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Monday, February 10, 2003
Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, the co-chairman of The IBM Endowment for The Business Government. We created the endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about the endowment by visiting us on the web at www.businessofgovernment.org.
The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is with Cari Dominguez. Cari is the chair of the U.S. Equal Employment Opportunity Commission.
Good morning, Cari.
Ms. Dominguez: Good morning, Paul. It's a pleasure to be with you.
Mr. Lawrence: Thank you for joining us. Could you tell us a little bit more about the EEOC and its mission?
Ms. Dominguez: The EEOC has a very unique mission. It's a keeper of the laws that enforce non-discrimination in the work place. The Age Discrimination and Employment Act, The Americans Disability Act, The Equal Pay Act, Title Seven of the Civil Rights Acts, all of these are statutes that are enforced by the Commission.
Mr. Lawrence: Now, it is a Commission as opposed to just a government agency, Why is that?
Ms. Dominguez: The EEOC was created as part of the Civil Rights Act of 1964. We actually became operational in 1965. Back then we had no experience whatsoever with issues relating to employment discrimination. And so, it was determined that we needed a body of regulators, individuals, primarily attorneys that would look at class issues, patterns and practices and discriminatory behavior and then we take these issues what we call Commissioners Charges . That how the whole development of EEO case law came about. Primary took Commissioners Charges, the identification of discriminatory practices and then the Commissioners, it's a five member Commission, the Commissioners would then direct the investigations as well as the selection of these employers to pursue non-discrimination issues. And so, that's how it evolved. And that's how the Commission has played a very critical role in the development of EEOC case law in our history.
Mr. Lawrence. Now, you're the chair. What are your duties and responsibilities as chair of the Commission?
Ms Dominguez: Essentially the chair sets the direction for the Commission. I'm nominated by the President, confirmed by the Senate. It's a five year term. Five Commissioners. Each has a five year term. And the chair serves as a CEO of the Commission. I'm in charge of all of the management day-to-day direction and guidance, setting up the strategic framework, the operational management practices, etc. that I would expect all of our employees to operate under. And then issues that relate to lawsuits and policy development are handled by the Commissioners. They bubble up to the Commissioners. I present them to the Commissioners for vote. And so, that's pretty much that. So, I'm a voting Commissioner but at the same time I have the added responsibilities of running the agency.
Mr. Lawrence: Tell us about your previous experiences before joining the Commission.
Ms. Dominguez: Prior to joining the Commission, I was a small business entrepreneur. I ran my own management consulting business that involved a variety of things. I did executive recruitment, executive search. I also did served as expert witness on class ceiling issues. I did a lot of workforce preparedness assessments for employers looking at the competencies of their employees and then making some recommendations. So, this as an entrepreneur.
And, then prior to that, I was a partner with the two major international search firms. I've also believe in the power of one and I chose to go into the search business because I felt that people do influence the direction of an organization by the individuals that you appoint to positions of leadership.
Prior to that, I was a political appointee in the Bush 41, the 41st President Administration. I was the Assistant Secretary of Labor as well as Director of the Office of Federal Contra-Compliance Programs.
And, prior to that, I was at Bank of America in charge of Director of Executive Programs in charge of what we call the Caring and Defeating of the Top Appointed Executives. At the bank, I did all the executive staffing, executive compensation, benefits, succession planning, all of those things.
And, I think the theme that ran through my career regardless of whether it was weaving in and out of the public and private sectors and independent sectors has to do with human resources and the value of our human capital in driving, change and improving performance in an organization. You know, you can have the best laid out technology and business processes but if the people aren't included, aren't part of it, aren't the ones driving it, you are going to still continue to have mediocre results. So, whatever position I've held has always been with a focus of the importance of human resources of our people in being in the driver's seat.
Mr. Lawrence: Do you think that's a widely understood theme now?
Ms. Dominguez: I think it's getting to be much more widely understood. I recall the about seven or eight years ago when we started the delayering organizations and we became so beefed up talent that all of a sudden Corporate America had to hurry up and once again look at the critical competencies and the talent that they had lost. So, I do think it's important and it's much more important now when we are always playing catch up in the marketplace and looking for ways to be more competitive and drive improvements and be more profitable.
Mr. Lawrence: Do you think this is appreciated in Government as well?
Ms. Dominguez: The Government has never had a competitor per se. We've been somewhat insulated from the pressures of the marketplace, from the demands of our customers, but that's no loner so. We're now as concerned about being competitive particularly under the President's management agenda and his commitment to make sure that if we're going to outsource that we can at least be as competitive as the entities that to which we may end up outsourcing. So, we're beginning to realize the value of having prepared, skilled, knowledgeable individuals driving these changes. And the importance and the efficiency of our operations even though we don't generate a revenue per se, we are entrusted. So, yes, I do think that the Government in general is looking at ways to drive improvement and attract the best talent and development the talent that we have. For so long we've had silos in government and even though the people are so dedicated and so hard working and so committed. The Commission, for example, we have some of the longest tenured employees. We have individuals that have been there since the doors opened back in 1965. So, it's important that we keep people with broadening their skills of development. Yes, people do matter.
Mr. Lawrence: You've had a variety of different experiences when you were describing your career. I wonder if there's any one or any one particular challenge that best prepared you for your present position?
Ms. Dominguez: Well, one of the challenges when I look back on which is a transformational experience is that when I was Director of the Office of Federal Contra-Compliance Programs. When I arrived, there it was an entity that was not really -- did not have a good image of itself. I felt that they were just kind of going through the motions without really a sense of focus of purpose. And, we identified an opportunity that we could really establish the relevance of that program and that came out through the glass ceiling initiative. Glass ceiling by the way is a definition that talks about the syndrome that you seem to be rising and rising but you somehow can't get to the top of a corporate ladder because there's an invisible barrier that's getting in the way and you just kind of bump against the ceiling but you don't know what it is. So, we decided we needed to be at the table and we needed to participate along with the shareholders and with the customers and with the employees and since the Federal Government has a role to play. And, just by having that initiative it caused almost a miraculous turnaround in the sense of value and self-esteem and interest that our employees generated because for once they felt themselves part of an important societal issue and they saw themselves as catalysts in improving changes in the society. So, that was a very, very positive experience and I should say that it has been an initiative that's been carried throughout both administrations for republicans and democrats.
Mr. Lawrence: You moved from the private sector to the Federal Government and back again both ways. I'm curious, how would you contrast the two sectors in terms of their approach to management?
Ms. Dominguez: Well, quite different. In fact, I arrive in the private sector I think in the best and the worst of times. I was there, I worked for banking at the time when we went from 1,200 branches down to 800 when we were downsizing and restructuring. And, I recall the first two years reporting to six different managers. I'd go to lunch, come back, I'd have a different manager. It caused me to be adaptable and flexible and nimble. It caused me to be sensitive to the business changes that were going on. And, the recognition that our employers, the employer and all the other peer companies had to follow the market requirements, what the customers wanted, what the marketability, you know, the alliances and the kinds of things that make an organization not only profitable but responsive to the needs of the society.
