Originally Broadcast February 9, 2008

Washington, D.C.

Voice-Over: 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 businessofgovernment.org.

And now, The Business of Government Hour.

Mr. Morales: Good morning. This is Albert Morales, your host, and managing partner of the IBM Center for The Business of Government.

Today, U.S. Department of Energy stands at the forefront of advancing the national, economic, and energy security of the United States, while promoting scientific and technological innovation. In doing so, it relies heavily on the use of advanced information technologies.

With us this morning to discuss the Department of Energy's IT strategy is our special guest, Tom Pyke, chief information officer at the U.S. Department of Energy.

Good morning, Tom.

Mr. Pyke: Good morning, Albert.

Mr. Morales: Also joining us in our conversation is Pete Boyer, director in IBM's federal civilian industry practice.

Good morning, Pete.

Mr. Boyer: Good morning, Al.

Mr. Morales: Tom, I always like to start by providing our listeners some context about the organization, in this case, the Department of Energy. Can you take a few minutes to give us an overview of Energy's history and its mission?

Mr. Pyke: The Department of Energy's mission is to advance the nation's energy and nuclear security. We also work to strengthen the nation's capability to make scientific discoveries. And as a result, we strengthen economic competitiveness through scientific and technological innovation.

As a part of this mission, we ensure that our nation has reliable nuclear weapons as a deterrent if we ever need them, and we lead international nuclear non-proliferation efforts. We also protect the environment by providing a responsible solution to the environmental legacy of nuclear weapons production.

The Department recognizes that energy helps drive the U.S. economy, as well as the global economy. Energy has a significant impact on our quality of life and the health of our people. So the Department is focused on diversifying America's energy supply, improving our energy efficiency, modernizing our country's energy infrastructure and addressing environmental and climate change.

Our programs support the diversification of energy supply, moving toward alternate sources such as nuclear and hydrogen, as well as renewable resources such as biomass, wind, and solar energy. We do this by supporting the development of economically competitive fuels and technologies.

Much of the Department's mission requires cutting-edge technologies and world-class science, both of which are important to U.S. global economic competitiveness. DOE makes major strategic investments in the nature of future competitiveness by providing over half of the federal funding of physical sciences research. This includes support of basic energy sciences, biological and environmental sciences, and advanced computational sciences through its leadership-class high performance computing.

A key part of DOE's nuclear security mission is our nuclear stockpile stewardship program, which evolves from the Manhattan Project and that race to develop an atomic bomb during World War II. I think the Department of Energy is very exciting, and I'm very pleased to be a part of the DOE team.

Mr. Morales: Great. Now Tom, this is a very critical and a broad subject area, energy. So can you provide us a sense of the scale over at the Department? Could you tell us how it's organized, the size of the budget, as well as number of full-time federal employees as well as contractors?

Mr. Pyke: The Department has a budget of about $24 billion, and we have about 14,000 federal employees and over 100,000 scientists, engineers and other staff at the DOE national laboratories. And all of these contractual employees are supporting our DOE mission.

DOE headquarters here in Washington provides the programmatic oversight for carrying out all parts of our mission. Secretary Sam Bodman and Deputy Secretary Clay Sell guide the entire Department, assisted by three Under Secretaries who manage DOE's nuclear security, energy security, and science programs.

The programs are carried out largely by contractors through our 27 national laboratories as well as at manufacturing and process plants and other facilities across the country. We have a number of headquarters staff offices, including the Office of the Chief Information Officer.

Mr. Boyer: Tom, now that you've provided us with a sense of the larger organization, perhaps you could tell us more about your area and role within the Department. Specifically, what are your responsibilities and duties as the chief information officer, and could you tell us about the areas under your purview, how you're organized, the size of your staff and budget?

Mr. Pyke: As the CIO, I'm responsible for ensuring that DOE has the best information technology in place to improve the way we carry out our mission, and to do so at the lowest cost. I oversee the IT capital investment control process, enterprise architecture, IT operations for the federal side of DOE, and especially important these days, cyber security. I serve as the IT or information technology advisor to the Secretary and the Deputy Secretary.

Mr. Boyer: Great. Now, regarding your responsibilities and duties, what are the top three challenges that you face in your position, and how do you address those challenges?

Mr. Pyke: Our top challenges are improving cyber security protection of our systems and data, improving the way we manage our IT capital investments, and improving the way we serve our IT customers.

We have in place a comprehensive cyber security program that provides a management and technical foundation for protecting the Department's IT systems, our networks, and our information against well over a million cyber attacks every day. We have strengthened the DOE cyber security program over the last two years, with new DOE-wide policies, stronger defense and depth and stronger DOE-wide cyber security instant handling capabilities.

We have also strengthened our IT capital investment control processes, with increased systematic use of Earned Value Management and quarterly internal reviews of all projects. For the last two years, I'm pleased to report that the Office of Management and Budget has determined that all our IT business cases are acceptable by their review standards, and none of our projects are on OMB's watch-list.

We consider this a major achievement. We employ our enterprise architecture process as we managed our IT investment portfolio, and OMB again has assigned DOE a high maturity score for our enterprise architecture, including the way we use it to manage IT in the Department. We have also improved our service to our DOE IT customers, those who receive desk-type support, and data center support for applications, e-mail, and internet access.

We have much stronger cyber security in place for our users, and we have benefited from an independent survey of customer satisfaction conducted last year that showed our customer service was well above average -- in some cases, almost world-class -- but it also provided us information on things that we could improve.

Mr. Morales: That's a great accomplishment. Tom, you spent over 30 years in federal service across a few departments. So I'm curious, could you tell us a little bit about how you got started and what brought you over to DOE?

Mr. Pyke: I began my career at the National Bureau of Standards, now known as the National Institute of Standards and Technology. I began my work there right out of high school before I even was an undergraduate at Carnegie Tech, now Carnegie Mellon University, and I worked summers as a student, while going to Carnegie Tech and while I was working on my bachelor's degree in electrical engineering, and also while I worked towards my master's degree at the University of Pennsylvania.

I led the development of operating system software; I designed computer hardware and performed research, including research on computer network performance measurement. I also led the development of federal information processing standards, and led consulting services on the effective application of IT for other federal agencies.

I'd like to note here that I was involved in the early days of the ARPANET, which evolved into the internet, as a member of the group that developed the network protocols that made that network work. You could say that the folks in that room had a little part in inventing the internet.

After several years leading research projects, developing standards and consulting, I became director of the then-Bureau of Standards Center for Computer Systems Engineering, and later, director of the Center for Programming Science and Technology.

I moved to the National Oceanic and Atmospheric Administration, or NOAA, as assistant administrator for satellite and information services. I led the nation's weather satellite program, the LANDSAT program and NOAA's environmental data centers. While at NOAA, I created and led NOAA's high performance computing and communications program, and I became NOAA's first chief information officer.

I also created and led an international science and education program for students called Global Learning and Observations to Benefit the Environment, or GLOBE. The GLOBE program is currently in place in over 20,000 schools in 109 countries, where students are learning about the environment through hands-on measurement, and using the internet to share their data with each other and with professional scientists.

Six years ago, I became CIO of the Department of Commerce. That Department includes both NISC and NOAA. A little over two years ago, I came to the Department of Energy as the CIO. I came to DOE because of the excitement of its world-class science and scientists, the importance of its mission, and because I was very impressed by its leadership, especially Secretary Bodman.

I've especially enjoyed meeting our scientists and science leaders at DOE's national laboratories and learning firsthand about their work. They're among the best and the brightest in the world, and they carry out very important scientific discovery efforts.

Mr. Morales: Tom, that's a very rich set of experiences. I'm curious, as you reflect back on those experiences, how have they prepared you for your current leadership role and shaped your current management style and way of thinking?

Mr. Pyke: Beginning my career at a research institution, the National Bureau of Standards, I've a basic tendency to trust folks and to take a collegial approach to getting work done. Over the years, I've modified my behavior so that I can provide strong direction as appropriate and take strong actions if that direction isn't followed.

But I'm still basically a trusting soul, and I think that works well at DOE. My style is to apply just enough organization, just enough discipline, to get the job done. My personal style is one of motivating and cheerleading, but in a firm way.

My broad technical background I believe is very important to me to function effectively as CIO. The field of information technology is so complex, and our organization, the Department of Energy, is so diverse, it's so large and it's so complex, it's important to have a firm understanding of what is being done with regard to the use of information technology and plans for its future use, and to be able to understand that, to be able to manage it well. That doesn't mean micromanaging, but it does mean being fully prepared to dig into the details, if necessary.

Mr. Morales: That's a great balance.

What about Energy's IT strategy? We will ask Tom Pyke, Chief Information Officer at the U.S. Department of Energy to share with us, when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Tom Pyke, Chief Information Officer at the U.S. Department of Energy.

Also joining us in our conversation from IBM is Pete Boyer.

Tom, I'd like to learn a little more about the IT strategy over at Energy, specifically how have you sought to modernize and standardize the use of technology so that it benefits both the Department and the constituents it serves as well as aligning resources across the Department's strategic goals?

Mr. Pyke: Al, let me begin by speaking for a bit about how I managed that at the Commerce Department before I came to DOE.

While leading IT at the Commerce Department, I developed approaches that worked in a federated environment, with the use of Department-wide standards and guidance, by giving each organization, each bureau or administration within the Department adequate flexibility to adapt common guidance to their missions. And that is a good starter when addressing IT management at the Department of Energy, I believe.

But after I arrived at DOE, I learned what a true federated organization is. Each major DOE program has its priorities and management style, and in some cases -- for example, for the National Nuclear Security Administration -- a special legislative mandate that gives it a high degree of independence.

I also learned firsthand about how world-class science is carried out on contract by DOE's 27 national laboratories, and how Nobel Prize winners or prospective Nobel Prize winners considered unnecessary discipline in the management of IT as an impediment for them to accomplish their programmatic goals. And I understand that and appreciate it. I should mention that indeed we're proud of the fact that over 82 individuals associated with the Department have Nobel prizes already.

I visited many of our laboratories and met with the leaders of the labs, and I've heard firsthand about the importance of research they're conducting, and I've been very impressed. I've also been impressed by the highly capable CIOs that each of the labs has, and how well each of them is doing and managing IT, both on their own and following policies and guidance from DOE.

The key to managing IT at DOE is to insist on just enough DOE-wide common direction or policy, and just enough discipline to ensure that IT capital investment is managed well on both the federal and contractor sides, and to ensure that sufficient attention is paid to cyber security management, technical and operational controls protecting all systems and data, and in other key areas.

One way to do this is by applying our DOE enterprise architecture, which is the blueprint for IT acquisition and management in the Department. The enterprise architecture is fully aligned to the DOE strategic plan, including our strategic goals.

Mr. Morales: Tom, I'd like to explore this area a bit more, because as you described in the last segment, Energy's mission - obviously, it's very complex, very diverse. So I'd like to learn a little bit more on how you foster this enterprise view of technology versus a stovepipe view of IT, which again, given the diversity, would seem like it would be very easy to fall into that mode.

Mr. Pyke: We're guided by our enterprise architecture, and we have identified what needs to be done in the same way across our large diverse Department and what can be managed on a -- let me call it one-size-doesn't-fit-all basis. We have standardized on our primary administrative functions to an implementation of a set of common administrative services in a package called I-MANAGE.

