing field a little bit. What are you doing in the service delivery model areas? And as you streamline your supply chains to improve cost and quality, what are some of the changes you’re doing there and how you’re looking at providing services?

Mr. Montelongo: Glen, I sort of alluded to this a second ago when we were talking about how we’re leveraging technology or how we’re perhaps using technology to transform the delivery of financial services. A couple of things going on here.

First, I asked our folks to take a hard look at what it is that we do as financial managers and to filter all of what we do through a core competency lens. In other words, the Air Force does three things, three core competencies better than anybody on the planet: it develops airmen, it brings technology to war fighting, and it integrates operations from an air and space point of view. Better than anybody on the planet. Nobody else can do that. So in the financial management world, what is it that we’re doing that strengthens, promotes those core competencies? And the notion being is that whatever it is that we do that does that, that’s what we should keep doing. Whatever it is that we’re doing that doesn’t necessarily do that, then perhaps we should examine that for divestiture.

So with that kind of insight, I then want to say now that we know the kind of services that we want to deliver, in other words, the what that we want to deliver to the Air Force, to the war fighter, now let’s figure out how we’re going to deliver that. What channels are we going to use to deliver those services? And in doing so, can we leverage technology so that we’re delivering those services at a lower cost point?

So again, to what I was saying previously, rather than relying and defaulting solely to face-to-face delivery, which is very costly, let’s use the face-to-face for advisory services; in other words, the financial manager advising commanders and decision-makers. But for routine financial management service delivery, perhaps we can do that with call centers, perhaps we can do more of that with the web. And that’s how we’re trying to streamline our service delivery model so that we’re delivering just exactly what the Air Force needs from us, but at a much lower price point.

Mr. Lawrence: That’s a good point.

What’s the appropriate level of government interaction with the private sector? We’ll ask Mike Montelongo of the Air Force for his perspective when The Business of Government Hour returns.


Mr. Lawrence: Welcome back to The Business of Government Hour. I’m Paul Lawrence, and this morning’s conversation is with Michael Montelongo, Assistant Secretary of the Air Force for Financial Management and Comptroller.

Joining us in our conversation is Glen Gram.

Mr. Gram: Mike, can you share with us your vision for Air Force financial management operations over the next 5 to 10 years?

Mr. Montelongo: Glen, we talked a little bit about this in the previous segments, but I will tell you, I’m very optimistic about our future. When I think about perhaps a 15-year reunion that I might have with some of my colleagues that are my present-day colleagues, I really am very optimistic about what I think I’m going to be seeing. I think that I will see auditable financial statements. I really feel that. I think I’m going to see clean opinions. I’m going to see the fact that our financial and management information is indeed reliable, accurate, and timely. I’m going to see people that are currently in the workforce then who will look at me incredulously when I mention the term “data calls.” They’ll look at me and say, geez, we don’t do that around here, we just hit the Enter key and, in fact, I just hit this little switch here on my PDA and everything that I need is available to me.

I really do think that we’re going to be in a position, a much better position to actually do the kinds of things that we’re envisioning now 5, 10, 15 years from now. In other words, being the strategic partner to our decision-makers and commanders, being individuals that will leave our footprint, our collective footprint, on the future of the United States Air Force. I feel really good about that.

Mr. Lawrence: I understand that you’re a great proponent of the interaction between the public and private sectors. Why do you think this interaction is important?

Mr. Montelongo: 9/11, Paul, has really dramatically changed the landscape, more so than well, it’s hard for me to certainly compare this to back in other eras, like World War II, World War I, and others. I guess I can only speak to this era because this is the era that I am here in. But to me, I think it’s dramatically changed. So much so that we just can’t leave the business of taking care of America entirely, exclusively to just those of us in public service.

America’s scarcest asset is her talent. And over time, what we have done is bifurcated that talent, compartmentalized it between public and private sectors. And in some cases, the relationships have been adversarial and confrontational. We can’t afford that anymore.

I read the other day that 85 percent of America’s infrastructure is owned by the private sector. Goodness gracious, if we’re going to win this global war on terrorism, we have to have the private sector -- business -- partnering with us here in the public sector. I, frankly, think because of the fact that I think America would like to have its best and brightest at key positions in public service, well, then we have to then figure out ways to have exchanges and have this talent move back and forth between both sectors.

Now clearly, we have to figure out how we can do that, facilitate that, and still make sure that there aren’t any conflicts of interest, and I think we can work that out. But I think over time, what we’re going to have to do for the sake of America is be sure that we can have some permeability between the two sectors that in the past has been almost in some cases, at the very extreme, a solid wall. We have to take advantage of every bit of talent that America has regardless of where it is.

Mr. Gram: Mike, we know that you’re very active in the Hispanic community and promoting, you know, the participation in the military and public service and education. What advice would you give a new person joining the public sector or considering joining that as a career?

Mr. Montelongo: Glen, great question, because I have spent the better part of my lifetime, both professionally and personally, in promoting opportunities for everyone. And because my background is Hispanic, I guess I’m a bit sensitive to the fact that this particular segment of our great society is growing leaps and bounds. And as we sort of project demographically how things are going to be, gosh, in the next 30 to 40 years, that segment is just going to continue to grow and be much more of a percentage of our population than it is today.

My view is that America has to take advantage of, as I was saying before, every bit of its talent regardless of where it is, regardless of what color it is, regardless of what background it is, regardless of what faith it is. It has to use every bit of its talent to remain competitive in this very global and increasingly global society.