So, one of the things that I noticed was how quickly we changed in the private sector. It was just a survival. And, it was a need, you know, just a viable. Unfortunately, in the Government we haven't had that sense of emergency, that sense of, we need to be responsive to the customer because we haven't had any competitors. It's been a self-contained entity. We're beginning to see that sense of competition and that sense of okay, so we've made great progress and yes, we're lucky and fortunate to have had the pleasure of all this time to think about ways of improving it without the external pressures. But the time has come now when we have to keep asking more of ourselves when our own tax payers and customers are asking more of us. So, I do think that the culture that we've had one that is bureaucratic, many, many layers of checks and more checks and counter checks. When you've had individuals you even, even with their desires to move and broaden find themselves sort of stymied in the same career path without ability to broaden their base of knowledge and skills and career building experiences. We find that that is a detriment now to our dedicated employees. And, we need to break up all those barriers and give them an opportunity to broaden their base.
Mr. Lawrence: That's a good stopping point. We got to go to a break. Please join us in a few minutes as we continue our discussion with Cari Dominguez of the EEOC. Do you know what the Commission's five point plan is? We ask Cari to tell us more about it when The Business of Government Hour returns.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence and this morning's conversation is with Cari Dominguez. Cari's the chair of the U.S. Equal Employment Opportunity Commission. Cari, at the last break we were just talking about the management styles and I'm curious, what's it like to lead an management organization that has a lot of public scrutiny?
Ms. Dominguez: Obviously, we're adjudicatory agency. We have a person that comes and files a complaint against an employer. And, so, our responsibility is to go out and investigate those allegations and because of the nature of our business we have stakeholders who are a constituency groups if you will that constantly monitor every decision, every case that we take to litigation. So, we have stakeholders. For example, the NAACP, Mexican/American Legal Defense Fund on the one hand representing the interest of groups of citizens and working men and women. On the other hand, we also have the employer community and we have the practitioners within the employer community. We also have Congress. If they don't like what we're doing at any particular point or if they get too many letters from any of these groups, I will get invited over there for a little visit. And, so we do have just about every segment of our society from the workers all the way up to the legislators that keep the close tabs on what we do and how we do it. And, it's a very visible agency. We're constantly being studied and lots of press articles and all kinds of things. So, we have to make sure that we're constantly communicating and explaining. Communications is the key. Explaining to all of our constituencies why we're doing what we do and why we think it makes sense and inviting them to come and help us in the development of public policy.
Mr. Lawrence: Over the years, what type of complaints have the EEOC dealt with?
Ms. Dominguez: We have had a fairly consistent pattern of charge activity. About 35% of most of charge -- we get about 82, ;83, 84,000 charges a year. It's hovers around that number. And the majority of the charges, about 35% are race related charges. About 30% are gender discrimination. 20% age. 20% disability, which are two of the fastest growing segments of our workload. 10% national origin which also took a spike after September 11th along with religious discrimination which we get about 1 to 2 % of charges a year. And, that's been a consistent trend since the inception of the Commission. We're getting a lot of charges of individuals over 50 who are alleging that they're being restructured out of their positions. And, again, that with the more religious diversity we've had more religious discrimination charges. So, it's a interesting blend of issues and a interesting trend that we're seeing but by far race and gender lead the way.
Mr. Lawrence: How many people work for the Commission and what type skills do they have?
Ms. Dominguez: We have a lot of serve. We have about 2,800 employees in -- at the moment we have 51 district area and local offices including Porto Rico. About one-third of our employee base is made up of attorneys. Lots of -- we have a very, very vibrant general counsel's office. We have regional attorneys and they're the ones that take the cases forth. We file about -- over -- anywhere between three to four hundred lawsuits a year. And, again, I said we get 82,000 or so charges. So, that's not a whole lot of cases that we actually take to court to litigate. Most of our cases end up being settled prior to going to court. So, there's a lot of conciliation and mediation efforts that take place.
So, about a third are attorneys and then we have mediators. We have investigators. We have analysts. We have a couple of physiologists to look at trends and make sure the validation of tests, those kinds of things. Of ten times the employers will administer tests and then they have to be validated to make sure that they don't have an adverse impact that effect one group of workers differently than others discriminatorily.
Mr. Lawrence: I initially thought the EEOC dealt primarily with large businesses but in doing research for our conversation I learned that a lot of activities going on with small businesses and under represented -- underserved communities. Can you tell us about that outreach activity?
Ms. Dominguez: Certainly. I think that if you look back at the trends, a lot of the major employers that were the recipient of Commissioners' charges and lawsuits. And, for the most part the Fortune 500 side employers have developed pretty good sophisticated HR programs and practices and policies that keep them and their workforce pretty well informed of what their responsibilities are. We are finding that the greatest number of charge activity coming from our, as you mentioned, Paul, mid-size and small size employers and particularly in some of the areas with little sophistication. For example, we had major law suit last year, $47 million dollar settlement. This company had no HR, no Human Resources operations. They had no outside counsel. And, this particular employer decided he did not want women working in his company. So, all of a sudden all of these women cued up to our offices and we're seeing that a lot of it has to do with the lack of understanding and application of sound HR policies and programs. So, our biggest outreach efforts right now are with mid and small size employers and with underserved communities like agriculture, farming. We've had a number of issues with documented workers and the migrant communities. So, we're still seeing some of our more venerable segments of the work force being prayed upon. And, so, that's where we think the -- a lot of our work needs to continue to focus on. These are individuals that have limited education, limited skills. Often times, English is a second language. But they're very critical components for a work force because they take on the jobs that very few others want to take on, service workers and laborers and unskilled workers.
So, that is a huge segment of our work force, work load and we need to continue to have extensive and aggressive outreach efforts directed at that community.
The particular profile of a charging party, a person that comes to file a complaint is someone that is kind of a wage/hour -- hourly wage earner. Someone who has limited education. Someone who just can't pick up and go -- get hired by the competitor because they have very limited opportunities.
And, now we find that there are three industries that take up the bulk of our attention. Retail because of the labor intensive nature of the work; foot service, fast food service and that type of thing; and, hospitality, housekeeping and those types of jobs. A lot of those types of industries and industries related to the three that I mentioned really make up the bulk of our work.
Mr. Lawrence: Can you tell us about the five point plan?
Ms. Dominguez: I got together with our senior managers. And, for a period of several weeks, decided that they needed to have five anchor points. We needed to develop a strategic frame work upon which all of the things that the Commission would do in the context of the 21st century workplace would have to be addressed.