Our office has established nine enterprise-wide software license agreements that have resulted in lower costs Department-wide. We have an IT Council comprised of the IT leaders of every DOE program area. And we have empowered this Council to oversee certain DOE-wide management tasks, such as reviewing the results of applying earned value management to IT development projects, especially if the results are beginning to get out of line. We have established DOE-wide standards where appropriate, including DOE-wide cyber security requirements that represent the minimum of what needs to be done. Each program is free to add to those but not weaken them.

Mr. Morales: Just to take a balanced view for a moment, could you just quickly describe what might be some of the benefits and possible limitations inherent to this federated IT management approach?

Mr. Pyke: In my opinion, no other approach would work effectively for DOE. I've talked to previous DOE CIOs, including some who have tried to foster a centralized approach to managing IT in DOE, and they wound up being rebuffed by the fundamental nature of the agency, including the fact that by far the majority of the work at DOE as a whole is done by our laboratories, which are as I said before contractor operations.

I've listened to our program leaders at headquarters and in the field and consulted with our talented Office of the CIO staff, and have moved ahead employing a federated approach that I believe is being quite successful.

Based on my experience, I believe that a governance structure has to match the fundamental nature of an organization. There's always room for strong leadership to change the culture, and we're doing so in some ways. But that may not be desirable or effective if there are inherent limitations because of the structure or other fundamental factors associated with the organization itself.

I mentioned earlier the National Nuclear Security Administration, or NNSA, which is a large part of DOE. There's legislation that prohibits anyone other than the Secretary or Deputy Secretary from directing NNSA to do anything. And even they're limited to providing policy direction.

I'm pleased to say, however, that because of enlightened management within NNSA and a cordial productive working relationship between the NNSA management and DOE management, NNSA voluntarily adopts most of the directions and guidance that's mandatory for the rest of the Department, including directions relative to IT capital investment management and cyber security.

Mr. Boyer: Tom, continuing on this theme, your Department spends approximately $2.5 billion a year in information technology. Now, you've mentioned the IT capital investment process and the importance of that.

Would you elaborate on how you strengthened the Department's IT capital investment process to ensure that the investment decisions are mission-aligned and cost-justified, and to what extent have you mapped proposed investments to the agency-wide enterprise architecture strategy?

Mr. Pyke: Our enterprise architecture is the primary guidance that we use every day in the Department, and we continue to strengthen it, including strengthening how we use it.

The IT capital investment management process is guided by the architecture, and it uses the architecture as we review the individual project of plants and as we review the performance against each of the plants.

We carry out earned value management activities associated with the large development projects, and we use the architecture to guide that, and we use the architecture to help make sure we're pointed in the right direction and keep on-target against our high-level goals.

We have provided strong encouragement throughout the Department to use the capital investment business cases as management tools so that we're in fact managing our portfolio - investments as a portfolio, with good results.

Mr. Boyer: Now, the e-Government initiative is a critical component of the President's Management Agenda. Would you tell us about your Department's efforts in this area? What are some of the challenges you faced, and what remains to be done?

Mr. Pyke: Many of our IT modernization efforts leverage government-wide e-Government initiatives. We're participants in fact in 18 e-Gov initiatives, including e-Rulemaking, Business Gateway, grants.gov, e-Training, Recruitment One-Stop, e-Travel and e-Authentication. You could say our middle name is E-Gov.

And in fact, we take it very seriously, but we see real benefits to participating as a partner with other agencies in these e-Gov initiatives. We also participate in the financial management line of business, the grants management, human resources, geospatial and information system security lines of business. Through participating in these initiatives and these lines of business, we support both the President's Management Agenda and we improve DOE IT operations.

One of the initial challenges we faced was to identify those legacy investments within our IT portfolio that should be aligned for migration to an e-Government solution. Any migration or replacement initiative can indeed be challenging. But when you factor in IT solutions that are being developed and managed by other federal organizations, the migration process becomes critical.

I believe we have made good progress in this area for many of the e-Government initiatives, and that we're receiving the benefits of our participation in the e-Gov initiatives and in turn contributing to the overall government-wide benefit.

Mr. Boyer: Terrific. Tom, given the complexity and importance of DOE's numerous unique multimillion dollar projects, from an IT operations perspective, how has your Department's sought to improve its project management discipline for monitoring project performance?

Mr. Pyke: We have encouraged the culture of project management by professionals. Our project managers are required to be certified, to have substantial training to the extent that are certified as project managers, and to employ the expertise they have developed in that process to give a great deal of attention to both the big picture and the details in managing each project.

I've already referred to our quarterly reviews of all IT capital investment projects, and I referred to the use of the tool known as earned value management for projects of significant size or risk, and to the oversight by our DOE IT Council that helps when projects may at the very beginning stages be getting out of line.

My staff in the Office of the CIO pays a great deal of attention to each project during the quarterly reviews that we conduct, and in fact, we even have an internal score card that we provide to the various programs in the Department based on their progress and their performance in IT capital investment, management, as well as in other areas such as enterprise architecture and cyber security.

So it's a combination of all these tools applied on a continuing basis that have I believe led to having the investment management process on a project-by-project basis be accepted across the entire Department, and to have it internalized to the point at which the documentation associated with the projects, the processes that we have imposed and in some cases were imposed on us are really leading to better management of the project themselves.

Mr. Morales: Tom, I'd imagine that one of the keys to success of operating one of these federated models is helping the staff recognize that they're in fact part of a much broader enterprise. So I'm curious, to this end, what are some of the push-backs that you encounter as a CIO?

Mr. Pyke: I'm glad you asked that, Al.

In the very important area -- cyber security, for example, almost everything we do to protect our systems and data interferes in some way with the performance of our scientific programs. You may recall I mentioned earlier that we have these wonderful scientists in our laboratories who are intent on doing their job, and to them, imposing discipline to manage IT, which is only one component of the world they live in, has the potential to interfere with that next Nobel Prize that they're working on.

When I as CIO imposed longer passwords, or the use of something called two-factor authentication, where we take into account something you know and something you have before providing access to a system or network, it's an imposition on these folks.

When we demand that everyone have extensive awareness training in cyber security, to sensitize them to the importance of not clicking on e-mail attachments, or not clicking on internet addresses or URLs in an e-mail or any e-mail that might in any way be suspect, that's an imposition on folks. We're taking their time, we're taking their energy; we're slowing down their ability to get their job done. And to make things worse, it costs the programs and it costs the labs to implement a lot of the things that we say are essential from a cyber security standpoint.

So we have a lot of selling to do. It's not just telling, it's also selling to help people understand why it is that we need to take all of these protective measures, and why it's in everyone's own good and in the good of their programs and their projects to take these steps. So bringing leadership at all levels on board in cyber security and other areas is important, and helping them to understand the importance of cyber security and how it will help them get their job done better.

For example, I've been talking with scientists about how adequate cyber security helps protect the integrity of the science process; it helps them provide better results that they in turn share with other scientists, and as well as protecting extremely sensitive information that they may be working with as they perform their job. We have found that outreach and open communications can go a long way toward bringing people along to follow direction and guidance.

For example, the DOE Office of Science has conducted cyber security site assistance visits to the science laboratories, providing help in applying good cyber security management practices. This help was welcomed by the labs, and in fact in my visits there, they were enthusiastic about this help from Washington that was really helpful.

And they really appreciated it, and for those labs that I visited who hadn't had their visits yet, they were looking forward to those visits. In my opinion, those visits helped result in significant improvements in cyber security at those laboratories.

And on another front, we've had a great deal of success in our efforts to centralize IT support for the federal side of DOE. This began as an A-76 effort to consolidate deskside and other IT support on the federal side. The winner in the competition was an innovative team that combined federal and contractual resources.

As you might imagine, the field wasn't exactly excited about having Washington manage their IT operations for them, or at least that's how they perceived this centralized operation of IT services. But the team has rolled out its support for most of DOE headquarters, and it's now beginning rolling the support in the field. There are over 8,000 seats of IT support at headquarters and the filed supported in this way, and this has resulted in a documented cost-avoidance of $80 million over the last few years, and that number will increase over time.

The Under Secretary-level program managers have made business decisions to expand the application of this centralized IT support based on their evaluation of performance and cost, and outreach to the field is bringing many of these folks around to understand the benefits of this approach.

So it's not just about imposing the will of the CIO or other senior agency officials, it's about selling people on the benefits of following direction. It's motivating people -- as Secretary Bodman, Secretary Of Energy Bodman says -- motivating people to do the right thing.

Mr. Morales: What about Energy's cyber security efforts?

We will ask Tom Pyke, Chief Information Officer at the U.S. Department of Energy, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Tom Pyke, Chief Information Officer at the U.S. Department of Energy.

Also joining us on our conversation from IBM is Pete Boyer. Tom, the information-based technologies that support Energy's scientific, defense, energy, and environmental missions have made the Department and its labs an increasingly attractive target for those who seek its technologies and the national security information.

Could you elaborate on some of the critical security threats and challenges facing your Department and the IT infrastructure?

Mr. Pyke: As I mentioned earlier, Al, we're attacked in one place or the other across the country in the DOE complex by hackers millions of times every day. Some of these attacks are simply scans, the absolute minimum intrusiveness in terms of the nature of the scan or the nature of the attack. Others of the attacks are very sophisticated.

We have a defense-in-depth in place, including firewalls and intrusion detection systems, and even special sensors outside our firewalls that help us defend against these attackers. We also use commercial virus detection software and other commercial software that helps us identify and protect against a very large percentage of these attacks.

Fortunately, most of these attacks are not very sophisticated, and our defenses deal with them easily many times a day. But the most sophisticated attackers have the potential to get through and to compromise our systems and data.

So we have to be vigilant, working hard to keep ahead of attackers as they get even better at what they do day by day and week by week. We have teams of cyber security experts at our various sites across the country, and we have a Department-wide cyber forensics task force that works to analyze and deflect the most complex attacks that we receive.

Mr. Morales: Secretary Bodman has also gone on record as saying, "Revitalizing DOE's cyber security program is the best way to ensure that we continue to protect our Department's assets and the nation."

So with this, how has DOE, your cyber security revitalization plan, enabled your Department to strengthen its cyber security protocols and better secure the Department's infrastructure?

Mr. Pyke: When I arrived at DOE two years ago, I found that a lot of the basics of cyber security were in place, and that we had a lot of very bright people at headquarters, and especially in the field, helping us protect our systems and data. But we were not organized to marshal the forces to put all the pieces together into a comprehensive effective program. So we stepped back and we created a cyber security revitalization plan, as we called it, which enabled us to involve everyone in cyber security.

Everyone, including the Secretary, the Deputy Secretary, each Under Secretary, accepted a leadership goal to improve the way cyber security is managed across the Department. Each Under Secretary has a special role and accepts the responsibility for managing cyber security within that Under Secretary's organization based on risk, and subject to certain common ingredients that cut across cyber security across the Department, some of which cut across government-wide.

We developed a new cyber security policy in over 20 policy guidance documents covering every aspect of cyber security. We issued a new, very much updated national security systems manual, which substantially strengthened the protection required for our classified systems and information. We took steps to improve risk based Department-wide certification and accreditation processes for systems, using newly issued guidance and through the site assistance visits that I mentioned earlier.