When I go to neighborhoods that I grew up in that are predominantly a minority, in my case Latino, I encourage our young folks to explore opportunities, to be involved in society, to contribute to society, to make a mark on society, to give back to society, and that if they prepare if they prepare -- they will have every bit of opportunity to contribute. They will have every bit of opportunity to step up to the plate and knock the cover off the ball, but they have to prepare. They absolutely have to prepare. This is big league stuff.

And once again, this issue of 9/11 has really changed the complexity I think of things. And so we need the very best that America can prepare to lead America into the future. So I think that one of those opportunities that young people have from all walks of life is public service. And it’s one that I think sometimes our young people in our colleges and grad schools aren’t introduced to enough. And that’s kind of our fault a little bit, because I’m not sure that we have made a concerted effort, at least on the civilian side, to get the message out that, hey, there is a significant civilian workforce in the federal government that needs the kind of talent that we have in our schools.

So I would tell young people give us a look. There is an extraordinary opportunity here, I think a very compelling value proposition for public service. It is an opportunity to give back to society. It’s an opportunity to be part of something larger than yourself. It’s an opportunity to give a little bit back to America for what it has given an individual. It’s an opportunity to touch lives in a very meaningful way that very few professions can do. That would be my advice to young people.

Mr. Lawrence: In the earlier answer this segment, you talked about the 15-year reunion with your colleagues. And I’m curious, when you’re at that reunion, how would you want them to describe your legacy as the CFO of the United States Air Force?

Mr. Montelongo: Gosh, Paul, it is tremendously early in the game to talk about legacies. I think that what I would feel very good about is that along with the wonderful people that I’ve had the privilege to serve with in the United States Air Force, supported by the leadership, starting with the President, frankly, and the Secretary of Defense and my boss and General Jumper. We are well on our way to launching a journey here and have had some modest success with transforming and strengthening our capability as financial managers. And that in the process of doing that, we are then delivering that much more value to the United States Air Force so that the United States Air Force can be that much more capable 5, 10, 15 years from now.

And I also want to sort of look back in having sort of done that, or at least started that process and be able to feel good about the fact that while we were doing that, we stayed loyal and true to our values. And it’s tremendously important.

I think that one of the things that is also part of that compelling value proposition to young people that I was talking a second ago about, Glen, is that certainly in the Department of Defense, but I would say this extends to public service in general, we’re talking about a values-based organization, an organization, an institution that places a high premium on values, on deciding, on doing things on the basis of values, and using that as an anchor. We talked throughout this entire set of segments of the imperative to change, of the imperative to transform, because if we don’t do that, then we are doing a disservice to the American people. But what we can count on that will transcend change and transformation is the fact that we will remain true to values. And if we can do the kinds of things that we’ve described in the course of this broadcast, but remain true to our values, then we have really accomplished a great deal. And those values for us in the Air Force are that we place a high premium on integrity, selfless service to the nation and to each other. And then finally, excellence in everything that we do.

So if we can have that 15-year reunion, Paul, and look back and say that we did all those things, I think that we can feel pretty good about what we did.

Mr. Lawrence: Well, that’ll have to be our last question, we’re out of time. Glen and I want to thank you for squeezing us in your very busy schedule.

Mr. Montelongo: Paul, I want to thank you and Glen and certainly the crew at IBM once again, as I mentioned earlier this morning, for doing this and, frankly, giving our listeners an opportunity to gain, frankly, an insight as to what government -- what public service is all about and what government is doing today to meet the demands of the American people. And this program in particular is quite innovative and gives listeners, I think, an opportunity to just have that kind of glance as to what’s happening. Because oftentimes unless you’re actually doing it, you don’t get that perspective. So thank you for doing that. My hat’s off to you and your colleagues.

And I just want to mention one last thing parenthetically to our audience. If there’s anything that you’ve heard this morning, based on what I’ve said, or anything that certainly Glen and Paul have mentioned that interests you, that piques your interest, and that you’d like to pursue a bit more, I’d welcome your feedback or comments; or anyone who might be interested in pursuing a career in public service, then I invite you to contact us. And you can get ahold of us by hitting our Air Force website, and I believe that’s And then from there, you can navigate to my website and you can certainly contact me through that. So if you’re so inclined, I welcome that very much.

Mr. Lawrence: Thank you again, Michael.

Mr. Gram: Thank you.

Mr. Montelongo: You bet.

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Michael Montelongo, Assistant Secretary of the Air Force for Financial Management and Comptroller.

Be sure and visit us on the web at There, you can learn more about our programs and get a transcript of today’s fascinating conversation. Once again, that’s

This is Paul Lawrence. Thank you for listening.

David Chu interview

Friday, December 13th, 2002 - 20:00
David Chu
Radio show date: 
Sat, 12/14/2002
Intro text: 
David Chu
Complete transcript: 

Arlington, Virginia

Friday, October 4, 2002

Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, the co-chair of The Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about The Endowment by visiting us on the web at

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation this morning is with Dr. David Chu, Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

Good morning, David.

Mr. Chu: Good morning, Paul.

Mr. Lawrence: And joining us in our conversation is Bill Phillips.

Good morning, Bill.

Mr. Phillips: Good morning, gentlemen.

Mr. Chu: Bill, how are you?

Mr. Lawrence: David, what's the mission of the Office of the Undersecretary for Personnel and Readiness?

Mr. Chu: We're the 'people' people of the Department. That is to say, we manage everything ranging from what the pay table is going to look like for military personnel, through the health care system that provides for them and their families, all the way through to questions of overseeing the readiness of our units, in terms of the training that they get, and where they get that training and how it's going to be conducted.

Mr. Lawrence: And how does it fit in the overall mission of the Department?