The first point is proactive prevention. We must attempt to prevent discrimination from occurring in the first instance. It's almost like medicine. You know, you want to know, you want to screen out any potential illnesses before they become fatal, before they really truly effect and get to the -- get to your core organs. It's the same thing with us. The act of prevention is where we're spending a lot more resources than we have in the past. I added another five percent of our resources to making sure that we do outreach. We're doing web chats. We're doing technical assistance program seminars. Last year I spent quite a bit personal time meeting with senior executives all over the nation. It was an interesting -- I'll just share a quick addict with you. When I call on -- these were individuals that typically would not meet with the chair EEOC, like Chief Marketing Officers, Chief Information Officers, Financial Officers, small business CEO's. When they got the call that the chair of EEOC wanted to meet with them -- when I met with them, what did you think when you got that call and they would say they were panic stricken. We didn't know why you wanted to meet with us. I wanted to change that --that sense into one of curiosity. Well, maybe there's something there that we need to partner up with not just to delegate it to the attorney or to the Human Resources Executive. So, proactive prevention and all the related outreach efforts are key. If we can't prevent discrimination from taking place, and we do get a charge, an allegation, then it's called point number two proficient resolution. Let's try to address it as quickly as possible, as quickly and cheaply as we can so it isn't languish infester.
And, the third point is what I call the center piece of the five point plan. And, that's mediation. We have had tremendous success in mediation. The days that it takes -- it takes on average about 171 days to resolve a charge. That is a dramatic drop from your prior lasts 182 days. But I think the winner has been mediation. It takes us about 86 days to mediate a charge compared to 171 days. And last year we settled more cases, more charges through mediation than ever before in the history. And, this year we positioned to do even more. We're promoting universal agreements to mediate. We're encouraging employers to sign national agreements with us that says that's it's not required, but it says if a charge comes up let's commit to take a look at it under the concept of mediation before we go into the investigative mode. And, so, it's been a real success story, Commission as well as for the employers.
The fourth point in the five point plan is the strategic enforcement and litigation. We want to make sure that our attorneys in the general counsel's office as well as our investigators in the day to day operations work along side of each other early on so that we don't delay processing of charges because once you refer it to the attorney, he or she will go well, no, you need to go back and investigate this, that and the other. So, if they work along side it early on in the development of the case, then the case can -- you can either issue a right to sue letter if you thinks its not going to be pursued by the Commission or you can take it on a litigate it yourself. That's a very important component. It's also a component under which we'll be looking at trends, we're looking at patterns. For example, we're seeing that most of the charges we're getting relate to retaliation, relate to harassment. There's a tremendous epidemic of harassment charges across the nation. And, also, to -- what constitutes a reasonable accommodation under the American Disabilities Act. It's a lot of confusion as to what am I required to do in terms of providing that accommodation. I think that if we can collect that information, develop guidelines like we have been, and then feed it back to the employers, that's an important contribution.
And, then the fifth point this is what I say practicing what we preach. It's the EEOC as a model work place. Let us have the best mediation program that we can have. Let's us make sure that whatever we have before us is equally responsive to the expectations that we've placed on the employer.
Mr. Lawrence: That's a good point. We've got to go to a break. Come back after break as we continue our discussion on management with Cari Dominguez of EEOC. This is The Business of Government Hour.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence and this morning's conversation is with Cari Dominguez. Cari is the chair of the U.S. Equal Employment Opportunity Commission.
Well, Cari, so far our conversation has focused on complaints in the private sector. I'm curious about the complaints in the federal sector and how that process goes.
Ms. Dominguez: Yes, Paul. EEOC has a dual responsibility not only to the private sector charges but also we write the regulations and review the appeals process for the federal sector. We've made some improvements but we're not doing as well. We still get about 23,000 complaints by federal employees annually, individuals who believe that they've been discriminated against, and if you conservatively cost those out, and the cost ranges depending on how long it takes, but it could be anywhere from $5,000 to $35,000 to process an EEO charge in the federal government, we're looking at hundreds of millions of dollars of taxpayers' money. And I recently held a commission meeting to look into that and find out what were some of the issues and to a person everyone was concerned about the delays. It takes over 420 days to settle a complaint compared to 86 days if we mediate one in the private sector or 171 days if we investigate it. Sometimes the appeals process and the review of that could take years. It's not uncommon to have complaints last four or five years.
So we need to take a look at the layering and making sure that we can simplify the process. And one way to do that is to introduce mediation early on in the process. We've had such great success in the private sector that we believe that if we have a mediation process early on and once an employee comes in to talk about concerns or whatever they're experiencing in their offices that may be a good opportunity not only to have EEO counseling but also introduce mediation.
So we're looking and that's one of my major priorities this year is to look for ways to streamline the federal sector complaint process so it's not as lengthy, so it's not as mixed. Oftentimes a lot of the issues that are in that pool of complaints have nothing to do with EEO. It may have to do with maybe more of a union-related grievance. It may be more to do with communications or bad blood between an employee and an employer. So we're trying to come up with some standards that really drive out the nonmeritorious allegations and really concentrate on those that have substance.
Mr. Lawrence: The five-point plan you described in the last segment laid out some broad management themes. What type of performance measures are you using to measure the success of the five-point plan?
Ms. Dominguez: We're using a variety of performance metrics. Of course, one of which we are constantly being measured against is how long it takes to process a charge so looking for ways through technology and by building the expertise of our investigators to cut down the time that it takes is always an important metric.
We're also looking at the satisfaction rate. We've gone out, particularly as it relates to mediation, to find out whether both the respondents and the charging parties are pleased with the quality of the services they're getting from the commission and the quality of the process and we've been pleased to see that we've had over a 90 percent satisfaction rate when we used mediation.
Another benchmark that we're trying, again, if we look at the fact that it takes on average 420 days to process a federal sector complaint let's see if we can do it in 300 days and how can we work more closely with the agencies. The most important measure we now have is the President's management agenda metrics of getting to green, getting to green in human capital, getting to green in the use of technology, and so we're working on our own getting to green standards. For example, one of the things we're working on this year is filing complaints online so that you don't have to come into a brick and mortar building, EEOC office, but you can actually do it out of the comfort of your home with commands and so on and you can file that and then having a hotline or some sort of a technical assistance desk to help with that.
Another aspect of measurements that I think is important has to do with our own infrastructure. Our infrastructure, I mentioned we have 51 offices, but our infrastructure has not had a fresh look since the late 1970s. At a time when we're much more mobile, much more technologically oriented, I think about my banking background. It used to be you had to go walk into a branch to deposit and people are a little leery about ATMs. And now they go online banking. I said there's no reason why we have to have people come into EEOC to file a charge. They should be able to do it in a variety of ways. They can come in if they want to or they can use technology. So that's an important piece of it.