I should mention that as of this last September, in the last cyber security report prepared by DOE's Inspector General, the quality of our certification and accreditation processes were determined to have reached a satisfactory level for the first time ever. We enhanced the defense-in-depth of our DOE systems and networks, including taking such steps as segmenting or separating parts of our networks, adding still more intrusion detection systems, and replacing older, more vulnerable system software.

We created the DOE-wide cyber forensics team that I mentioned earlier, a team that focuses on the most serious cyber threats and attacks that we face, analyzing them in great depth and improving our protection on the fly day by day. We created special guidance and reporting processes to give protection for sensitive and classified information, including personally identifiable information.

The Department's cyber security posture is much stronger than it was two years ago, but we still have a long way to go, in part, because as I like to say, the bad guys are continually getting badder, and our defenses have to be continually improved. It's kind of a cat-and-mouse game, and we can't afford to lose, because we have so much sensitive information that we must protect and protect well.

Mr. Boyer: Tom, that's very impressive. On a kind of a similar line, but a little bit of a change of subject, would you elaborate on your efforts to make DOE a model within federal government for energy efficiency, and to what extent does this involve movement toward green computing?

Mr. Pyke: We have for a long time at the Department of Energy acquired energy efficient IT equipment. And we operate it in an energy efficient way. For example, we turn off all our PCs at night, and if individuals don't turn them off, we turn them off for them. And we configure them while they're on to use as little energy as possible.

We received during the past year three awards for going green with DOE IT. The DOE Headquarters' Green Team received a White House Award for its acquisition of energy efficient equipment, for our energy efficient IT operations, and for disposing of IT equipment in an environmentally sound way.

We're now beginning a pilot at DOE Headquarters for the use of what is called Thin-Client Technology. This is technology in which the PC disappears and basically makes its way to the backroom. We believe that this technology has the potential to reduce significantly the amount of energy consumed, and at the same time to improve our cyber security protection. We're also looking at the future use of fuel cell technology for our data center, which we believe will make possible substantial reduction of energy use for powering data center equipment and the associated air conditioning systems.

Mr. Boyer: As a follow-up, could you tell us more about your efforts to move toward a Thin Client ,and maybe a little more of a description on the Thin-Client Technology, how it differs from your current operating environment, but also elaborate on the benefits of going in this direction and the status of this program at DOE?

Mr. Pyke: Thin-client computing takes the computing that now occurs in a user's office in his or her PC and moves it to the backroom, to the data center. The user still has a monitor and a keyboard and a mouse; we would be lost without them. But instead of having a PC, there is a little box that conducts through the network to a server computer in the data center. Each server computer can support many hundreds of users in this way, providing the same level or performance as each user currently experiences.

A 60-watt PC is replaced by a 6-watt thin-client box. The server in the data center and the equipment around it may use a few more watts than it otherwise would. So the net energy savings is substantial, and we will be substantial beneficiaries in terms of the overall energy consumption as a result of using this technology if it proves to work as advertised and as we believe it will work.

Most of the cyber attacks that we receive are at least partially successful or targeted toward individual PCs. If the PC isn't there, it can't be attacked. The server computer back in the data center can have stronger defenses, which minimizes the likelihood of a successful attack.

We're well-along planning a pilot of this technology, and we expect to have at least 50 Thin Clients in use as a part of a pilot within the next few months. If the pilot is successful, we will roll out this technology more broadly to our thousands of users in the Washington area and beyond.

Mr. Boyer: Excellent. Now, continuing on the technology theme, the Department is expanding the capability of world-class scientific research through advances in high-performance computing, and the application of computers capable of many trillions of operations per second.

Would you elaborate on DOE's efforts around high-performance computing, specifically, how's the Department making use of these advances, and what role does your office play in assisting the DOE's Office of Science?

Mr. Pyke: Well, Pete, I think this is one of the most exciting things about the Department of Energy, and of course, my middle name is high-performance computing, or supercomputers. I've spent some of my years working in this area.

Mr. Boyer: I didn't see that on your bio.

Mr. Pyke: In support of our mission, the Department of Energy operates 6 of the 11 most powerful supercomputers in the world, including the very highest-performing computer BlueGene/L, located at our Lawrence Livermore National Laboratory. Our scientists have been quite successful applying these machines to advanced scientific tasks, including modeling climate change and modeling the performance of nuclear weapons sufficiently well to eliminate the need to actually test the physical weapons themselves.

The scientific results have been so significant that our science leaders believe that major advances in science in many areas will now be achieved by a combination of theory, laboratory experimentation, and computer modeling. The high-performance computer is already playing a very significant role in scientific discovery.

Mr. Morales: Tom, under the National Nuclear Security Administration, you mentioned earlier that DOE is responsible for the maintenance, certification and reliability of our nuclear weapons stockpile.

Given the importance and complexity of your Department's role in ensuring the vitality of the nuclear stockpile, from an IT perspective, how does your office work with the NNSA, and to what extent does it assist the NNSA with this critical mission?

Mr. Pyke: NNSA is a very important part of the Department, and our office works very closely with NNSA, its senior management, including its CIO. NNSA participates with the rest of the Department in IT capital investment management, enterprise architecture, and cyber security management.

And I'd like to point out that with regard to high-performance computing, a number of these very high-performance computers are in NNSA and NNSA labs, and an increasing number of them are in this Office of Science labs. And our office plays a role in helping to coordinate overall high-performance computing activities across the Department, and looking for opportunities to improve the way we manage our computers and the way we share the computers themselves and the expertise associated with the computers.

Mr. Morales: Now, earlier, Tom, you had described to us when you were describing the overall organization at DOE, I believe you mentioned 14,000 federal employees and I think it was 100,000 contract employees.

Could you tell us how federal managers can effectively manage this ever-increasing blended workforce, composed of both contractors and federal workers?

Mr. Pyke: We need to have a clear understanding of the roles and responsibilities of each of the players: the government leaders and government organizations and the contractors and contractor employees. We obviously need good contractors, but that's not enough.

Consistent with ethical and contractual propriety, we have established and need to continue working on effective partnerships for the government leaders, the government employees, to work as partners with our contractors and contract employees, to be able to get our entire mission accomplished.

This is not easy to do, especially since 90 percent of DOE is in the field and 90 percent of our work is performed by contractors. It's further complicated by the fact that our wonderful laboratories are quite independent in their outlook. That's really a virtue in my opinion, but it also complicates the way in which we have to manage -- again with just enough discipline, just enough organization.

Much of the work is performed by brilliant, very dedicated scientists, who by the nature of their work need to function as independently as possible. So for us to be able to accomplish our work, including the proper care and feeding of all of these brilliant scientists, we need to find the right balance of government oversight, federal oversight, and contractor performance in a way that meets everyone's expectations.

Mr. Morales: It certainly is a delicate balance.

What does the future hold for the U.S. Department of Energy's IT function? We will ask Tom Pyke, Chief Information Officer of the U.S. Department of Energy, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Tom Pyke, Chief Information Officer at the U.S. Department of Energy.

Also joining us in our conversation from IBM is Pete Boyer.

Tom, given the critical role information technology plays in mission and program delivery, could you give us a view of how the role of the CIO has been evolving, and what are the key characteristics of a successful CIO in the future?

Mr. Pyke: Let me go back to the mid '90s, when there were no CIOs, certainly no federal CIOs. This was an idea that the federal government adopted from the private sector, and in my opinion has put to good use -- where agencies have taken maximum of advantage of having a CIO has been those cases where, as we do at DOE, where the CIO is a player, a member of the senior management team, and reports directly to the Secretary and the Deputy Secretary and has a seat at the table.

So CIOs, IT management has gone from the mid '90s when we had staff-level IT resource managers, to CIOs who are truly organizational managers -- partners with the program managers in each organization. I believe a CIO can function best if he or she functions as a leader, not just a manager.

I believe a CIO needs a strong technology base -- yes, I'm a little biased on that front -- but I really think it helps to be able to understand and appreciate what we're doing both in terms of the current technology that we're applying as well as evaluating new technology that we're considering the future use of.

It's very important to have well-developed communication skills, including interpersonal communication skills. I believe it's very important to be able to motivate people, and it's also important to be able to compromise, and to be willing to compromise when appropriate, yet be firm when necessary.

Mr. Boyer: Tom, continuing our focus on the future, can you give us a sense of some of the key issues that will affect CIOs government-wide over the next couple of years? Specifically, what emerging technologies hold the most promise for improving federal IT, and what advice would you've for the next administration in this area?

Mr. Pyke: Across the government, we will be facing changing program requirements, as we have in the past. Some of these will be as a result of new legislative mandates; some of them will result from priorities, new priorities of the new administration.

We will be attempting to improve the way IT is used to help agencies perform their mission, or their newly re-defined mission in some cases, and we will continue to be attempting to work together in a way that makes sense within agencies and across agencies to make sure that we don't reinvent the wheel unnecessarily or duplicate effort with individual agency applications.

This is where enterprise architecture fits in. This is where the current e-Gov efforts fit in, the government-wide e-Gov efforts. There, attempts to minimize duplication of effort for us each to be able to focus on what should be common, and to give special attention to the things that are unique in terms of each agency function.

I believe agencies will continue to struggle with major system development efforts, for many of the same reasons that they have struggled in the past. Requirements may not be adequately defined at the beginning. There may be requirements creep during the development process: over-ambitious efforts try to do too much at one time.

So it's imperative that CIOs and the folks supporting them be guided by an overarching enterprise architecture, and that for every IT project that be a strong configuration control process that guides changes in a way that minimize adverse impacts of those changes.

All federal CIOs have to be on the lookout for signs that requirements may be changing or may be creeping in, and that they need to take control or push back in order to assure that things stay on track.

I'd advise future government-wide IT leaders to look carefully at past federal government experience, as well as private sector experience, to look at the fundamental nature of managing IT in the federal environment and what's unique about it, so as to try to stimulate continuing improvements that work well for federal agencies.

I think the current processes in place to oversee IT project management in the federal government are good. And I think that the efforts to insist on solid enterprise architectures across the government are meeting with increasing success, and I believe they should continue to be accorded high priority.

Mr. Boyer: Great. Tom, more specifically, what are some of the major opportunities and challenges your organization at DOE will encounter in the future, and how do you envision your office will evolve over the next five years?

Mr. Pyke: I predict that we will continue to wrestle with cyber security, and that's an easy prediction. The bad guys will continue to get badder, or if you like smarter. New software that we're very dependent on to carry our mission will continue to come with built-in vulnerabilities that will only be found and corrected one at a time over the lifetime of the software no matter how much initial testing has been done. It's the nature of the beast, unfortunately.

Our defenses will be stronger yet, and they will have to be. We in the federal government will be working together within each Department, including across the entire DOE and across the government, so that we're able to better defend against increasingly more sophisticated threats. New technology will provide us new opportunities as well as new challenges to select and deploy it in a way that leads to improved service to customers at reduced cost.

We will be challenged by fast-moving technology, and even more -- let's call it ubiquitous computing. Computing already is everywhere, but you ain't seen nothing yet. Everything about what we do and how we do it at work and at home will have computing involved in some way or another, and we need to face that; and in the federal environment, we need to manage that.

Over the next five years, we'll be moving to still another level of maturity in our ability to manage new technology in an evolutionary way, I believe, without disrupting services and by introducing new capabilities in an evolutionary way, rather than all of a sudden switching to a new system in a way that causes everyone to have to get totally retrained or reoriented. We will continue to stay on top of IT capital investment management, and be even in a better position to exploit our enterprise architecture as the driving force for making key program and IT decisions.