Mr. Chu: People, as you all I think appreciate, are the heart of the Department. And of course, there are a lot of people. We have about 3-1/2 million people when you count the active reserve and the civil force of the Department, in terms of the direct employee workforce of the Department.

And without those people, who are quality people, who are well-trained, well-motivated to do the kind of job that the nation needs, there really isn't a military. So this is the heart of the Department's capacity to fulfill the nation's needs.

Mr. Lawrence: David, as the Undersecretary for Personnel and Readiness, what are your specific duties?

Mr. Chu: My job is really to set policy within the framework that the Congress provides by its statutes and consistent with the administration's aims and agenda. Now, in some cases, we'll go back to the Congress and ask for a change of policy.

But to give an example, we supervise the health care system for the military. We buy somewhat over half of the health care services that our people need from the private sector. We have contracts through which this is managed. In fact, at this very moment, we're re-bidding those contracts.

And so my job is to set the parameters that are going to describe those contracts. How many regions are we going to have, how many contracts are we going to pursue, what degree of competition should we aim for, what's going to be the nature of those contracts, what are going to be the incentives that those contracts contain.

I don't actually run the programs myself. The office doesn't run the programs directly. But it may administer the programs, or it may administer the agency that actually carries out the task at hand. That's an example, again, from the health care sector. We have the so-called Tricare Management Activity that actually runs the contracts for us.

Mr. Lawrence: Tell us about your career prior to this appointment.

Mr. Chu: I spent most of my life in and around the Defense Department in some fashion. I came in as a young Army officer during the Vietnam War. I got my chance to visit Southeast Asia, as every Army person I think in that era got to do. And coming out of that experience, I looked around and was fortunate enough to be hired by RAND, which is a research corporation, headquartered in Santa Monica, California.

And quite by accident, I started working on military manpower questions. I was originally trained as an international trade and development economist. But this was the focus of great deal of attention, this question of military manpower, in the early 1970s. Because as you remember, the country had made a decision to go to a volunteer force. Big experiment. No one had ever attempted to put together this big a military composed completely of volunteers before. The British had a volunteer force. Much smaller scale.

And so the Department of Defense engaged RAND, among others, to help it think through how are we going to make this successful? How are we going to make this work? And it was a big challenge. And you may remember some of those years in the '70s. The volunteer force didn't do so well at first, in fact, almost failed. Partly because they set the pay numbers wrong in the mid-1970s. And the quality levels of the force fell, and in fact fell further than people managing the Department of Defense understood to be the case, because they'd made a technical mistake. They had misnormed the so-called Vocational Aptitude Battery tests, the Armed Services Vocational Aptitude Battery tests, the ASVAB.

And the managers thought they were getting reasonably qualified people, maybe not quite the level they'd like to have. The sergeants kept saying, you know, these people aren't like the ones we used to get. They just aren't very good. It turned out the sergeants were right. It turned out they were taking in large numbers of people only marginally qualified for military service, by mistake in the mid-'70s.

Congress reacted to all this by setting standards for the military, in terms of the quality of recruits enlisted in the military. And part of RAND's job was to help the military and say, okay, if these are the standards, how are we going to get from here to there? How are we going to make this successful?

I came to work in Washington in 1978, at the Congressional Budget Office, where I ran the section responsible for national securities issues broadly. And I was invited by the Reagan administration to become what's called the Director of Program Analysis Evaluation, which is the sort of inside think-tank in the Pentagon. It's there to advise the Secretary on choices, on alternatives.

In some ways, it's the black hat of the Department. Your job is to be the Secretary's set of intellectual shock troops, to advance new ideas, ideas that may not be popular, in fact, generally aren't popular, but later come to be received wisdom.

I'll take an example. One of the issues we took on in that period of time is who should conduct the air defense mission of the United States? In that era, it was the air sovereignty mission. In other words, the airliner comes to the United States, you know, appropriately, who goes up and checks it out kind of thing. And it was being done by active Air Force units, even though it was a mission that we thought could be done equally well, and at somewhat less expense, by Reserve companies, Air Guard, Air Reserve units.

And you would have thought that we were heretics for raising this possibility that the Reserve components could do this. Well, after a long battle, the Air Force grudgingly agreed to try out using more Reserve component crews for this purpose. And of course, quite ironically, I came back to the Department, having been there from '81 to '93, came back in 2001 to discover we now had, at that time, all the air defense being conducted by Reserve component units.

So part of your job in that post is to get new ideas tried, to get them advanced, get people to look at them. I served in that post for almost 12 years, left as the administration left office in January of '93, Bush 41, as people call it. And I returned to RAND, as it turned out. I worked in RAND's Washington office, which I was the head of for a while, and then later ran one of RAND's major units, the ROIA (?) Center, which is the unit that advises the Army. And then I was invited by the present administration to come back in the post I now hold in June of 2001.

Mr. Lawrence: Given that career, what made you decide that you wanted to come back this time?

Mr. Chu: I have always found public service extremely rewarding. I recognize financially, often people take a significant step down in income to take these positions. But the psychic rewards, the sense of contribution that one gets, and the opportunity to help the nation do its business, is tremendous compensation. It gives you a tremendously good feeling about what you're doing with your life. And so it's that more than anything else that I think makes public service attractive.

Of course, the Defense Department, as I think you know, is a great place to work. It's a terrific set of people, highly motivated, very mission-oriented. Polite (?) did a survey of federal employees recently. You may have seen this piece of research. And while we have our faults -- and he pointed some of those out -- nonetheless, he was really struck by the degree to which morale in the Defense Department was not only good but getting better over time after the events of September 11th, because it's so mission-focused.