And that would allow us to then distribute our investigators and mediators in a much more different way than they currently are. They currently are concentrated in pockets within major cities and other areas where there's a large activity of charges but that doesn't necessarily have to be that way. We can have a much broader presence throughout all 50 states if we in fact took full advantage of our technology. So that's an important one for us, getting to green and working closely with the Office of Management and Budget and the Office of Personnel Management and all of those components.
Mr. Lawrence: In terms of getting the complaint process online was it just as straightforward as actually putting the forms and such on the Internet or are there other things about security and privacy that were only envisioned as being done on paper that now require changes?
Ms. Dominguez: All of those things. You also have to remember a large bulk of our population of complainants are skills limited, oftentimes don't even speak English, so we have to be sensitive to that and we have to make it easier for those that are proficient with technology and have access to it. But it has to do with confidentiality issues. It has to do with if in fact they want to mediate. It has to do with making sure that there's a firewall between our mediators and our investigators and how that information once filed how we're going to keep it and how we're going to use it from one function to the other is critical.
So yes, we've had a number of attorneys looking at all kinds of issues relating to what's the best way and how to best instruct individuals if they're going to self-direct their own information processing, if they're going to writing the allegations and so on, how can we best instruct them so they can be clear in what we need in order to do our work?
Mr. Lawrence: Earlier in our conversation you talked about directing more resources to certain functions. I think you said 5 percent more. I'm curious. How are you linking resource allocation to performance as you look across the organization?
Ms. Dominguez: We're doing some of that. I'm not satisfied with where we are at the moment. Last year we had a banner year. We just had a phenomenal year in terms of reduced time to process charges, the increased number of charges that we processed, as well as the benefits that were collected for victims of discrimination. So it looks like on all points we really did a phenomenal job.
But we're still apportioning our resources on an even basis, not so much on a needs-driven or where is the majority of the charges coming from or what are some of the issues that may be precedent-setting. One of the critical roles of the commission is to identify issues that are novel or precedent-setting or that help evolve case law and take those cases to litigation so that we can get some court rulings on it.
We have not yet gotten our resource allocations to the point where we can be that flexible. It's still somewhat centralized. Over 90 percent of our resources are fixed expenses. They deal with salaries and rental leases, brick and mortar type things, so we have very, very little funding for discretionary allowances, a little more this year for technology but not as much as I would like, for example, if we can get mobile units and do this online application and take the funding from rental leases and use that for more investigative work or more outreach work.
Similarly, I think our ratio of employee to manager may be a little off-kilter and we need to take a look at that. We still have a somewhat hierarchical structure even as we rely on technology. I can now send an e-mail to all my employees. I don't have to rely on my direct reports talking to their direct reports talking to their direct reports and all the way down the line. So we have enabling technologies that help us reach but unfortunately we're working on it but I don't think our processes are where they should be to be able to redeploy those resources as quickly as we should.
Mr. Lawrence: Well, speaking of messaging, could you tell us about the "Freedom to Compete" public service announcements?
Ms. Dominguez: "Freedom to Compete" is an initiative that I launched shortly after I arrived at the commission and the message was very simple. It's when you peel all the layers of the laws that we administer, be it Americans with disabilities, age discrimination, what is it that it's all about? It's about the freedom to compete in the work place on a level playing field without regard to race or color or religion. So we decided to go out and aggressively heighten awareness and identify opportunities, to talk to individuals who see the commission as an enforcement, as a cop, and educate the public as to this is about everyone's rights.
I think the reason we have these laws is because as a nation we value fairness in the work place as well, as much as we value fairness in everything we do. And it's about that freedom to compete, giving people a chance to prove themselves and not to be saddled with prejudice or biases. And the "Freedom to Compete" is a way of capturing that, providing information to the public on the trends we're seeing, the ongoing biases and prejudices that we're still seeing, so that they can do some self-correction on their own.
We can't be boiling the ocean and covering all fronts. We have to engage in strategic alliances and partnerships which we have done. The Executive Leadership Council, for example, is the first group that we've partnered with and through them we launched those public service announcements. We had individuals that helped identify spokespersons and that was a very important partnership for us. Similarly, working with the Society for Human Resources Management, with the American Bar Association, their employment section, the EEO subsection, we have a number of partners and alliances that we need to tap into to promote the concept of freedom to compete.
Mr. Lawrence: That's a good stopping point. Come back after the break with us as we continue our discussion on management Cari Dominguez of the EEOC. What role will the EEOC have in homeland security? We'll ask Cari for her perspective when The Business of Government Hour returns.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence and this morning's conversation is with Cari Dominguez. Cari is the chair of the U.S. Equal Employment Opportunity Commission.
Well, Cari, can you tell us about some of the partnerships the commission has with the state and local organizations?
Ms. Dominguez: Yes. We've had a long-standing relationship with what we call FEPAs, fair employment practices agencies. Essentially they're state human rights commissions and we have working arrangements with them so that when an individual files a charge at the state level they can serve as our agents. Sometimes they file both at the federal level with EEOC as well as at the local level. They're a very, very important component of our work practices because they serve as agents. They keep us informed of what's going on at the various states. And now we are actually piloting an effort to involve some of those FEPAs in mediation on behalf of the commission.
Similarly with the TEROs, the tribal employment rights offices, they serve as representatives of the commission within the various tribes to make sure that if there are individual Native Americans who believe they're being discriminated against that they represent the commission and take those charges and process them on our behalf.
Mr. Lawrence: What role will the commission play in homeland security?
Ms. Dominguez: We will continue to play a very important role. We went out quite aggressively talking to national leaders of Muslims and Arab Americans and Sikhs. In fact the first commission meeting that I held related to backlash discrimination after 9/11. We want to make sure that innocent victims do not suffer and that anger is not misdirected at them because they happen to be Muslims or Sikhs. So from our perspective our challenge is to make sure that this valuable group of workers in America is not singled out, not profiled, in the workplace any differently than any other individual would be, so making sure that everyone gets treated fairly and equally under the law. And so we'll be coordinating very closely with the Homeland Security Department to make sure that that message gets out.
Mr. Lawrence: What are the next challenges on the horizon for the EEOC?
Ms. Dominguez: We have a number of challenges. Legislatively there are three laws working their way through Congress, one of which has to do with genetics discrimination. It's the new frontier. With the Human Genome Project and the decoding of the DNA we now have very sophisticated medical tests that can identify genetic markers, that can tell an individual whether they're predisposed to developing certain illnesses like multiple sclerosis, diabetes, carpal tunnel, et cetera, and there's some concern that if this information gets in the hand of an employer that it may be used for employment selection. Because you're genetically predisposed does not mean that the illness is going to be developed. But that's one of the new frontiers that Congress is looking at and considering passing a law prohibiting discrimination on the basis of genetics.