Mr. Morales: Tom, we haven't touched upon this yet, but if we look into the near future, we typically ask our guests about the government employee pending retirement wave.

How are you handling the pending retirement wave, and what's your organization doing to ensure that you've the right mix to meet some of the challenges that you described?

Mr. Pyke: We have been giving a lot of attention to succession planning, in addition to recruiting new blood to be prepared to step in as some of us who have been around for a while decide to leave the workforce. We need to continue to give this a high priority. We need to use training and developmental assignments to make sure that we have good people who are well-prepared to meet our future needs.

Mr. Morales: Tom, given your extensive career in the public sector, I'm curious what advice might you give a person who is out there and may be considering a career in public service, perhaps in information technology.

Mr. Pyke: Well, the federal government is a challenging environment, and I personally have found that it's very exciting. I've been in multiple agencies. I've had a number of different jobs, perhaps one every four to five years or so as I've moved up and moved over, and I think that folks out there who are considering a career and career choices or a sub-career, because as I understand, in the coming ages, each of us will probably have many careers -- either serial or in parallel -- over a lifetime.

I believe that it's a great way to spend a lifetime devoted to things that really matter to this country by serving in the federal government, and to have a lot of fun. At the same time, a lot of self-fulfillment, and to be directly involved in leading a large number of tasks that involve the latest technology. It's an opportunity to be on the leading edge and to do something very worthwhile.

Based on my experience, I'd recommend a career or a sub-career to folks, a career in the federal service and the federal government as one that would have a great deal of personal satisfaction.

Mr. Morales: Tom, that's a wonderful perspective. Unfortunately, we have reached the end of our time. I want to thank you for fitting us into your busy schedule. But more importantly, Pete and I'd like to thank you for your dedicated service to our country over the 30-plus years you've had in federal service.

Mr. Pyke: Thank you very much, Al and Pete. And I appreciate the opportunity to speak with you here this morning. I'd like to invite your listeners to visit the Department of Energy at doe.gov, our very fine website, and I hope that as individuals read about us on the web and learn more about DOE in the future, that they will be just as excited about the importance of what we're doing at DOE and how well we're doing it, as I am.

Mr. Morales: That's great. Thank you.

This has been The Business of Government Hour, featuring a conversation with Tom Pyke, Chief Information Officer at the U.S. Department of Energy. My co-host has been Pete Boyer, director in IBM's federal civilian industry 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.

Voice-Over: 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 businessofgovernment.org. There, you can learn more about our program and get a transcript of today's conversation.

Until next week, it's businessofgovernment.org.

Wednesday, April 20, 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 this Center in 1998 to encourage discussion and research to new approaches to improving government effectiveness.

Mr. Lockhart: Good morning, Paul. How are you?

Mr. Lawrence: Great, thanks for joining us. And also on our conversation, also from IBM, is Tom Romeo. Good morning, Tom.

Mr. Lockhart: Social Security was founded 70 years ago, and it was a law signed by Franklin Delano Roosevelt to protect people in old age. Since then it has been expanded many times. It now protects survivors, and in the mid-'50s, we had a disability.

Today, about 70 percent of our beneficiaries are retirees and it is split between survivors and disabled.

Mr. Lawrence: How do you think about the size of the Social Security Administration? Describe the programs and the budget, and also in terms of like the number of employees?

Mr. Lockhart: Well, it's a very, very large program, and in fact, dollars spent, it's the largest program in the U.S. government. We represent about a third of the tax collections and about a quarter of the money spent. We pay benefits to 48 million people. We collect taxes from 157 million people. We have 65,000 employees in 1500 offices around the country, and on top of that, we pay for another 15,000 state employees in our disability determination services. So by almost any scale, it's very, very large.

Mr. Lawrence: And how about the skill set of the employees?

Mr. Lockhart: Well, our employees are really a very dedicated bunch and it's really great to go visit the offices, because they are so dedicated to the service of the American people. They're really dealing day in and day out with the American people.

Generally, our average employee has a college degree; we've hired over 2000 this year, partially because of the new Medicare program. And I've seen people with MBAs, other master's degrees, but generally, they are college graduates.

Mr. Lawrence: If we had to narrow it down, what are the programs most people would recognize when we talk about Social Security Administration?

Mr. Lockhart: Despite our size, we really only have two major programs, Social Security itself, which has within it the Disabled, and the Survivor's New Retirees, and as I said, we're paying about 48 million on that program.

We also have a second program called Supplemental Security Income, which is the largest cash means testing program in the U.S. government, and that program really pays disabled and elderly poor, people with very low means, monthly benefits.

Mr. Romeo: Jim, what is your role and responsibilities as deputy commissioner?

Mr. Lockhart: Well, the deputy commissioner is the number 2 position there, so I'm the chief operating officer. I spend a lot of the issue -- time on management issues, some special areas like SSI; it was on the high-risk list when we arrived, so I've been very active, and we did get it off the GAO's high-risk list.

Another thing, I have been spending an awful lot of my time on this reform of Social Security, to achieving solvency. And that's taking up more and more of my time as things -- time goes by.

Mr. Romeo: What were your roles prior to being appointed deputy commissioner in January of 2002?

Mr. Lockhart: Well, Tom, I have had a pretty varied career, you might say. I have an MBA, worked as an assistant treasurer for Major Royal Company, treasurer of an insurance broker, was in investment banking and CFO of a reinsurance company. And in the Bush-41, I ran another government agency, the Pension Benefit Guarantee Corporation, which is the government agency that insures corporate pension plans. And during that period, there was a need for reform, and we pushed it forward all the four years I was there, and we finally got it.

And most recently, before I joined the government, I actually was involved and started up a small business, Risk Management, a software and advisory firm that really advised financial institutions on how to handle investment credit and operational risk.

Mr. Romeo: It's a very impressive experience. How has that helped you to prepare for your current role?

Mr. Lockhart: Oh, it's been invaluable, certainly, the management experience I've gotten over the years. Social Security is a giant operation. The good news is we really have great people, but still there's a lot of management that needs to be done. But also the financial and pension and investment expertise is really helping as we look at fixing Social Security for future generations.

Mr. Lawrence: When they -- when you talk to your friends and they ask you what's it like being in government, running an organization, how do you compare the public and private sector approaches to management issues?

Mr. Lockhart: Well, my experience in government is maybe a little colored, but I have really seen two very dedicated high-quality workforces, and I really don't see a lot of difference. Certainly, the private sector, you know, has the profit motive, if you will, but I'll tell you in the government sector that the motive of serving the American people is so strong that it's really inspiring.

Mr. Lawrence: How about in terms of speed of decision-making?

Mr. Lockhart: Well, I would say the government is slower in decision-making. Many times there is a need to build more of a consensus, there is more of a spotlight on you when you're in the government, there is Congressional Oversight, there is the inspector generals, there's the GAO, there is the press, and so -- rightfully so, decisions take longer.

Mr. Lawrence: Now, you mentioned you were in Bush-41 and now in 43. How about some comparisons in terms of the difference in styles and approaches to management issues across the two?

Mr. Lockhart: Well, I think management has really been cranked up under this President-43. President Bush has an MBA and he really believes in management, and his deputy for management Clay Johnson is really pushing the management agenda very strong throughout government. And it's really bearing results.

Mr. Lawrence: And what drove you back, what drove you back to government service?

Mr. Lockhart: Well, I think probably more than anything, the opportunity to help fix Social Security for future generations. Really the whole need to reform Social Security was the thing that I worked -- an ultimate challenge if you will.

Mr. Lawrence: I'm kind of curious, let me follow that up, sir. I would have -- I mean, as we think about fixing Social Security, it seems like a long term problem. Most people come to government; don't stay all that long. How have you sort of worked that paradox out?

Mr. Lockhart: Well, I know it's a long-term problem, pension problems are long term, and PBDC had a long-term problem. They actually made Social Security independent of HHS in the mid '90s, and at that point they gave the commissioner and me six year terms. And two more years left on that term and I'm very hopeful over that period that we can really actually achieve the reforms the system needs.

Mr. Lawrence: How about in terms of attracting the rest of your team? The issues are very complicated, it requires, you know, deep financial knowledge and actuarial skills that are hard to get anywhere. How about in terms of attracting them to your team?

Mr. Lockhart: Well, the good news about Social Security again is it really does have a very great career staff and really the way it's organized. We have very few political people there. You know, it is difficult to get people with the special expertise in the policy and some of the financial areas, but I've been very impressed with the people there. We're always looking for good people and if you have any listeners that have expertise in that area, give us a call.

Mr. Lawrence: We'll be sure to advertise it at the end of the show unless you get your website in. Social Security solvency is a subject many like to talk about, but what are the facts? We will ask SSA Deputy Commissioner Jim Lockhart, to explain this to us, when The Business of Government Hour continues.

Mr. Lawrence: Welcome back to The Business of Government Hour, I'm Paul Lawrence, in this morning's conversation with Jim Lockhart, deputy commissioner of Social Security Administration.

Mr. Lockhart: Well, America is aging and that's really our greatest challenge. The baby boomers are only three years away from early retirement age and that's going to put a lot of pressure on us administratively but it's also putting a lot of pressure on us financially.

On top of that people who are living a lot longer. The normal woman that reaches 65 today lives another 20 years, and by the end of the 75 forecast period, she should be -- forecast to live to be a 90.

So we're going to have a lot of centenarians. And on top of that, the American people are not producing many babies, where birth rates are below replacement rates. So the combination of those demographic factors means that the system was built on having a lot of workers for every beneficiary is changing very dramatically.

Fifty years ago there was about 16 workers to every beneficiary, today it's about 3.3, and in 30 years it's going to be 2 to 1. And we really can't work the system with that set of economics with this tax rates and these benefit levels, so something has to give. And in 12 years in fact there won't be enough taxes to pay benefits, and at that point in 2017, we'll have to knock on Treasury's door and ask for money.

And we'll redeem those bonds in the trust fund, but that means, you know, Treasury is going to have to get that money by taxing the American people, borrowing it from somewhere else or cutting expenditures. So that's when the pressure really starts to build on the system.

Mr. Romeo: So Jim, there's certainly a lot of discussion in the public forum about reform for Social Security and you talked a little bit about the time frames. Is the urgency really now?

Mr. Lockhart: Well, I've been talking a lot on that topic, and in fact I've probably done 30 plus town halls with representatives and Senators over the last month and a half. The message I am giving out there and the message I'm really getting back at this point is, yes, we need to do something soon. That's what all the experts are saying and the reason really is if we don't, the changes will just get more and more drastic as we go forward. We'll just have to have even higher tax increases or greater benefit cuts. And that's what we're trying to avoid by moving more quickly.

Mr. Lawrence: It seems like an interesting problem. The gain is out into the future and the pain seems kind of present, as you sort of worked that through. How do you think about that management challenge?

Mr. Lockhart: It is a real challenge. You know, the way the government accounts doesn't help it with, you know, sort of our cash-flow accounting and without accrual accountings, so someone -- no one really looks at those long-term liabilities, or better put, unfunded obligations. And they are giant in this system.

If we want to continue to pay benefits the way they are scheduled today, over the 75-year period, we're looking at a $4 trillion number. That's hard to comprehend, but that's close to the public debt of the United States today. If you look at the, what we call the infinite rise in the very long-term, and if you want to fix the system permanently, that's the number you should be looking at, the number is $11 trillion. That's like a $100,000 per American family today. And every year we wait, it's going up by 6 percent.