And it's just a great set of people to work with. It's a real sense of community, a real sense of pulling together, common purpose. And of course, in some sense, defending the country and its interest is the ultimate public service, the ultimate reason one had a central government.

Mr. Lawrence: It's interesting that you mention that it's such a great place to work, because the Department of Defense is the largest of the federal government agencies. And I'm just wondering with things of that scale, how do you communicate? How do you do the traditional management functions on that size?

Mr. Chu: Well, you use every instrument at your disposal, including programs like this, obviously. Part of it is just very straightforward. It's a bit like Woody Hayes and 3 yards straight up the middle. You write the memos; you make the announcements.

More important I think is getting out and talking to people, if not face to face, at least in some way that they can ask you questions, they can express their concerns. I am struck that many of the problems of the Defense Department -- and I think it's true of any large bureaucracy -- arise from miscommunication. As the military would like to say, what's the commander's intent? What are we trying to do here? What are we trying to accomplish? And why did we pick this way of getting to that goal?

And I am impressed at the power of just sitting down and talking with people. And of course, in an organization that large, a lot of what you need to do is talk to the leaders of subordinate units, to convey to them what are we trying to accomplish here? Why did we choose this method?

And of course, even better to have talked to them before you've made a choice, to engage them in thinking through how might we solve this problem? How might we address this issue? And I have always found that if you can get the leaders together like this, that you may come in the room with no idea of what to do about the problem at hand. And I am impressed at the number of times you leave the room with the outline of an answer, with the framework with which you can proceed. Because each person has contributed his or her particular insight.

And so I find the meeting -- I know people laugh a bit about meetings as being the bane of their existence. Actually, I find the meeting extremely productive. And with the tasks I have to be responsible for, a terrific way to get them to explain what we have to do, and to get them help tell us what a solution might look like.

Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our conversation with David Chu of the Department of Defense.

Human capital transformation is a key part of the President's management agenda. What's the Department's plan to address the human resource issues? We'll ask David when The Business of Government Hour returns.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu, Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

And joining us in our conversation is Bill Phillips.

Mr. Phillips: David, can you talk to us a little bit about the efforts at the Department's human capital transformation process? How do the different pieces fit together, and how is that going to impact the overall mission of the Department?

Mr. Chu: I'm delighted to do so. Let me start with why we are trying to change things. We recognize this is a different world than the one that characterized the Cold War. The Cold War is over. The United States, as we all know, faces different military problems. We have to have the right kind of people, the right set of skills that are appropriate to that new set of problems.

The other thing of course that has changed is American society. It's a society a lot more educated than it was true before. It's a society where families have different aspirations than might have been true in earlier years. One of the most important changes is that most young Americans now want to go on to college reasonably soon after they finish high school.

In the old days, so to speak -- I'm almost old enough to be able to say that -- most high school graduates went out and got a job. And so the competition, so to speak, was not college. It was the job market.

Given all these changes, we have to change both what we're aiming at, and how we're going to get there. And that's what the human capital transformation is all about. To do that, what we've tried to do is to borrow from the business playbook, develop a set of strategic plans that look forward. In other words, instead of back to what our past practices were, let's look forward to what our future practices ought to be.

And separately for the military and civil forces of the Department, we have a set of efforts that are intended to give us those strategic guidelines. And I can say more about that in just a few minutes.

At the same time, for both the civilians and military, we recognize that a key part of why someone would want to join and stay with our organization, and really work hard and contribute with our organization, is the set of understandings between us and them of what this position, what this commitment is going to be like, what the social compact is, so to speak, emphasizing that we're all in this together. This is not us versus them, not employees versus management. We have a combined interest here.

And so, yes, we're going to ask you to do some difficult things, and to take on some fairly significant burdens, in particular in the military case, to risk your life or your health in the process. But at the same time, we're prepared to do various things to make sure that you're well taken care of. And part of what we want to do for both the civilian and military forces in the Department, is to make sure that that social compact is in good shape, that we are appropriately taking care of you.

That doesn't mean coddling people. It means being sure that their circumstances are what they find attractive that makes them want to come to work in the morning, want to contribute.

The terrific spirit we saw on September 12th, when the Secretary of Defense made a decision that if at all possible, the Pentagon would reopen after that attack. And I was really struck at the awe in the tone of media reporting, that my God, all of these thousands of civilian and military personnel are trooping back into the building while the building was literally still burning. And no one had any hesitation about coming back to work.

That kind of dedication is why you want to be sure that people are well taken care of.

Mr. Phillips: You mentioned the strategic plan and linking the human capital. Could you tell us a little bit about that strategic plan?

Mr. Chu: Yes. We start by asking ourselves, both military and civilians, what kind of skills are we going to need in this future world that we face? And then of course -- and that's a large debate. Obviously, there are going to be different opinions about that debate. I think the common element for both military and civil personnel is this is going to be a more educated force in the future. And so the old view that a high school diploma was enough, and that on the military side, let's say, and that we didn't really care very much if you got any further formal education or not, that's out.

We recognize that both for our good and for your -- to meet your desires, most young people enlisting in the military want to continue their education, since we have a whole set of programs designed to respond to that. And part of the strategic plan issue is how do we position these programs correctly. So, how much do we do on tuition assistance, for example.

The Army has a wonderful program called Army College Online, in which, if you meet various criteria, they will give you a "free computer" that allows you to do courses from various universities on an online basis.