Similarly, there are a couple of other laws working their way through Congress, one of which is the Employment Nondiscrimination Act on the Basis of Sexual Orientation, which is not covered. It's covered in a number of states but not at the federal level. As well as a strengthened law relating to workplace religious discrimination and, again, a lot of it had to do with the backlash from 9/11. We received over 700 charges, by the way, after September 11th from Muslims and Sikhs and Arab Americans. The Sikhs have the long beard or the turbans or the dresses. A lot of them were being singled out. At least the allegations were that they were being singled out. So this Workplace Discrimination Act heightens awareness to some of these things along with many others.
So I think legislatively we'll have the new frontier of employment discrimination issues to address. Structurally we're going to continue to refine our processes. As I said earlier, at our infrastructure we commissioned the National Academy for Public Administration to come in and they are the only congressionally-chartered group that does a lot of work with federal agencies. We invited them to come in and interview hundreds of our employees and stakeholders to talk about what's working, what's not working, how can we refine our processes and make our organization flatter and return many more of our resources to the trenches, if you will, down to the investigative resources where we have such an important need.
Mr. Lawrence: What's your vision for the EEOC over the next five to ten years?
Ms. Dominguez: My vision is to continue to build on the excellence that we've gained so far. EEOC is the premier civil rights employment law enforcement agency in the nation. We've been charged by statute, by the President, to serve as the lead coordinator of all of these. We work closely with Justice and the Department of Labor and the Office of Personnel Management. We want to build on that and I wanted to take it to a higher level. I think we need to be the global premier enforcement agency and we want to do it by modeling the best, the excellence that we can model in terms of outreach, in terms of professionalism, in terms of our enforcement activities.
We've been working very closely with Canada and European countries. Especially when you have so many multinational companies like IBM, for example, all over the globe we want to make sure that we facilitate developing consistent standards across countries and the way to do that is by sharing our expertise with other countries. So I have personally committed to working very closely with my counterparts in other nations, participating in global summits and sharing information, because it's a lofty vision, but the world is getting smaller and we need to make sure that we speak with one voice.
Mr. Lawrence: Could you ever envision the day when the commission goes out of business because there are no more complaints?
Ms. Dominguez: That I think is a dream for all of us who work in these types of programs. Wouldn't it be an ideal world when we no longer have to endure discrimination or bias or prejudice? So yes, I hope it will happen in my lifetime but the issues keep evolving. It used to be hiring. Now it's on the termination side. So it means that a lot of people are getting hired so that's the good news. It used to be that the doors were locked for many.
So yes, I think the issues are evolving, becoming more sophisticated, and I hope that in my lifetime we can see a reduced amount of focus on this and a much more aggressive effort at the harmony in the workplace.
Mr. Lawrence: Throughout our conversation this morning you've talked about the EEOC working with different organizations at the state level, at the government level, at the private sector. What are the management challenges and how do you make that collaboration work?
Ms. Dominguez: A lot of it, again, it gets back to the people. Even in our own agency it's coordination and how people make it work. And that's what I have found to be the success, by reaching out to my counterparts at the state level. Every state that I visit I make it a point of visiting with my director of the state Human Rights Commission, my counterpart, and that's what's going to make the difference. I said earlier I believe in the power of one. I do believe that a person can make a lasting difference and we certainly have plenty of experiences along those lines.
So the coordination of that outreach requires leadership. It requires extensive communications. It requires modeling the behaviors that we want others to emulate. And if we do that and we do it consistently and credibly it'll happen. It'll happen throughout.
Mr. Lawrence: What advice would you give to perhaps a young person interested in a career in public service?
Ms. Dominguez: My advice would be to go for it. It's a novel calling. I have been enriched tremendously personally by my experiences in government. It may not be the most financially rewarding but it's certainly the most intrinsically rewarding because you do make a very positive difference and you see the results day in and day out. It's just a wonderful career and I think with all the exciting changes about to hit in the federal government that we'll see the kinds of opportunities we're used to seeing in the private sector take hold in the public sector. So I would encourage everyone who's listening to give it a serious thought, not to be intimidated by those long forms, to fill the applications but to really go for it and see beyond that because they can make a big, positive difference.
Mr. Lawrence: I'm afraid we're out of time this morning, Cari. Thank you for joining us.
Ms. Dominguez: Thank you, Paul. It's a pleasure to be here. And remember www.eeoc.gov is where you can get more information about what we're doing.
Mr. Lawrence: Great, thank you. This has been The Business of Government Hour featuring a conversation with Cari Dominguez. Cari's the chair of the U.S. Equal Employment Opportunity Commission. Be sure and visit us on the web at businessofgovernment.org. There you can learn more about our programs and research into new approaches to improving government effectiveness. You can also get a transcript of today's very interesting conversation. Again, that's businessof- government.org.
This is Paul Lawrence. Thank you for listening.
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Tuesday, October 22, 2002
Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, the co-chairman of The IBM Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improve government effectiveness. Find out about The Endowment by visiting us on the web at businessofgovernment.org
The Business of Government Hour features a conversation about management with a government executive who's changing the way government does business. Our conversation this morning is with Dennis Dollar. Dennis is the chairman of the National Credit Union Administration.
Good morning, Dennis.
Mr. Dollar: Good morning, Paul.
Mr. Lawrence: And joining us in our conversation is Debra Cammer.
Good morning, Debra.
Ms. Cammer: Good morning, Paul.
Mr. Lawrence: Dennis, could you give us an overview of the mission and the activities of the National Credit Union Administration?
Mr. Dollar: The National Credit Union Administration is the federal agency established by Congress, an independent federal regulatory agency who is charged with the responsibility for chartering, supervising, and regulating all federally chartered credit unions in the United States and administering the National Credit Union Share Insurance Fund, which is the equivalent, I guess you could say, of the FDIC. What the FDIC fund is to the banks, the National Credit Union Share Insurance Fund is to credit unions.
We insure the accounts of all depositors up to $100,000, and administer that Share Insurance Fund. So we are the regulator of federal credit unions and the insurer of all federally insured credit unions, whether they are federally chartered or state chartered.
Mr. Lawrence: How big is your organization, and what type of skills do the employees have?
Mr. Dollar: Our agency has a little bit less than a 1,000 employees. About three years ago, we were about at 1,050. We are now at around the 945 range. We have been engaged in some efforts to try to streamline the agency and improve our efficiency some, but we're right in that range of 1,000 employees.
We're a wide-flung organization, as an examination and supervision agency that actually hires examiners that go into credit unions, and conduct supervisory visits, that do examinations and assign rating codes to the safety and soundness of America's credit unions.
We have about 600 of our employees that are field-based. In fact, we have one of the highest percentages of employees that telecommute of any agency, because they do not all operate out of a regional office somewhere. We do have 6 regional offices throughout the country, but they are supervisory in nature. Our examiners, about 600 of them, operate out of their homes. They go to the credit unions, they conduct their examinations. They come back and report to that regional office.