So, again, we need to do something. It's hard to get people to pay attention. But with the President's leadership, you know, most of the polls are now saying that people look at that as the one or two biggest issue in the country today. And I think that is really helping, and certainly, when I've been out with Congressmen and Senators, they are very attuned to this. I mean, I used to do some events last year; it's hard to get a crowd. This year, it's hard to -- I mean, I get crowds and you have to turn them away, so --

Mr. Lawrence: Now, take us through the options again? We can, at some point raise taxes or cut expenditures, do I have that?

Mr. Lockhart: Well, there's really three options and President Clinton mentioned them when he was talking about saving Social Security first, probably six or seven years ago. The first is to increase revenues, increase taxes, increase the tax rate, increase the taxable maximum, which is 90,000 today.

Another way is to look at benefit reductions; they did that in '83, by increasing the retirement age from 65 to 67. People are now saying, well, maybe we should even go further, and other people are saying, you know, people wear out at some point. Other people say, the way the benefits are calculated, they're growing more rapidly than inflation. Maybe we should slow it down to just inflation.

And then the third one is really the -- increase the rate of return in one way or in another. Some people suggest that the -- I think, President Clinton, that we should invest some of the money, of the trust fund into equities. Other people are suggesting personal accounts either coming out of payroll taxes as President Bush is suggesting or -- as an additional contribution. And so, it's going to be a little bit of, you know, two or three or maybe four or five of those to really get to a solution.

Mr. Lawrence: And what's the time frame, at least in the short term to get to a solution?

Mr. Lockhart: Well, there is a lot of talk in Congress about trying to get bills this year. And certainly the President would like that, Senate finance is starting to work on a bill, and they're having hearings now and I assume the House Ways and Means will be working as well.

Mr. Lawrence: Now, I know this isn't the only thing you're worried about in Social Security Administration, let's take a step back. Could you describe the four strategic goals of the Social Security Administration?

Mr. Lockhart: Yes, we decided to make it easy to remember, so we have -- we're Social Security, so we have four Ss for our strategic goals. The first one is service and is really serving the American people and serving them in a timely and effective and efficient manner. That's a big challenge, there's millions of people wandering through our offices every year, tens of millions hitting our website and hitting our 800 number. So service is a big challenge.

The next one is stewardship, and really that's talking about making the payments in the right amounts. When we give a Social Security number, making sure the person deserves to have that number, that they're legally authorized to work in this country. Improper payments are a big issue there. We pay out over half a trillion dollars, so even one percent is a five billion dollar number. So we need to work on improper payments.

And the third S is the one we are just talking about, solvency. And the fourth one is really the sort of the base, the staffing in Social Security. Staff is not probably a -- the elegant term. Most people use human capital or something like that but we needed one with S. And that's extremely important as we go forward. We have a workforce that is -- has major hires in the early '70s as we put in the SSI program. So, we have a lot of people that are -- well over half that can retire within the next ten years. And so we're -- we have to do a lot of training, a lot of hiring and planning for the future.

Mr. Lawrence: What are the challenges related to that, not only the hiring, but I guess also the retaining as well?

Mr. Lockhart: It's a major challenge, although as I said, we've been able to hire 2,000 this year pretty easily. People like to come to work to Social Security. We have sort of a Social Security family, oftentimes it's relatives, you know, kids, our nieces and nephews come and it's really, really, really nice and we really are able to track the high-quality people. But it's a very -- the two programs are very complicated; the training program lasts one to two years.

So retention is important when you put in that kind of training into people and we've been pretty successful with that and we do a lot of job rotation, we do a lot of training, we -- you know, we award people. We have, you know, reward ceremonies, we use bonus systems and we really promote people that are doing well.

Mr. Lawrence: It was interesting when you mentioned the four S's and you talked about the example of stewardship in guarding who gets the Social Security number. Upon reflection, do you ever go back and think about, "Gee, what this number has become in our society, and all the care by which we give it" and the resulting implications of it?

Mr. Lockhart: I do and in fact sometimes there is a real debate in Social Security Administration themselves about, you know, this was only supposed to be your tax number, but obviously it's growing well, well beyond that and we have to respect it that way. And -- but it's a big issue, identity theft is a big issue. Certainly, making sure that only people authorized to have Social Security numbers get them is important.

We have really tightened up our procedures, we have a really good data interchange with the INS, well, the Homeland Security now, and we also have a whole series of databases for employers, driver's license, welfare agencies where they can verify Social Security numbers, names and birth dates. So that they can help verify whether that person is the person they're saying. And that's become a very important part of our business.

Actually, the Help America Vote Act, had Social Security build a database and now it's built on the last four digits of a Social Security number to verify voters. So, that -- it really has become the national identifier.

Mr. Lawrence: Well, it's interesting, especially the thing with the Help America Vote. On the President's management agenda scorecard, SSA rated green on four out of the five initiatives. How did they do this? We'll ask SSA Deputy Commissioner Jim Lockhart tell us how they got to green when The Business of Government Hour returns.

Mr. Lawrence: Welcome back to The Business of Government Hour, I'm Paul Lawrence, in this morning's conversation with Jim Lockhart, deputy commissioner of the Social Security Administration.

Mr. Lockhart: Well, Paul, Social Security takes the President's management agenda very personally and we work really hard on it. I'm actually a member of the President's Management Council and it's really integrated into all we do at Social Security. It's integrated into those four Ss, strategic planning we just talked about, and we talk about it almost every weekly staff meeting.

I go through with the key managers, quite often how they're going through in the President's management agenda. And we're really driving it throughout the organization. The good thing about Social Security is we just started out in really good shape. Our financial management is some of the best in government. We're putting in a new system that's been very well done. Our human resources have again been a leading group in the government, and so that's helped us a lot. And we've done things in the budget and performance integration and we really can tell now, OMB, how every dollar is being spent. And you know, when we go through our process with them every year on the budgeting, I think because we have that kind of system, they really respect us and really have treated us reasonably well.

You know, we can tell them where the dollars are going, how much that every dollar buys for them, how many disability applications, how many retirement applications, how many improper payment actions, how much we can collect from improper payments and that's really been very, very helpful. And certainly competitive sourcing is always a challenge but I think we're making good progress there.

Social Security -- really only about five or six percent of our work force is not inherently governmental. And then I guess the last one is e-government, and that's so important to Social Security, because as I mentioned, the baby boomers are about ready to retire. They're already in their disability-prone years and we're just going to see a very rapid growth and people enrolling in Social Security.

Mr. Romeo: What are some of the strategies for improving electronic service through technology?

Mr. Lockhart: We're in the process of building a nationwide, what we call electronic -- the e-dib, Electronic Disability System, and that's really critical. We have had historically large, large paper files, disability applications, you know, they can be five inches tall. I have seen some three feet long, with all the medical evidence and we have caves in Kansas City storing them, and we have two or three other storage places throughout the country.

Files get lost, take a time to mail, we -- the commissioner issued a challenge to our assistance group when she arrived, you know, can we get this done quickly. They had a seven-year plan, they cut it down to a 26-month plan and it's really being rolled out very, very effectively, or about two-thirds of the states now have a new disability termination services. All our offices have the electronic system and already paper files are disappearing and that's really great because it's going to help us serve the disabled more quickly.

Another electronic thing we do W-2s, your wage information. Actually the IRS doesn't process that, Social Security does. And we are -- five, six years ago, maybe 10 percent was coming in electronically, today it's 60 percent. We have a ways to go, but that's really good.

And another important thing is more and more, we are putting applications online. You can retire online, you can apply for disability online. We have applications for the disabled and we also have an application for people helping the disabled, because some of them can't actually fill out the forms themselves.

And we are seeing dramatic growth in that in orders of, you know, 100 percent a year. So we are making a really great start, but we have a long way to go.

Mr. Lawrence: You mentioned disabled as a key constituency that you serve and electronic government would seem to be a real good avenue to involve them. I am curious, you mentioned a couple of programs. Any particular management challenges or --

Mr. Lockhart: Well, there is a whole series of management challenges. We actually -- probably and between our two programs, SSA and Social Security, pay around 11 million disabled benefits every month.

Many of them are not able to use electronics but more and more -- you know, we are -- we are doing things, you know, we can get big print on the computers, sound and again, we are helping their advocates, the people that help them, to do things electronically.

The -- we also, not surprisingly, at Social Security, have a large bunch of employees that have disabilities, and we have set up computers -- I think we have 40-50 different set-ups for different kinds of disabilities in the administration. Everybody has their own computer, in fact we have a lot more computers than we do people in Social Security.

And -- and so, we have for blind, hearing impaired and I think we have being very, very effective and a leader in the government in hiring people with disabilities and also making them effective.

Mr. Romeo: Well, you talked some about the President's management agenda and the progress you have made and as of December, 2004, Social Security was rated green in four out of five of the PMA government-wide initiatives, so I congratulate you on that.

Mr. Lockhart: Well, thank you.

Mr. Romeo: How do you plan to stay green on the scorecard, on the initiatives?

Mr. Lockhart: Well, that's a good question, Tom. I think we -- we really take it as a real serious challenge every time we got in the green, we had Clay Johnson's team up to our Baltimore headquarters and done -- getting the green event. It may sound a little corny but just about everything in the room was green.

And -- and we really have a spirit around it and you know, now the theme is getting beyond green. And we really do continue to do planning, we do -- on each one of these five areas, we continue to develop plans, even if we are green and we -- you know, we want to go beyond green and we have those plans and we are making real progress.

The -- they have -- I added erroneous payments as another major one recently and we are only yellow on status there, but we are already green in progress. And that's because again, we have these plans and we are starting to follow them. We have a major challenge as many government agencies pay out money, but I think we are really on top of it.

Mr. Lawrence: Jim, can you tell us about the Medicare Prescription Drug Improvement and Modernization Act of 2003 and how SSA is implementing this act?

Mr. Lockhart: Well, Social Security is not a part of HHS and it's not part of the Medicare, but we are charged because of our field structure and our system expertise and our expertise from our supplemental security income program, to be the one -- agency that qualifies people for the subsidy in the -- in the medical -- for their drugs.

And people up to a 150 percent of poverty are eligible for a subsidy. We have built systems, we have an atypical character read form and that's being piloted now. We expect close to five million applications from people, that we are going to have -- well, more than five million, we expect five million to actually qualify and, so we are -- where you have -- yes I said, hire 2,000 people, we are going to try to do it as electronically as we can.

We are going to do something like 10,000 outreaches events this year, throughout the country to try to reach these people, because it is such a good event, a good benefit and unfortunately, people don't know enough about it. But it's -- it's really going to be an important service we can provide to the American people.

There is -- there is going to be a one-time outreach starting at June that's going to be very massive because we are going to have to reach all today's retirees. After that, we will -- it will just be the annual people coming into the system.

Mr. Romeo: As you thought about it -- actually going and implementing this, how did -- how did it sort of sit in through the core competencies of SSA, as you -- you prefaced your answer by saying, we are not part of HHS, I am sort of curious how people thought about it, was it just a logical task for you to perform or was it?

Mr. Lockhart: Well, it was somewhat logical because we -- we now take applications from retirees for their Medicare and -- and so that's part of what we do. We have field officers; Medicare really doesn't, so we are really the face to the -- to retirees in this country.