Impressive results. I happened to be at Fort Lewis the day they were giving out the computers. Even though they had emphasized there were plenty of computers for everybody, that you didn't have to wait, people were there in line at 4:00 a.m. in the morning to make sure that they were going to get their computers. And these were not just privates. There were people wearing quite a lot of stripes on their arms who were there, making sure that they got the computer, and saw them signing up for their courses, and so on and so forth.

So there's a terrific thirst for continuing education on the part of our people. We want to slake that thirst, because we recognize it's also in our own interest. So defining what we need, thinking through what we're going to have to do to attract, retain, and motivate those people is the essence of what these plans are all about.

And so what they consist of is a series of, as we were phrasing it, lines of operation. In other words, areas we have to pay attention to. And then within each, the specific steps we'll need to take in order to achieve the results that we want.

Mr. Phillips: Let me just extend that thought a little bit. You've talked about some of the challenges you face with respect to college as an alternative to the military. You've talked about some of the programs that the Army has in place. What are the key things that the Department needs to do to continue to attract young people to the military?

Mr. Chu: Well, one of the first things that you have to do always, is to make sure that your compensation package is fair, competitive. No one's going to get rich serving in the military. But they shouldn't have to absorb undue financial burden either. And so you have to constantly pay attention to what are we competing against? And that's one of the big changes taking place that we have to react to.

Twenty years ago, the standard for thinking about enlisted compensation in the military was what could a high school diploma make in the American economy? That's no longer relevant. If most young Americans, particularly the ones that we want, seek to go on to college, the standard is what could someone with some college education, let's say a year or two, make in the American economy. That's a very different set of numbers. It's a higher set of numbers.

The President has responded to that by saying that a part of our pay raise in the last 2 years should be targeted to the mid-range in terms of experience of our both enlisted and officer communities, because in both those areas, we're kind of weak, when you, on the enlisted side, vet it against some college earnings line. We were not competitive, and we still aren't as competitive in that regard as we wanted to be. So we're slowly trying to bring our compensation level up.

But it also means, back to what you mentioned earlier, that we have to convince young people regarding college, it's not either/or. The military is not an alternative to college. We have to give you the chance to continue your education while you're in the military. Or the military could be the vehicle by which you accumulate the savings -- the Montgomery G.I. bill being the example -- so that you can, post-military service, resume a college education.

So we're trying to position ourselves so that it's not either/or, that you can do both, you can have your cake and eat it, too, and that's what we're trying to tell young people.

Mr. Phillips: You mentioned earlier the strategy for civilian members of the Department of Defense. Could you contrast that with the military strategy for H.R.?

Mr. Chu: We are starting from a much lower base with civilians. I think it's true of the federal government at large, and certainly the Department of Defense that we have not thought about our civilians as the kind of strategic resource they truly are. And one of the things I think that's giving everybody a wake-up call on this front is the coming wave of federal retirements. Everyone understands that because the civil workforce has been on a decentralized basis, what we have is a workforce with a lot of people nearing retirement age. Standard numbers are in 5 years, half the federal workforce could retire. That number applies to DoD as well.

Now, not all the people are going to retire when they become eligible. So it's not upon us quite as rapidly as some of the doomsayers may assert. But certainly in the next 10 to 15 years, the way we see it strategically as a problem within Defense, we have to recruit a number of people equal to approximately half our current workforce. That's a huge challenge.

It's also a different mindset. The last 10 to 15 years of DoD workforce management, true I think in most federal agencies as well, has been how to move off the payroll. How to downsize. How to shrink. We are not in the recruiting business. I'll take a very simple kind of issue. Do we have a booth ready to go to job fairs? Well, a few weeks ago, we didn't have a booth ready to go to job fairs. So, if I would call up and say "You know, XYZ is having a job fair. Where is our booth?" I would sort of get blank looks, because until recently, that hasn't been our problem.

Now, it is our problem. And we want to approach it strategically. We don't just want to wait for the retirements to swamp us and to drain all the talent at once. What happened, in fact -- you may recall this episode in New York City, when Mayor Lindsay let the senior workforce of New York City subway system maintenance unit all retire at once.

Well, a funny thing happened. For the next several years, the trains didn't work. Because not everything was written down in the manual. And it was those senior guys, mostly guys -- some gals, I suspect, though not many in that era -- who knew how to -- who knew those tricks, who knew how to make the trains actually run. And we don't want to let that problem happen to us. So we're trying to get ahead of that problem.

On the civil side, we're just beginning this journey. We're just starting to put the tools in place necessary to achieve these objectives. And one of them, a very simple one, is simply being candid with ourselves. How many people do we need to hire each year? Up to now, we'd never set a goal. We decentralized it, told, you know, component managers well, it's your problem Bill or Paul. You know, here are the civil service rules, here are the lists. You go hire someone.

We think we have to take a more strategic approach than that, in order to be successful.

Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our conversation about management with David Chu of the Department of Defense.

This is The Business of Government Hour.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu. David is the Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

And joining us in our conversation is Bill Phillips.

Mr. Phillips: David, in our last segment, you were talking about strategic planning with regard to human capital transformation and a number of those things. Your current planning talks about a capabilities-based workforce, and that model. Talk to us about that, and how is it changing the way the Department does its business?

Mr. Chu: Of course, in the Cold War, we faced a single -- or often thought we faced a single major opponent. And we had a well-defined idea about how that opponent might act and threaten our interests. And so, if I may use sort of an economist's jargon, we had a point solution to every problem. We could optimize. We could pick what we thought was the best answer, because we thought we knew what the problem was we had to solve.

Now we face different problems, where the threats are not as clearly defined, where we may face over time a very different kind of problem, and one that we can't fully now foresee as I think the events of September 11th illustrated. So we're much more into a portfolio management problem, if I may continue the analogy, where we have to hedge against a variety of possible outcomes.