Then we have here in Washington, actually in Alexandria, Virginia, which is where our headquarters is located, we have about another 400 employees that are the supervisory employees that are dealing with the regulatory issues as well as the oversight issues of those 6 regional offices and those 600 scattered employees. Most of our examiners come from an accounting or auditing background. They are examiners by nature, so therefore, they are very meticulous, detail-oriented compliance officers, but also have to be very good in the ratio evaluating mode and asset liability evaluating mode.
We have a very extensive training program that prepares them, and I think we have had tremendous success. America's credit unions have the highest asset level that they have ever had in their history. They have the highest capital position, which is a net worth position, of any time in their history. We have never had one penny of taxpayers' dollars that has been required to bail out a federally insured credit union. It is been one of I think the true success stories of the financial services industry of our country, even though it's a small segment. It's a growing and emerging segment, and we want to make sure they are safe and sound as they continue to grow and emerge.
Mr. Lawrence: Can you give us a sense of how many credit unions there are in the country?
Mr. Dollar: Right about 10,000 now, Paul. Probably 10 years ago, there were about 20,000 credit unions. Credit unions have seen what a number of industries have, and that is a consolidation over the course of years. So there are about 10,000 credit unions today. About 6,500 of those are federally chartered; about 3,500 of those are state chartered. But 97 percent of them are federally insured. And they range in size from a couple of hundred thousand dollars in assets that might just be the credit union for a very small business or a small church or a small association, to the largest credit union in the world, which is maybe Federal Credit Union, which is closing in on I think in the vicinity of 13 to 14 billion dollars in assets.
The overwhelming majority of credit unions are small; over 65 percent of them are 20 million or less in assets. But they meet a real need, I think, and the market continues to grow. And as it does, we want to make sure that these credit unions are not just here for this generation of credit union members, but for generations to come. And that's where our role come in, as regulators, examiners, supervision program.
Ms. Cammer: Dennis, how would you describe the relationship between NCUA and the federally regulated credit unions?
Mr. Dollar: Well, of course, we are their chartering entity, Debra. But, we also -- once they are chartered and are in place, we have an ongoing safety and soundness evaluation program and examination program which, every 12 to 18 months, we will go into every federally chartered credit union with actually a site visit. We will look at their policies; we'll pull loans from their loan portfolio; we'll look at their investment portfolio; we'll ensure that they are complying with all rules, regulations. We will examine their numbers and ratios as it relates to the safety and soundness standards that we monitor. And, I would say that the relationship is the standard regulator-regulated relationship. And that is, they always dread seeing us to come, but they realize how important it is for the integrity of the credit union system that there be in place an effective system of regulation and oversight. And that's what we provide.
We also work hand-in-hand with the state regulators in the 50 states for those state chartered credit unions. And because we are the federal insurer and most of the state chartered credit unions are federally insured, we oftentimes work hand-in-hand in a joint examination with the states when the states go in. So we oversee all the federally chartered credit unions and we work hand-in-hand with the states on state chartered credit unions in our roles as insurer.
Ms. Cammer: Now, you mentioned the National Credit Union Share Insurance Fund. How would it be used in the event of financial crisis?
Mr. Dollar: Well, a financial crisis that resulted in the forced conservatorship or liquidation of a credit union would bring the Share Insurance Fund into play to make sure that after all the assets of the credit union are liquidated and all of the liabilities are paid, that if there is any shortfall in what a member had in their depository account, up to a maximum of $100,000, the same as the FDIC fund, then the National Credit Union Share Insurance Fund would make up that difference.
And it is a very, very strong fund. As I said a moment ago, the Fund has never been unable to, not only meet any losses in credit union, but to be able to meet losses and still continue to grow its equity level. In seven of the last eight years, we have been able to actually pay a dividend back to the credit union that invested in the Fund.
This Fund is not funded by taxpayers' dollars. It is backed by the full faith and credit of the United States government. And if the Fund ever exhausted itself, the full faith and credit of the United States government is there to back it up. But that has never happened. And in fact, we have never seen our equity level go below one percent.
And so we have a very strong Fund -- we've been able, as I said, in seven of the last eight years, to be able to pay a dividend back to those credit unions who funded the Share Insurance Fund. They fund with one percent of their assets and we adjust that on annual basis, based upon either asset growth or asset shrinkage. And they then keep one percent on deposit on us; we invest that.
The earnings on that investment, we use to be able to pay any losses that may come, and also to build that equity level up to be able to cover against tough times or hard times. And we are very proud of the fact that unlike some of the other insurance funds, if you recall the savings and loan crisis of the '80s that cost the American taxpayers some $40 billion to be able to satisfy all of those claims, we've never had the first penny of taxpayers' dollars been called upon to bail out a credit union. We think that's a sign of the conservative nature of credit unions and how they do their business well. But I think it's also -- if I pat our agency at the back a little bit, a sign of good oversight, good management, good integrity in our supervision process to make sure we get a hold of problems early and don't ever let them get to a crisis stage, if we can help it.
Ms. Cammer: Dennis, can we switch gears a little bit. I'd like to have you explain to the listeners what your role is as chairman and how the three members of the Board interact with you.
Mr. Dollar: Well, Debra, the NCUA Board is a three-member board appointed by the President, confirmed by the Senate, that is the policymaking board for the National Credit Union Administration.
We make and adopt and promulgate all rules and regulations that federal credit unions operate under and that help to administer the Share Insurance Fund.
As chairman, I'm designated by the President to be the presiding officer of the Board, to set the agenda for the Board, to be the primary spokesperson for the agency and all matters of dealing with other agencies, other regulatory agencies, the Congress, the Administration, and the like. We have an excellent board. We have a three-member board at present that works together very, very well. We are required, as most regulatory boards are, to come from a bipartisan background; in other words, all three members of the Board cannot be from the same political party. And we have presently myself serving as chairman, Debra Matz from New York, who is serving as one of our Board members, and JoAnn Johnson from Iowa, former state senator from Iowa who's serving as the other Board member.
We think we have a good board in place and we think that some good things are happening in America's credit unions.
Mr. Lawrence: That's a good stopping point. Stick with us through the break as we continue our conversation with Dennis Dollar of the National Credit Union Administration.
Have you heard of the initiative called "Access Across America"? We'll ask Dennis more about it when The Business of Government Hour returns. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dennis Dollar, chairman of the National Credit Union Administration.
Joining us in our conversation is Debra Cammer.
Well, Dennis, I wanted to ask you about your career prior to serving on the NCUA Board.
Mr. Dollar: Well, Paul, I've had a career that is both a private sector career and public sector career. Shortly after my graduation from the University of Mississippi in 1975, I ran for a seat in the Mississippi House of Representatives. Mississippi is my home state. I'm from Gulfport, down on the Mississippi Gulf Coast.