So, there was logical, also because we had great systems expertise, it was logical and we took it as a challenge. And when they were considering the legislation, they were talking about -- you know, maybe Medicare should do it, maybe it should be done in all 50 states.

But, Congress decided really Social Security had the expertise and -- and we do and we have really taken it up. We put together a team led by our regional commissioner from New York, and she is doing just a really great job, put together a team throughout the agency working on this and is working with Medicare and other groups to get the information that's needed.

Mr. Lawrence: That's interesting. How might technology shape SSA in the future? We will ask its deputy commissioner, Jim Lockhart for his perspective when The Business of Government Hour returns.

Mr. Lawrence: Welcome back to The Business of Government Hour. I am Paul Lawrence. This morning's conversation is with Jim Lockhart, deputy commissioner of the Social Security Administration and joining us on our conversation is Tom Romeo.

Mr. Lockhart: Well, Social Security, I think is well along getting ready for the next five to ten years and it's going to be a really major challenge because of all the baby boomers. It's not just the solvency challenge, but it's an administration problem. We are obviously going to have to do things a lot more electronically than even what we are doing today.

Disability is going to have to be fully electronic, and certainly solvency reform, if it does happen and if it does encompass some form of personal account, that will be a major system challenge for Social Security and whatever agency ends up administering them.

Mr. Lawrence: We have talked a lot this morning about retirement and how people are -- would be prepared to deal with it. What do you think Americans need to do today, to ensure they have planned effectively for retirement?

Mr. Lockhart: Well, I mean that's one of the major problems in the U.S. today, is people just are not saving enough for retirement. There is you know, a government-wide effort to promote financial literacy and savings. We need to do a lot more of -- of that. One of the things we'd like to promote to people is look when they get the annual Social Security statement.

Look at their benefits that are projected there and then look at the needs they might have and there is calculators on our website, socialsecurity.gov and that leads to other calculators, where people can actually think about how much they really need to save, and that is important.

There is really today, over-reliance on Social Security. About a third of the American people rely on Social Security for almost all their income -- 90 percent of their income and two-thirds for over 50 percent of their income, for retirees. And that's too much and we need to get inculcated, a savings culture in this country and I think that's one of the reasons some people talk about personal accounts as a way to get people more attuned to saving.

Mr. Lawrence: And then also in terms of retirement, should they be thinking differently about other things we have talked about, life expectancy being longer or health issues, how are all those factored in?

Mr. Lockhart: They -- they all have to factor in. The cost in medical healthcare is going up very dramatically in this country. The Medicare is there for them, but it's going to get more and more expensive. And I think it's very, very important to think about things like long -- long-term care and all of that really means planning more for the future than we do today.

It really means that we have to start thinking at a much earlier age about savings. I am trying to teach that to my 20-year-old children and I do have them in their 401Ks and they had IRS when they were young. But, you know, we really need to get that throughout the country.

Mr. Romeo: You have talked a lot about the important of electronics and the e-gov initiatives. What other IT goals would you like to see SSA accomplish in the next few years and, how do you think technology will further shape SSA in the future?

Mr. Lockhart: Well, certainly we have to continue to move to a paperless system. We can't keep filling those caves in Kansas City up, and we are going -- we are going to stop that and we -- we are really moving to all electronic systems.

We are there pretty much in retirement, but we need things like we need electronic birth records in this country. We have been working on that, we need electronic death record. That would help.

Electronic medical records, the President has a big push there for medical records becoming electronic. That would help us dramatically. Today, we have to scan them into our electronic system -- not very efficient. If we could get it electronically, that would help a lot.

We have a whole set of initiatives, instead of requiring wet signatures on applications, we are going to signature proxies. And we have move -- have to move that to -- throughout our applications and with the idea that we can move more and more people to the -- to the Internet, to make applications.

We have these 1,500 offices throughout the country and you know, if -- if we don't move to electronics, we are going to have to fill them up with more and more people, and we just can't afford that. So, we are going to have to increase our productivity. Social Security has a goal of increasing productivity two percent a year, which we have agreed to, with OMB.

We may have to crank that up as we go forward, just to service the American people. We have a tremendous challenge in the disability side. Our workload takes much too long. The appeals process can sometimes take three years to get through our process. We need to speed that up. The electronics will help a lot, but we need to think smarter about how to do it.

So we have very large challenges, which is only expected because you know, we are the largest and in many ways, the most successful government agency.

Mr. Lawrence: Jim, as I think about your answer to Tom's question on the first segment about your career, I am reflecting on the fact that while you have moved across public and private sector, government service has been an important part of your career, and so I am just curious from the perspective of having been in both sectors, what advice would you give to someone interested in public service?

Mr. Lockhart: Well, I would certainly encourage them. I think public service is -- is very useful, it's a high calling and also, I think it's really a good career move. Government is gotten much, much better as managers, there is a lot of experience you can get in -- in the government sector and the public sector, is really -- has some very good people to learn from and it also has -- agencies like Social Security are really serving the American people. So, I definitely encourage them to do that.

We, at Social Security are actively hiring people. Go to our website, socialsecurity.gov and I think it's -- again at SSA, I would encourage younger people to think about a career in government.

Mr. Lawrence: Thank you, Jim. I know you are in hot demand to be on shows like this, so Tom and I want to thank you for squeezing us into your very busy schedule and joining us this morning.

Mr. Lockhart: Well, thank you, Paul and thank you, Tom.

Mr. Lawrence: Thank you, Jim. This has been The Business of Government Hour featuring a conversation with Jim Lockhart, deputy commissioner of the Social Security Administration.

Arlington, Virginia

Monday, July 30, 2001

Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and 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 and our programs by visiting us on the Web at endowment.pwcglobal.com.

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation today is with John Dalrymple, commissioner, Wage and Investment Division of the Internal Revenue Service.

Welcome, John.

Mr. Dalrymple: Thank you, it's nice to be here.

Mr. Lawrence: And joining us in our conversation is another PWC partner, Jim Cook (phonetic). Welcome, Jim.

Mr. Cook: Thank you, Paul.

Mr. Lawrence: Well, John, let's begin by talking about the IRS. Most of our listeners know the IRS as a collector and administrator of taxes, but they don't have a true sense of the scope of the IRS. Could you describe some of the other activities of the IRS for our listeners?

Mr. Dalrymple: Well, the IRS actually is comprised of about 115,000 employees during our peak seasons. And, you know, we do everything from sending out the tax packages to people so that they can understand how to file their tax returns to actually processing taxes and then, ultimately, as you said earlier, collecting it and examining returns. We also have a lot of outreach activities that we do that allow us to help taxpayers understand what their obligations are.

So, you know, we really do have a pretty varied operation at the service, other than just collecting taxes.

Mr. Lawrence: What are the skills of the employees of the IRS? Again, I guess my perspective is accountants and examiners, but what other type of folks work here?

Mr. Dalrymple: Well, you know, before I came to work at the IRS, I pretty much thought that was the case, too. I personally do not have an accounting degree, and there's a lot of people here who don't. On the other hand, there are also a lot of people here who do have accounting degrees.

Our revenue agents are all accountants. We have other people who are accountants and we have law degrees, a lot of people with business degrees. I, personally, have an economics degree. We also hire a lot of people who don't have degrees -- work in our submission processing sites and our service centers. So it's a really a very wide divergence of backgrounds and abilities that we hire for, here in the service.

Mr. Cook: John, obviously, there's been a lot of conversation over the years, especially in the last 3 or 4 years, about the fundamental reinvention that's taking place at the IRS, in large part to become a more customer-centric organization. Can you comment a little bit about what that really means in terms of the daily responsibilities of the people at the IRS, what type of impact does that have?

Mr. Dalrymple: Yeah, I think it's -- that's a great question, actually, because, you know, we're actually still dealing with that on a very real-time basis here at the IRS, because everybody has to internalize that to make it actually happen here. And I think from my perspective, it means actually that from now on -- from this point forward, we take into account what our actions -- impact our actions have on our customers.

So for example, if, you know, if we have very long lines for people to get help at our customer-assistance centers -- our tax-assistance centers in the field -- you know, we're trying to figure out ways to make that service faster for our employees. And our telephone sites, you know, if someone can't get in to ask their question, it's pretty difficult for us to serve them. So we're focusing a great deal of attention on increasing our ability to actually have people access our services.

You might think, well, gee, on the compliance side of the house, how does that fit, because, you know, you've got a particular role there, and it's not necessarily a customer-friendly kind of role. But on the other hand, if you think about the experience that people have when they go through those activities, which is some examination or a collection activity, you know, we're actually serving those people to find out, in fact, you know, A, were we professional, were we courteous, what things were important to you in that interaction? And then we're trying to make changes to in fact deliver on those things.

So I guess what I would say is, the main thing people would see if they were, you know, sort of stepping back and trying to compare us from where we -- the way we used to do business to the way we're doing business now and how we see ourselves in the future is, we're listening more to what our customers are telling us, and we're trying to react to that in real time.

And that's easily said; that's very difficult to accomplish.

Mr. Cook: Well, one of the things that I guess is most visible about the reinvention is the new organization structure. And you're the commissioner of the Wage and Investment Division. Maybe you could talk a little bit about what that really means and what the responsibilities are of your division.

Mr. Dalrymple: The Wage and Investment Division -- you know, there's about 40,000 people in the IRS that are in the Wage and Investment Division, give or take a few thousand, depending on which time of the year it is. There's about 116 million taxpayers that the Wage and Investment Division serves. And the whole concept behind the reorganization of the IRS was to segment our businesses. Before, we were set up geographically and any district director -- any location was responsible for all the taxpayers within that geographical area, and so it had broad responsibilities around that taxpayer population.

What we try to do now is segment that so that we're focused much more on segments of the population. So in Wage and Investment, it is my responsibility to actually provide -- to understand and provide the services and the activities, actually, that the public need in order to comply with the tax laws.

So no longer are we -- are we in a situation where our scope is so large that our focus is difficult to attain -- like a laser focused in on the Wage and Investment customer.

Mr. Lawrence: John, tell us about your career.

Mr. Dalrymple: Well, I started with the Internal Revenue Service in 1975. In fact, I just had my 26th anniversary with the IRS a couple weeks ago. I came on as a revenue officer, which is a collection officer with the Internal Revenue Service. My job was literally to collect taxes from people who had failed to respond to notices or our office collection activities in those days, and then they were turned over to revenue officers to collect the money from. And I started here in Washington, D.C. In fact, I was at the old 11th and E Street office -- I'm sorry, the 12th and E Street office, which no longer exists -- it's now part of the Warner building, which has a Pennsylvania Avenue address.

And, you know, I spent a number of years here -- I spent 5 years, actually, as a revenue officer here, and then I took different management positions in the IRS, primarily in collection, until I was selected for the Executive Development Program in 1990. And as an executive in the IRS, I've spent time as an assistant director, district director, in Los Angeles and in Hartford, Connecticut. I've spent time as a district director in St. Paul, Minnesota. I've been the deputy chief operations officer here in the national office and the chief operations officer here in the national office until I became the commissioner of Wage and Investment.

Mr. Lawrence: What's been the attraction of public service?