I'll give you an example, a practical example that I'm struggling with right now. Language training. What kind of language capacity do we want our military and civil workforce to have? Indeed, what kind of language resources will the Department of Defense need over time?

Now, 15-18 months ago, no one would have forecast that finding the Pashtun speakers in the military ranks would be a high priority task for the personnel system. Now of course we'll take every Pashtun speaker we can discover. And yet, you can't keep every possible language on hand. So, how do you get the capability here to interact with a variety of societies, some of them very different from the United States, certainly very different from Western European notions of what's the state, what's the role of government, so on and so forth. How would you function in this society?

And we need to be able to solve that problem to have the capability to operate wherever on the globe the President might send the military forces of the United States. So, it is a matter of being able to act effectively in a wide range of circumstances, whose specific parameters we cannot foresee that now constitutes the problem that we've got to solve. And what we're really coming to is I think a conclusion that to do so, you've got to have a range of capacities within your institution, not just something optimized for one particular problem.

If you're optimizing one problem, you know, it's like the watch that is stopped. It will be accurate twice a day, but it will be useless the rest of the time. Much better to have a timepiece that's perhaps not quite so precise, but that's more or less on the mark across the entire 24 hours. And that's where we want to try to take the Department.

Mr. Phillips: You have a number of initiatives in place to improve quality of life. Could you talk to us about those, and describe how they're impacting readiness and recruiting and those elements?

Mr. Chu: That's a critical issue for both the military and civil personnel in the Department. On the military side, I think it's something that's long been recognized. The military has a saying that goes something like retention decisions are made at the kitchen table, that it really isn't the retention officer that's doing the job. It's what the family decides is right for them. And that means it's not simply a matter of what is the work responsibility of the military member. It's also what happens to the family.

And that affects all aspects of their lives. Several are of course more salient than others. One is housing. The state of military housing is not good. The President spoke to that during his campaign and has emphasized it since. It's one of his personal interests. Our problem is that we have an old housing stock for those who use military houses. It was built, much of it, to the standards of the 1950s.

And to think back on what those standards were, I think we usefully recall what was a Levittown house. Levittown, as you know, was the late-'40s, Long Island, first suburbia kind of development. And it had just under 1,000 square feet. And it had one bathroom. There was no such thing as a family room, breakfast nook, or any of that sort of thing. There was only a one-car garage. That's not the standard that American families aspire to today.

What have we done? Starting in the last administration -- and I have to give a lot of credit both to Congress and our predecessors in this -- they realized that we couldn't do that all ourselves. And it was time to turn to the resources of the private sector, and to offer them essentially a long-term lease kind of proposition on government land, in which they would build the houses, and we would give them a preferential opportunity to rent those houses to our people. So we have a vast set of housing privatization efforts out there right now.

What does that do for us? First of all, it brings the capital of the private sector to bear so the government doesn't have to raise the capital outright. Second, it brings the skill of the private sector in figuring out what the housing -- what do people really want in a house? We're not necessarily all that good at it, and we shouldn't probably be writing those specifications. We want a result, which is we want a happy set of families. You tell me what they're going to like. Here's how much money they can spend, because everyone knows what the housing allowance is going to look like.

What's in it for the developer? Well, we have a good set of customers. Our people pay on time. Because in fact what we'll do is just send the housing allowance directly from the Treasury to developer if you want to buy the house. The developer still has to compete, typically, in these arrangements. He has to build a house, or a condo type unit that's attractive enough that the military members want to say, yes, I'd like to live in this. And so he's got a strong incentive to build a good community. And typically in these arrangements, he has a 25-year lease maybe with an option to roll over for another 25 years and certain refreshment stands. They're fairly complex vehicles.

But they're very imaginative. And the results, at least so far, are extremely promising. You can go to these various bases. An excellent set at Fort Carson, as one example. They're great houses. Military families are delighted to live in them. They're nice communities. The developer has a strong interest in making a successful community, because he wants to fill it with these high-end families that come on with their housing allowances, which means there's no vacancy rate, there's no cash flow problem, there's no delinquent payment issue for him. It's a win-win situation for everyone.

So that's just one example of how we have to respond to what our people aspire to. We can't just stick them in a 1950s Levittown, even if it's "free," and assume they're going to be happy.

Mr. Lawrence: Health care costs are rising throughout the country, and I'm assuming the Department of Defense is no exception. What are the major concerns about health care in the Department?

Mr. Chu: Well, the big transition in health care in defense was the move to a managed care like paradigm in the late '80s, early '90s, which we call Tricare. The early years, to be candid, were not a happy situation. We had a lot of performance issues. We're proud of how far we've come over these last 10 years. We treat this just as a private sector health care operation, where we do survey of our patients after their last visit. We send them a questionnaire and say what about this last visit? How did you feel about it?

We're very proud of our scores. We're right up there just about where the better private plans are in terms of patient satisfaction with the encounter that they've had. We do face the same challenge the civil sector faces, and that is the rapid rise of health care costs, although we're very proud of the fact that this past fiscal year, for the first time in 4 or 5 years, we finished the year within our budget.

And that relates to a major management effort we've made as the Congress likes for us to optimize the mix of resources we bring to delivery of health care, to improve how well we use both the contracts we have, as well as the set of military treatment facilities, hospitals and clinics that are government-owned and government-operated and staffed by government personnel.

Often we had a bad match in a particular local market. And increasingly, the way we're going to try to deal with the cost issues over time is to view the health care system as a set of important local markets. Each one has different conditions. For defense, there are 15 or 20 really big ones around the country. Washington, D.C., is an example; Norfolk, Virginia, is another example. San Diego is an example. Fort Hood is an example. San Antonio is an example.