And I ran for and was elected to the state legislature in 1975 at the age of 22. I was one of the youngest members to ever serve in the state legislature in Mississippi. And so I began my public career in elected office. And I served eight years there. In addition to my years in the legislature, at the same time, I was in the real estate business and affiliated with the local junior college.
Upon my leaving the legislature, after eight years, I went into administration in the college that I was teaching at. And I served in that position until 1991. In late 1991, I was contacted by the Gulfport VA Federal Credit Union, a relatively small credit union, there in the Mississippi Gulf Coast area. They needed a CEO. They needed somebody with proven leadership skills. And they said that my leadership record at the junior college that I have been affiliated with, as well as my public career, having been a member of the legislature and the involvement in the community that that brings, was exactly what they were looking for. Interestingly, I had never been in the financial services arena, but I felt like that good management abilities, good leadership training, willingness to put the principles you have learned in your career in place works in any field.
You can learn the details. It is those innate abilities to lead and to bring to the leadership table the attribute that can be successful -- that have proven themselves, and I'm certainly not the only one. There have been thousands and hundreds of thousands of leaders who have moved their leadership abilities from one field to another and been able to be very successful.
So I went to the credit union in '91, knowing that it was a change in direction, but believing that those attributes would be successful there as they had been in other fields. I took a fairly struggling credit union that was having some problems; interestingly, problems with the very agency that I am today the chairman of, and we were able to turn that organization around, take it from being a relatively borderline credit union as far as its long-term financial stability to an award-winning credit union, winning local and national awards in every area, from financial performance to the social responsibility programs that we had in place.
And so after serving in that capacity for about six years, I was contacted by the Senator from my home state, Senator Trent Lott -- who happened to be serving as the Senate majority leader at that time -- about the Republican seat on the NCUA board. It was coming up for appointment, and that was during the Clinton Administration.
The traditional protocol is that the President will many times defer to the ranking senator from the other party for appointments to the other party's seat on these various boards and commissions. And he said, you've got a background in the political arena. You would function well in Washington. You have a background in the credit union arena. We need someone who understands and knows the issues, would you be interested in coming up and serving on the NCUA Board.
I did my homework and came to the conclusion that would be a good career move for me and my family. And so I told the Senator, if you could make it happen, we'd love to come and serve. And so he was able to bring that about, and I was appointed in 1997 and was confirmed in October -- took my seat in October; served as a board member from '97 until 2001.
When President Bush was elected and there's now Republican in the White House, he looked on all of these boards to try to find either the Republican that was serving or someone from his side of the aisle to elevate to the chairmanship. He was, I'm very honored to say, impressed by what we had done as a member of the Board, and elevated me to the chairmanship in September of 2001.
Mr. Lawrence: Give me a little perspective on having seen both sides of it. You have been an elected official and an appointed official. How does it feel to have seen both sides?
Mr. Dollar: You know, as Judy Collins sang back in the '60s: "I've seen life from both sides now." It is really an interesting perspective to have seen life from both sides now. I'm the only chairman of the NCUA Board to ever have been subject to an NCUA examination. I'm the only chairman of the NCUA board ever to have paid an NCUA operating fee that supports the budget of the agency. I think that does give a very unique perspective.
It has enabled me at so many staff meetings with our outstanding leadership team there at NCUA, when an issue might come up and they might say, "When we pass this regulation, here's how it's going to work in America's credit unions," to be able to say "no, wait, you don't understand; in the real world, here what's going to be the cause and effect of this action." And I think bringing that to the table has not only enabled me to be more effective regulator of credit unions, having understood the issues, but it has helped us as an agency to be a more effective agency. And I believe it is in some ways helped credit unions to have some higher confidence level that although they may not always agree, and they certainly do not, with every decision that we make from a regulatory or supervisory perspective, they know that the guy that's heading the agency at least has been where they are, has been in the trenches of the credit union movement. And I think that credibility does help you be a much more effective regulator.
Ms. Cammer: Now as the chairman of the NCUA, you're spearheading an initiative called "Access Across America." Can you tell us about the program and what the goals are?
Mr. Dollar: "Access Across America" is a name we have given to an umbrella of efforts that we are making at the National Credit Union Administration to try to encourage credit unions to extend their field of membership; that is, the people that they are legally or regulartorily authorized to serve, into some of the underserved areas of America.
There are over 90 million Americans living today in census tracts that are designated by the U.S. Treasury Department as underserved or unbanked. Many of these are underserved or unbanked because the traditional for-profit financial institutions have fled these areas. Unfortunately, what they have left many of these communities to is to pawnshops and check cashers and the rent-to-own companies who at 400 or 500 percent return can make a profit there, but unfortunately, the impact on those communities has been very unfortunate. And I don't believe anyone's ever going to achieve the American dream if their primary financial institution is a check casher or pawnshop.
So we have tried to encourage credit unions, which, by their nature and by their definition are not-for-profit financial cooperatives. As not-for-profits, they don't require as high of a return to be able to go in some of these areas and offer these financial services. So the "Access Across America," it has been our goal to try to see credit unions move in to every one of those census tracts to provide lower cost financial services to every one of those 90-plus million Americans living in those underserved areas.
The result is twofold; not only is it consistent with the credit union heartbeat -- and credit unions were formed for the purpose of providing access to credit to people of largely modest means that may not be able to gain credit from traditional financial institutions. They were formed as an alternative. And they still to this day, although credit unions have grown and they offer a wide range of services to people from all economic levels and all works of life, they still have a heartbeat for making sure that the little guys are not forgotten. So in many of these communities, they need access to some lower cost financial institutions.
So it's a win as far as helping credit unions continue to meet their mission. But it's also a win for us as a regulator, because one of the concerns with credit unions has been the fact that they have had a limited field of membership. They were restricted to the employees of a certain company or a certain association; some to a community, but a limited community and a very localized community.
We as regulators realize the importance of diversification. We don't ever want to see a credit union go under because their sponsor group goes out of business or gets bought out by another company. We want to see these credit unions continue to survive. And as a regulator, that's important from a safety and soundness and financial stability perspective.
So "Access Across America" is designed to be not only an opportunity to extend financial services to some people who really need it in these underserved communities, but also as a source of some diversification opportunities for these credit unions; to enable them to be able to diversify their risks.
Yes, there's increased risk in some of these areas. But it's a manageable risk, and there's some good business in these areas. And with a good business plan, with a well-thought approach to going in these areas, we have found credit unions with tremendous, tremendous successes. And we see them making a tremendous difference in these communities.
If I might, let me just share you a couple of statistics and show you how successful "Access Across America" has been just in the two years it's been in place. In 1999, the first year that credit unions were able to do it; before we began really emphasizing it, we had seven credit unions that adopted underserved areas. About 235,000 Americans lived in those areas. Last year, 2001, only two years later, with our "Access Across America" initiative in place, with the streamlining of process to remove regulatory impediments and make it easier for credit unions to adopt these areas, we had 165 credit unions that adopted underserved areas.