Mr. Dalrymple: Well, you know, I grew up in the sixties, I got out of high school in 1968, so I guess I was influenced a lot by, you know, John Kennedy in a lot of ways. And there were a whole lot of people in my -- are a lot of people, I suspect, in my age group who grew up really internalizing the whole concept of, you know, asking not what your country can do for you, but what you can do for your country. And also, the whole idea of being able to make change from the inside out. And so that's actually what drew me into government service. That and the fact that, you know, I wanted to get a job.

Mr. Cook: As you described your career, John, obviously, you've been in various positions of leadership for quite a while and in your current position you have some direct involvement in developing some of the future leaders in the IRS. Talk a little bit about what you look for in leaders, and in fact, in particular, when you set up your organization, what did you look for in your key directors and managers, as you positioned them?

Mr. Dalrymple: I looked for people who had vision, first of all, that's important -- very important to me. People who I trust, so trust is a very important thing. And you only get trust by -- through honesty, so I tend to look for people who have built up a long history of being honest and forthright. And then finally, people who have good technical skills in the areas in which they're going to be responsible for.

So if you can find that combination in a person, you know, my -- my sense is to grab onto them and then give them lots and lots of flexibility and room to do their job.

Mr. Lawrence: It's a good time for a break. So stick with us through the break, because when we continue our conversation with John Dalrymple of the IRS, we'll return and ask him about the IRS's efforts to modernize and innovate.

This is The Business of Government Hour. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with John Dalrymple, commissioner, Wage and Investment Division of the Internal Revenue Service. And joining us in our conversation is Jim Cook, another PWC partner.

Jim?

Mr. Cook: John, throughout the planning and implementation of the reinvention that we talked about in the first segment, I would imagine there was a number of creative and innovative ideas that came up and some that were adopted and some that were -- that were passed on.

What would you say were some of the more innovative ideas that came up and that have been implemented and what type of impact do you believe they've had?

Mr. Dalrymple: Well, I'd say the biggest innovative ideas that came up had to do with establishing two organizations within -- one in small business and one in wage and investment -- that are outward looking -- looking at partnering with different segments in order to further tax compliance. And part of their activity -- well, almost all of their activity is in the pre-filing arena, so that the whole concept of it -- if you can really get people to understand what their responsibilities are and help them comply with the tax law, you'll have a lot fewer compliance activities on the back end. And so each organization, wage and investment and small business, have put, A, quite a few resources into that activity, and frankly, quite a bit of energy, because it's all about training people in things that we haven't done before, and then measuring outcomes that we haven't measured before.

So I would say that's probably the most innovative thing that I've seen out of the reinvention.

Mr. Cook: How well do you think the organization took to that change, because that's a rather significant break from --

Mr. Dalrymple: I think, actually, everyone intuitively knew that that was something that made sense and knew that for a long time. I think, though, that when you're swept up in your day-to-day activity, sometimes it's hard to peel away time and intellectual capacity, actually, to focus enough attention on that sort of thing to come up with a robust way to accomplish it. And what the re-engineering effort that we were going through -- we had enough people and enough capacity offline to actually think this thing through and put a plan in place that looked like we could accomplish it.

And so the old adage, if, you know, sometimes you step away from the things that are right in front of you sometimes, you can get a different perspective on them. And I think that's actually what happened here.

Mr. Lawrence: What are the lessons would you pass along to other government leaders who are dealing with modernization efforts?

Mr. Dalrymple: Well, one of the things I would say is, don't undertake it unless you are fully committed to it, because this really is changing a tire while you're driving a car or living in a house as it's being renovated. It is incredibly difficult. And you still have a mission to accomplish, and so you can't just set aside the work that you have to do.

And we still had to process tax returns, we had filing seasons going on. I mean, it is reasonably celebrated that some of our compliance activities have fallen off. But aside from the reasons behind that, you know, we still had to have a focus on what our responsibilities were, and so you can't undertake something like this unless you really understand the scope of what you're going to do and then be committed to that scope, because if you're not, I think what would happen is, you'd only get partway there, and you'd probably just slide back to what you had before, because it would be easier to do that.

Mr. Lawrence: What does it mean to be fully committed? I mean, how long does it take to think through these things and who all needs to be involved?

Mr. Dalrymple: Well, I think "fully committed" means that you have to have a process in place that will actually help everyone understand -- in your organization -- understand where you're going. And just an example of the way we did this, and I don't think that it has to be replicated for change, but Charles Rizotti (phonetic) actually helped us completely understand that you had to bring a process to do this, because we probably could have thought through this with a very small group of people and sort of instituted this thing top-down. But I don't think it would have worked, because what he helped us understand was that we needed to have a very broad base here.

We have a couple thousand people actually involved in the re-engineering effort. And we brought employees from the lowest-grade employees we have in the organization through executives leading teams that folks were on.

We partnered with our union NTEU to pull this off. And then we used all those people that worked on the teams as ambassadors to go back out and discuss and describe what was going on -- get feedback from the rest of the rank and file, bring that back into the organization so that we could figure out how better to communicate. So when I say that, I mean, it really has to be a process that you buy into that's going to ensure that everybody feels that they at least had an opportunity to be heard in the reorganization. Not everybody's ideas were accepted. But everybody had an opportunity to actually be heard and offer suggestions. And in the end, that's actually what I think helped us tremendously.

And, you know, we're not done yet, so I'd like to declare victory, but it may be a bit too soon for that.

Mr. Cook: Well, that's actually an interesting lead-in to the next question, because the -- I would imagine that many outside of the organization have tended to view the IRS as an organization that's kind of staunchly tied to the old ways of doing things. And you just described a process that engaged a lot of internal people to come up with some new ideas.

Talk a little bit about how you worked with the teams and the individuals that your brought in to get them to start thinking about things in a different way.

Mr. Dalrymple: Well, yeah. I mean, I actually described what we did with the internal folks. We got our internal folks focused on the external activities and our partners and stakeholders that we have to deal with. So as the teams were actually responsible for looking at best practices and finding out, for example, from the Federal of Tax Administrators, you know, how they wanted to interact with the IRS in the future and the AICPA and the bar association and the Chamber of Commerce. I mean, we reached out to, literally, hundreds of stakeholders that we felt had an interest in what we were doing and had an interest in us understanding what their needs were.

And so I think by doing that, our employees then understood how important that was in order to move forward.

Mr. Cook: Got a different perspective. Good.

Mr. Lawrence: It's interesting, you've spoken a lot in terms of modernization right now about the people and the processes. And I would have guessed you would have talked about technology. How have you been using technology in the modernization?

Mr. Dalrymple: Well, I mean, the organizational change was strictly a structural organizational change. And we did it in that fashion, in other words we did it without a dependency on technology for thee purpose of, if there were technology hurdles, it would not affect us reorganizing.

Having said that, our future is tied inextricably to technology improvements. I mean, I think it's reasonably well known that the IRS is tied to some 1960s architectural designs for their technology infrastructure. We're still batch processing tax returns and keeping our data in batch files. No one does that anymore that I know of and nobody, definitely no one does it in the scope that the IRS does it.

It's only been 3 years since we actually started routing telephone calls within our telephone system because prior to that we had stand-alone telephone sites out that handled geographic areas.

We are, without question, in order to make the kinds of inroads in services that we intend to provide to our customers, we have to make some dramatic changes in the way we -- in the technology that underlies that activity.

Mr. Cook: John, in general, what are some of the barriers to innovation, especially using some of the new technologies that you described -- what are some of the barriers you've run into and how have you dealt with them?

Mr. Dalrymple: Well, our size, actually, has been an incredible impediment to anybody that's come in to try to help us figure out how to do things differently. Almost any contractor that's bid on any work for us has always been able to tell you, you know, how they've done things elsewhere before and how it would apply to the Internal Revenue Service, but when they get in here and actually start dealing with the problems because of the scope of the activity that we have -- we have probably one of the world's largest databases. And so clearly that's been an issue.

And so, I would say, actually, that is the biggest hurdle that we have is our size and the complexity of the work that we do has over and over gotten in our way.

Mr. Lawrence: It's a good stopping point. Stay with us through the break. When we continue our conversation with John Dalrymple of the IRS, we'll ask him about his recent recognition by Federal Computer Weekly magazine as a fed 100 executive.

This is The Business of Government Hour. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with John Dalrymple, commissioner, Wage and Investment Division of the Internal Revenue Service. And joining us in our conversation is Jim Cook, another PWC partner.

Well, John, as I mentioned at the exit of the last segment, you were recently recognized by Federal Computer Weekly magazine as one of the Fed 100 executives for 2001, an honor that recognizes your successfully managing the Wage and Investment division.

What are some of the things that you feel were most important in your success leading the organization through this challenge?

Mr. Dalrymple: Well, I'd have to say that, you know, my years in experience -- I'm a long-term employee with the IRS. I mentioned earlier, I have 26 years of experience. And I've also managed a number of different aspects of the operation here at the IRS over that period of time. And then I think, also, you know, listening to customers -- I think that's been incredibly important to me, because that's helped me reframe and rethink a lot of the old attitudes I had about how to do business.

So I guess if I -- I mean those would be the things I would say that helped me to be recognized here.

Mr. Lawrence: Well, let me ask that question about experience. There's a lot of experienced people who aren't successful. So what is it about the experience that has enabled you to succeed?

Mr. Dalrymple: Well, I actually think that the fact -- I'll say my varied experiences, because I've had a lot of different jobs at the IRS. I've lived in, you know, seven different states, and I've had, you know, eight or nine different jobs at the IRS. I've managed -- in the field, I've had the experience of actually having face-to-face activities with taxpayers and I was a collection officer when I started my career. So, you know, I've had the opportunity to sit down across the table from someone who owed taxes and talk about how they were going to satisfy those taxes.

I've also had lots of opportunities to hear feedback from our customers about what they -- what their experiences are -- at lots of different levels in the organization. And so I think that's really what I talk about when I say I've had a lot of experiences.

And I think the other thing is, I've also had the benefit of a lot of people helping me understand what it means to lead people, because leading people isn't always about, you know, pulling out your sword and your shield and marching forward. Most of the time, it's actually listening to the people that you work with and your customers to figure out what the best solutions are.

In fact, every management job I ever had, I've always felt that I learned more from the people who I was so-called managing than they ever learned from me. Now, I don't know that that's actually true or not, but it's definitely the way I felt about it.

Mr. Cook: Well, that's an interesting point, because you've mentioned the people aspect a number of times in the earlier sections. Talk a little bit about what you've done with your division to keep your people involved and to really lead them versus manage them.

Mr. Dalrymple: Yeah, I think what I've done is that I -- I'm out constantly in the field organization. I generally am in the field at least twice a month. And by "the field," I mean I'm at a center, at a call site. I have focus group interviews with employees and managers. I listen in on telephone calls so that I can hear the customer experience. I'll sit down with an examination employee in the center and go -- and literally sit through and work through an examination case. Or I'll listen in on collection calls and work an inventory by myself. I'll go out in the field to one of our tax assistance centers and actually have an experience helping someone across the counter during the filing season or off-filing season.

I mean, that's how I stay in touch with what's going on. And it's also how I stay in touch with what the real experiences our customers and our employees are having. So then when I have an opportunity to make decisions about things, I'm informed by what I've seen and what I've touched. And in addition to that, I have a little more credibility when I make a decision; it doesn't sound like it's the soundest decision by my employees, they tend to give me a little bit of benefit of the doubt, because they know that I understand what their jobs are.