In other words, a place where we've got a lot of people, and we have a significant number of assets, both government and purchase character. And the issue for us is how to put those together in the best possible fashion. We'll be appointing a set of market leaders, market managers, really, who will be the guru for that area, and with certain powers to reallocate resources, and reapply resources within that small region to get the best outcome for our people, and the best deal for the government.

Mr. Phillips: Does the changing nature of the population, its age and its size, pose different complexities for managing health care?

Mr. Chu: Absolutely. We have an older patient population now than was true 20 years ago because a lot higher fraction is composed of retirees and their families. And of course as you know, Congress made a decision 2 or 3 years ago to extend the Tricare benefit to those who are otherwise Medicare-eligible. Prior law had said once you became Medicare-eligible, you dropped out of our system, except insofar as we had space available in a military hospital.

That led to an outcry on the part of the retirees as they reached 65. Congress reacted by saying, okay, they're eligible, too. So, within the last 18 months, we've rolled out what's called Tricare for Life, starting October 1st a year ago. The pharmacy part actually started a little bit before that.

It is I think a great tribute to the people working with our health care system. They made this all work. This is a huge -- this is hundreds of thousands of additional households, for which we suddenly became responsible and the whole issue of paying their bills as second payer to Medicare. So it was a significant financial transaction operation to manage here. And then it's gone, I think, at least we believe, quite well. In terms of the transition, people are generally satisfied with the outcome.

But yes, it is a population that's much older on average than was true before. And we suddenly added all these much older families, so we've got a whole new set of issues to deal with in terms of how we manage the system, including -- you know, some of these things you don't think of in advance, in terms of what public administration requires -- including the whole question of eligibility.

And the way the military medical system works, to be eligible, you have to have a military ID card. Well, many older retiree families, especially surviving widows, haven't had an ID card in years. In fact, had no idea they were supposed to apply for an ID card, because there was no benefit to them doing so. So we had a big effort to get the word out, and to help people who haven't had an ID card to get one so they can be in the system. And it's not so much the card per se that's critical. They have to be in our automated register, so to speak, so that when you come to a treatment facility, they say oh yes, here's Bill. He's on my list. We'll pay his bills. We'll cover his care.

Mr. Lawrence: That's a good stopping point. It's time for a break. Rejoin us in a few minutes as we continue our conversation about management with David Chu of the Department of Defense.

This is The Business of Government Hour.


Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu. David is the Undersecretary of Defense for Personnel and Readiness for the Department of Defense.

And joining us in our conversation is Bill Phillips.

Mr. Phillips: David, in the last segment, you clearly demonstrated a passion for the quality of life and the social compact with the military. Talk to us about education of children of military dependents.

Mr. Chu: I think this is one of the sleeper issues out there. And it illustrates the fact that what people worry about in terms of our quality of life shifts over time as the aspirations of Americans change.

And one of the things people aspire for now, as we all appreciate, is good quality education for their kids. We've done a terrific job overseas with Department of Defense educational system. Our schools overseas, if we were a state, and you gave us a standardized test -- and we do actually do take these tests like everybody else we'd be between 1 and 5 in the nation, in terms of test score outcomes, which is I think a terrific record.

But as I go around the country and I ask people stationed at Base X or Camp Y, how is the school system, too frequently, I get poor answers. I get answers where you recognize from their behavior that they are not satisfied. We have, in many locations, people either living a fair way away from the base in order to find a school system that they find adequate for their kids, or actually sending their kids to private schools. And it's not just officers. We now have some senior enlisted personnel, who, while we pay them decently, I don't think we're really paying the level where they can typically afford a private school, who are saying I'm going to somehow find this money, because the situation is unacceptable.

This is a big issue for the Department. The Department, of course, should not be running the schools in the United States. We do, for historical reasons, run a small set on the few bases around the country. But we shouldn't be in the school business because that's a local responsibility. And one of our big challenges in the Department of Defense is to find a way to work with local communities so they can improve the school system for everyone, but importantly including the children of our military personnel.

Now, one of the improvements which we seek all around the country, both from strong school systems as well as others, is being sure that they're sensitive to the needs of kids of families who move around a lot. One of the difficulties that occurs is, you know, tryouts for the sports are let's say the last week in August. Well, if you don't show up till September, you may not be considered by the school system.

Likewise, each school system has its prerequisites in order to take the calculus course, let's say. Well, if you didn't quite meet those, you know, you might not get that chance. And so we've got an organized program, importantly advanced by Mrs. Reimer (?), the wife of a former Underchief of staff, to try to sensitize school systems and school system leaders to the need to think about how your rules will affect an important part of your student body in those communities where you've got a lot of military children.

And I'm delighted many school systems are responsive to that overture when we make it, and start to think about how they could do things a little bit differently so that our kids have an equal chance as someone who has lived for 20 years in the same place.

Some of it's hilarious, and the local school superintendent can't do anything about it. One of the problems, as you know, in many school systems, is you have to take a course on the history of the state in which you live. And some of our children have taken the history course for several states, which is more I think than anyone really anticipated.

Mr. Lawrence: Many have wondered I think about the relationship between the Department of Defense and the Department of Veterans Affairs. Now, as I understand it, you're part of an Executive Council that's looking into the coordination between the two. I wonder if you could tell us about the goals of that Council?

Mr. Chu: This is something that Leo Mackay, the Veterans Affairs Department Undersecretary and I put into place within the last year to respond to the President's interest in seeing better coordination between the two departments. But obviously share, in some sense, the same population. The veterans are all graduates, alumni, so to speak of the Department of Defense.