Mr. Lawrence: We understand that the IRS has become a flatter organization in terms of management layers. What kind of benefits and challenges has this presented for the Wage and Investment Division?

Mr. Dalrymple: Well, I mean, the thing that's made the most positive impact, without question, is getting messages out. I mean, anytime you have to filter messages through lots of layers, they get garbled. So the fewer layers there are, the more direct and clear the messages are.

In terms of challenges, the amount of work we have on our plate with a restructured organization, all the re-engineering that we're doing along our business practices and then trying to deliver a whole new IT environment, technologywise, there's a tremendous drain on our management capacity. And so, you know, that layer that we took out was somewhat comfortable in terms of having people available to fill some of the capacity needs that we have. So I mean, it's always -- the glass is only half full or half empty. It's neither full or empty here. So it's not without a bit of strain to lose the management level. But, you know, overall, long-term, I think it will pay big dividends.

Mr. Lawrence: What's the feedback from the staff below the management level that got taken out about the removal of that layer?

Mr. Dalrymple: That's a great question, because we've been actually sitting down and talking to them. Initially, they were pretty concerned that a lot more work was just going to sort of fall on them. And in fact, some work did shift to them, but what we tried to do is also take some other work away from them.

And we're actually still working through that whole activity about what's important to be done, what's not important to be done, what can literally be taken off the table? Also, we're trying to look at pay-banding for our first-line managers so that, in fact, they can be compensated at higher rates for doing more and, frankly, more challenging work than they've done before.

I think overall, they're starting to step into those jobs and appreciate them more. But there's anxiety still.

Mr. Cook: What about the performance aspect of that, with all the changes that you've talked about in flattening the organization? What have you done differently to measure the performance of the management and the staff level below management and make everyone accountable for achieving the new mission?

Mr. Dalrymple: Well, we have a lot of new measures in place. And certainly, we have a balance measures approach in the Internal Revenue Service: employee satisfaction, customer satisfaction, and business results. And even the business results are balanced between a productivity and a quality measure.

And what we're doing, actually, is bringing those measurements as low in the organization as we possibly can with the management information systems that we currently have in place, and making people as responsible as possible for -- on the outcomes there. And frankly, we're pretty embryonic with some of this. Our customer satisfaction measures are really, in terms of our surveys and the -- and our measurement tools are only a couple years old, and we're still understanding a lot of the information we're getting back from them.

And even though we've had an employee satisfaction survey for the last 7 years, we changed it dramatically this year with a new contractor, so -- in fact, almost baselining that activity again this.

So I guess what I'd say is, we have some pretty sound measures in place, and we're driving them down as low as we can in the organization. But they're not as well understood as I'd like them to be. And I also think that it is going to take a little bit of time to ensure we've got the exactly correct -- especially productivity measures out there.

Mr. Lawrence: Adopting some of these new performance measurement systems means dropping some of the other indicators and targets, including collection or lien amounts.

What kind of activities are you undertaking to communicate these changes to folks who were perhaps used to the previous measures?

Mr. Dalrymple: Well, we've actually done a lot around communicating the new balanced-measures approach. All of our first-line managers have -- and employees -- have been through balanced measures training about what it means, what we're going to be measuring in the future, et cetera.

We haven't thrown away all of our old productivity measures by any means. And in fact, many of them are very good measures; they're diagnostic in nature. But they're only numbers, and it's really getting behind those numbers that are important. So for example, no one is -- we're still looking to see how many liens we file. We don't hold individuals responsible for how many liens they file, but corporately look at how many liens were filed, and if the numbers fall off dramatically or increase dramatically, I want to know what's going on to cause that to happen, from an impact on our employees and our customers.

So it is really a matter of the use of the measures as opposed to what the measures are.

Mr. Lawrence: It's time for a break. Stay with us through the break. When we come back, we'll ask John Dalrymple of the IRS how the IRS is preparing its workforce for the future. With all the possible retirements, let's find out if anyone will be left.

This is The Business of Government Hour. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence partner at PricewaterhouseCoopers. And today's conversation is with John Dalrymple, commission, Wage and Investment Division of the Internal Revenue Service. And joining us in our conversation is Jim Cook, another PWC partner.

Mr. Cook: Thanks, Paul. John, let's focus on the future for a minute. One of the things that we're hearing from a lot of agencies is the concern over the future of the workforce. And there's a lot being said about the retirement wave that's coming. Can you talk a little bit about the impact you expect that to have on the IRS and what you're doing to respond to that or mitigate the risk there?

Mr. Dalrymple: Well, there's a couple things going on. First, the IRS was granted quite a bit of flexibility by Congress through the IRS restructuring their format. And it's helped us to actually fill quite a few key executive roles in the IRS. And that's a big help, because we have had a number of people leave the organization. And in addition to that, it's brought in a lot of new ideas to help us move forward.

And I think the second part to that has to do with, you know, how are we going to recruit people into the organization sort of the next generation of IRS folks to come in here? We haven't done a lot of hiring at the IRS, really, in the last 5 or 6 years, primarily because of the budget situation. And we're out -- we're doing a lot of recruiting and hiring this year. And I actually think the recent slowdown in the economy has helped us, actually, in some of our ability to recruit.

And we've been trying to use some best practices in private industry that we've -- that we've seen to have the -- to make sure that we've got recruits with the right aptitudes. In the past, we'd go out and recruit people for our telephone sites, basically, just put out an advertisement and bring in as many people who applied, interview them, and then put them on the telephone. We contracted recently with a couple of search firms to help us determine aptitudes for people for telephone work and we actually got that as a best practice from a couple of pretty successful call centers in private industry.

So, you know, we're doing things a little bit differently than we've done in the past in terms of making sure we got a correct match for the people when they get here -- the jobs we have.

Mr. Lawrence: How about the retention of the workers, especially the technology workers? Does the IRS have any special programs in place to ensure that?

Mr. Dalrymple: We actually have and have had -- and I'm, frankly, no sure what we're doing right now, today, but for a period of time, especially during the Y2K time frame, we were paying stipends up to 25 percent retention bonuses to a lot of our IT folks. And I believe, actually, that those have -- at least some, if not all, of those have expired. But, clearly, if we need to do that, that's something we're going to do.

Mr. Lawrence: Looking at people who may be considering coming into public service, what type of advice would you give to a young person who is considering a career in public service?

Mr. Dalrymple: Well, I'd say, first of all, if you were coming to work for the Internal Revenue Service, that we're looking for people who like a good challenge. We have lots to do here.

I think, also, it's interesting -- and I suspect this is true of many agencies, although I've only worked for the IRS, there's a real feeling of family in these organizations once you come on the job and work. I've been to lots of retirements for different people over my career, and the one thing that people say when they leave the IRS, sometimes they're not all that unhappy about leaving the job that they had and coming to work on Monday mornings, but they're always sad to be leaving the people that they work with.

So -- and I think that's because we do have a difficult job. We oftentimes do have shots taken at us from outside the agency. People don't really understand what we're about. And so it brings -- it brings us, actually, close together, people who are working inside the agency. And I think people who like that kind of environment -- which really is sort of a family kind of an environment -- really do thrive in the IRS.

Mr. Lawrence: What type of skills would a young person need should they be interested in working for the IRS?

Mr. Dalrymple: Well, I think definitely the ability to meet and deal with people is a very primary skill for working in the Internal Revenue service. A good number of our jobs are -- require that kind of activity.

And then, also, being a part of a team. People who can problem-solve with other people do well with the Internal Revenue Service. And, frankly, it's a skill that if you don't have it, you need to develop anyway, because I'm not sure you can be too successful these days without that skill.

So, you know, other than that, I wouldn't tell anybody that, just because you're not an accountant or a tax attorney, not to come to the IRS. I think, frankly, bright people who can deal with other people and who problem-solve in a team environment can work here and have very fruitful careers.

Mr. Cook: What's your vision over the next 5 years for customer service -- when you look out into the future, how do you think the IRS is going to be doing business with taxpayers?

Mr. Dalrymple: Well, first of all, there'll be a lot less reliance on individual compliance activities and a lot more on helping people comply before they get into trouble. I mean, that's clearly going to be the case.

Then, in addition to that, I mean, I do have a vision on how things might work around here in the future. We're going to have an incredible amount of interactive services on the Internet. I mean, I think you'll see virtual offices, literally, online for people. Anything you could do in a walk-in center, you'll be able to do over the Internet.

We're going to have world-class telephone service here. We're really on the threshold of some big things with our telephone service. I mean, clearly, people -- we'll be in 90 -- 95 percent level service ranges. You know, a few seconds hold and wait times. And then very easy, accessible offices to provide the face-to-face services for the people who really need that. So, you know, my perspective is that there's just an incredible amount of new things going to happen in the IRS over the next 10 years.

Mr. Lawrence: What are the implications of that vision on the workforce -- does it have the right skills now, and will this mean more IRS employees?

Mr. Dalrymple: I don't know that it will ever mean more IRS employees. But I think -- what the commissioner has said over and over again is that we'll get more efficient. Our work is ever expanding, but we need to get more efficient so that we maintain the basic employee base that we have now. We're refreshing that base as we get attrition each year, which is important. But that we have -- we will be retraining our employees fairly constantly as new and better approaches deal with taxpayer population evolve here.

We're going to be going from a much less, I'll call it, almost factory environment, if you look at our processing centers, to a much more service-oriented environment for our employees. So we'll have a lot fewer people data entering things off tax returns in the future, because, frankly, most of that will come into us electronically in the 8-to-10 year environment that you asked me about here. And so those employees will migrate into jobs that are, frankly, a lot more interesting and challenging than they have now.

Mr. Lawrence: And how about -- how about in terms of the vision, then, for management? You talk about management saying -- managing the factory versus now the managing these knowledge workers doing these incredibly complex things. How do you see the management skills changing?

Mr. Dalrymple: Well, I think our management skills are going to have to evolve along with the workforce that we have, clearly, again, this whole concept of team environment, as opposed to, you know, managing a group of people who are just doing what you tell them to do.

You're now going to be managing people in an environment where you're going to be team problem-solving and then going out and implementing actions and activities that you, as a team, decided were the right things to do. And that is -- that is a different skill than a lot of people currently have and it is one that we're trying, even as we speak, that's a skill that we're trying to ensure that our management cadre is endowed with.

Mr. Lawrence: How about the general vision for the IRS over the next 10 years? Would you describe customer service? When we think about the IRS 10 years from now, will it be any different?

Mr. Dalrymple: That's pretty difficult to say. You know, our mission -- even though our mission statement -- we changed our mission statement, but our -- you know, the basic mission of the Internal Revenue Service is to collect taxes. That's not going to change.

The reason we're in business is to make sure that people pay their fair share. Now, how they do that, in terms of whether or not you help them understand their responsibilities on the front end so that they voluntarily comply, or whether you have a huge compliance workforce on the back end to go out and make sure they comply, I think is the basic difference what the future looks like and what the past looked like.

Mr. Lawrence: I think that's a great stopping point. John, Jim and I want to thank you very much for spending time with us today. We've had a very interesting conversation.

Mr. Dalrymple: Thank you.

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with John Dalrymple, commissioner of Wage and Investment Division of the Internal Revenue Service.

To learn more about our programs and research into new approaches to improving government effectiveness, visit us on the Web at endowment.pwcglobal.com. And at this website, you can also get a transcript of today's very interesting conversation.

See you next week.