VA runs a big medical system, as we all know, of course, to deal with veterans' problems, which are somewhat different from the active force. In some locations, we have facilities in the same place. And so one obvious issue is shouldn't we collaborate more? Shouldn't we find a way to work together? We also have issues of how we organize the benefit program so it's easier for them to deal with those programs. For example, could we not make the exit physical from the military the same physical that VA uses for assessment of disabilities?

Well, in the past, the physical didn't do all the tests the VA needs to have. So it's a matter of making sure that we have the same form, that the record can be read by both institutions since all records are now increasingly electronic, and that we make sure we cover all the testing VA has.

Some of it is quite straightforward. Some of it is quite complex, in terms of how we do things. And I'll give you an example. We already do a fair amount of business where they take care of our patient, we take care of their patient. An example in Honolulu is Tripler (?) Army Hospital has a VA outpatient clinic on its grounds. And if you need inpatient care, you go to the Tripler Hospital.

But each of these has to be crafted one by one as a separate agreement between the two institutions. A lot of argument of what the costs are, who's supposed to pay for each element of cost. And what Dr. McKay and I agreed was let's find a way to cut through these arguments so that the two institutions can work together more easily. And so what we did was simply say if you take care of my patient, there is an externally established schedule of prices. Essentially it's an extension of the Medicare schedule.

And we'll both agree to accept that, because we want to be able to meet -- actually, accept it minus 10 percent because there ought to be some savings here for the government and the taxpayer -- and let's not argue over exactly whether I used one more bandage on your patient than would be normal, and therefore I've got to charge you a little extra. It will all come out in the wash in the end.

And the idea behind this is to release the energies of the local leaders so they can come to the agreements, which they typically seek and want, because they want to do the best thing for their patient population.

Mr. Lawrence: David, let's shift and talk about the future. You talked earlier about the challenge of the pending retirement over the next number of years, significant people leaving. As you look out, what are the most significant personnel and readiness issues and challenges that you face and the Department faces?

Mr. Chu: It's how you sustain the contemporary success of the volunteer force. As American society changes, and the aspirations of young people change, and as we're conducting a probably long-term global war on terrorism -- this is not a short conflict, this is a long haul event, much like the Cold War in some respects, I think is the way we ought to think about it. That ought to be our mindset.

And how do you keep this force as it is today the best military in the world? Important because it's got the best people in it, and they are motivated and properly trained to do their job. And that's the other big challenge. How units will operate in the future, as I think operations in Afghanistan demonstrated, is going to be very different from the past. It's a much more, as the military like to say, joint operation.

So you had Army Special Forces operatives on the ground calling in air strikes from Air Force and Navy aircraft. And we don't practice enough for real, so to speak, in peacetime, in the peacetime settings with those kinds of joint operations. Not that services don't work together well, not that they can't work together - not that they can't improvise well. But our standard is and should be not to improvise.

In other words, this should be second nature. It shouldn't be okay, I've got to solve this problem on the aircraft on the way to the theater because I'm now facing the enemy. I should have done this over and over, so it's automatic, so I know what I'm doing, and I know how to work with someone from a different service, a different kind of weapons system than my own service provides.

And providing that joint national training capability is one of the Secretary's premier objectives. My orders are, stand this up by 1 October 2004.

Mr. Lawrence: Given all the conflicts you alluded to, what's going to happen to the size of the Department if that's --

Mr. Chu: Our expectation is the number of people in active service will probably be relatively constant over the foreseeable future. We need to realize the challenge the secretary has issued to the Department. Don't just solve the problems, react to the pressures of the present day by adding without thinking about what you're going to subtract. In other words, if I have a new, high priority mission, what older mission that maybe isn't quite so important, can I take off the table? What can I stop doing?

And why does the secretary want to do that? The obvious reason is we do not have an unlimited budget. Although we have a big budget, there is a constraint out there. And the secretary has to do two things with the budget. He has to win the current conflict, and he has to invest in those transformational articles that will change the face of the Department for the future.

If he allows new missions simply to be added on top of everything else we're doing, he'll never have any money with which to transform. And so my clear instructions are figure out what we can drop off, what's low priority, what doesn't have a real payoff in this environment, which might include civilianizing the function, which might include going to a contract to provide that function.

The constant question that I'm charged with examining is does this need to be uniformed personnel, which is our most expensive resource in the Department.

Mr. Lawrence: What advice would you give to a young person who is now considering an opportunity for career service?

Mr. Chu: Well, first of all, I'd congratulate him or her, because I think it's a terrific choice. Second, I'd emphasize pick something that interests you. Because if you don't have a passion for it, if you don't enjoy it, if you don't like it - there are a lot of vicissitudes that come with public service. There are a certain number of burdens. I don't want to be unclear about this.

And so you've got to love what you're doing. I think it's less important to chart a career in some kind of managed sense. If you do well, my take on the federal government is if you do well, you'll get a great chance, a great set of chances. So start with something interesting. Start with a set of issues that turns you on. Start with a set of people that you like to work with, especially pick a boss that you respect and that you think you can learn from, and it will take care of itself from there.

Mr. Lawrence: David, we're out of time. Bill and I want to thank you for being with us this morning.

Mr. Chu: It's my pleasure. Thank you.

Mr. Phillips: Thank you very much.

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Dr. David Chu of the Department of Defense.

Be sure and visit us on the web at There, you can learn more about our programs, and get a transcript of today's very interesting conversation. Again, that's

This is Paul Lawrence. See you next week.

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