They actually adopted 282 underserved areas. Some adopted more than one. 16.1 million Americans who at the beginning of the year 2001 were not eligible to join a credit union were eligible by the end of year. That's an increase from 235,000 just two years ago to 16.1 million. Obviously, this is done without any regulatory mandate to force credit unions to do it, and we did through a regulatory empowerment approach without lowing standards but streamlining process, we made that possible. This year, in 2002, we have already got 184 credit unions through the end of September.
We already exceeded last year's number; 303 underserved areas, also exceeding last year's number. 17 million Americans living in underserved areas that are eligible already this year. We have already exceeded in nine months the successes of last year. We're very proud of the results and we think that it's going to make a real impact in a number of those communities. Mr. Lawrence: That's a good stopping point. Come back with us after the break as we continue our talking about management with Dennis Dollar of the National Credit Union Administration. This is The Business of Government Hour. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dennis Dollar. Dennis is the chairman of the National Credit Union Administration.
Joining us in our conversation is Debra Cammer.
Well, Dennis, let's switch gears a little and talk about management within NCUA. We know that last year, you commissioned a working group on Accountability In Management, or AIM. What are the results of the AIM group study?
Mr. Dollar: One of our goals was to try to bring about efficiencies within the organization. As I mentioned a moment ago, Paul, we had 20,000 credit unions that we were regulating or insuring in 1985, and today, it's down below 10,000. Naturally, you cannot continue to grow an agency or keep an agency staffed to oversee 20,000 institutions when you're now only overseeing 10,000.
So we wanted to make sure that we had the most efficient operation possible. We felt like we owed it to our stakeholders to make sure that we were as efficient as possible with their dollars. As I said, the agency is funded entirely by either operating fees that we charged to our federal credit unions, or a transfer for overhead that we bring from the Share Insurance Fund. That again is funded by federal and state chartered credit unions. So the credit unions pay our bills entirely. And we have an obligation to them to be as good a steward as possible.
So AIM was put together with some of our best and brightest minds to just do a very serious internal self-study. We try not to be personnel-driven but try to be efficiency-driven. And one of my goals was try to see if we could not result over a two-year period and at least a minimum of four percent cutback in the staffing of the agency without any layoffs, without any forced retirements, to be able to see if we could find a way to do it through attrition, to disrupt our agency as little as possible even as we achieve these efficiencies.
We began to look at how we're allocating out resources, which is absolutely necessary if you're going to bring about a four percent reduction without any layoffs, without any RIFs, without any forced retirements. You've got to really look at your limited resources and see how we're applying them. Particularly when you're an agency with only 1,000 employees. It is harder to get a four percent cutback in an agency of 1,000 than it is in agency of 10,000. And so, what we did, we really went to the foundation of what we do, which is safety and soundness related, our safety and soundness oversight program, and said how can we allocate our resources more effectively, to be more consistent with the President's Management Agenda, to be results-oriented, to be citizen-centered and not bureaucracy-oriented, to try to be market-based in our approach, to realize that the credit union community is changing; realize the risk factors are changing from where they were two years ago, let alone five years ago or ten years ago, as credit unions offer more and more services.
And so we began to retool our program more towards a risk-focused examination program, in which we said every credit union doesn't need to be examined every year. Some of them perhaps could go out to 18 months based upon on their lower risk portfolio; whereas there are others based upon either their higher risk or perhaps problems that they may having in the credit unions that may need us to go in there more often than once a year.
And so as we began to look at risk-based scheduling and risk-focused examination, we found that we could reallocate our resources and be much more effective in focusing on risk majoring on majors, if you will, instead of majoring on minors, and actually save tens of thousands of examiner hours in the process. Those examiner hours, we were able to free up to be able to help struggling credit unions, credit unions that may have problems or concerns, higher risk portfolios; and others, we would be able to actually reduce through attrition of some of our staff. And we're well on the way to doing that. 3.6 percent of our reduction, we have already achieved, and as we go to our 2003 budget year, we will exceed the four percent goal that we put forward in AIM.
Ms. Cammer: What kind of training are you offering your employees so that they can more effectively analyze the risks?
Mr. Dollar: Debra, that's the key in any implementation of a management program or management shift in direction; the training of your people. And particularly when you're doing a cultural change, where you're saying no longer are we going in on the same time frame every year to every credit union with the same checklist in every credit union. We're now going to go in based upon the risk portfolio of that credit union.
That requires a real change in our examination core, and we've done extensive training not only through our training programs that we have on an ongoing basis, whether it be CD-ROM training or the like. We this summer brought together every examiner in our agency for four weeks of intensive training, in which they did nothing but receive training on the new risk-focused examination. It's a part of changing not just our examination approach, but changing more importantly their examination approach, and when you have examiners doing things a certain way for 15-20 years, it is a cultural change.
Same thing happens to the private sector. When I came in to that credit union, we had loan officers that have been administering the loan policy the same way for the last eight years. To come in and change from a culture of trying to find a way to disapprove the loans so that you don't have to that extra paperwork, to trying to find a way to approve the loan if you can within proper risk management parameters is a complete cultural change. Some made the change; some didn't. It was a management challenge. We had the same thing in NCUA, but I've got to say that our staff has responded very well, very positively, and I think the key is how you sell it and the training you give to where you don't just go forward and say "We're changing our approach. Jump on board. Hope it works for you."
But to actually go through this extensive four-week training. We even brought in the state regulators who are our partners in overseeing state chartered credit unions, and gave them this same training. So if they choose to do the same type of risk-focused program that we do, that we will be able to work in coordination with each other.
The results of that are already paying off as I travel through the country and meet with credit union groups and trade associations and the like. The feedback that I'm getting, although we're only a matter of months into this, is that it is a much more streamlined process, much more efficient. They're focusing on where the risk is. They're not rummaging through $50 travel vouchers. They're in there looking at the asset liability management of the credit union; they're looking at the risk portfolio of either investments or lending. They're looking at our policies to make sure they're in place, and you, as an agency, are getting in my credit union and getting out more quickly, more efficiently, and the results are very powerful.
Ms. Cammer: You mentioned earlier the President's Management Agenda. I'm wondering if you can talk a little bit more about how AIM and the PMA relate and how you're leveraging that to improve the organization.
Mr. Dollar: One of the publications I that keep at the edge of my desk all the time is the President's Management Agenda. Not only am I an appointee of his Administration and therefore am committed to following his directives, I believe that they are tailor-made for our agency. What his whole focus is as it relates to the principles of reform that are in the President's Management Agenda is to get away from doing things the way that you've always done them and to get away from a bureaucracy-driven approach to administering an agency and to get to a results approach that impacts positively the person who is regulated without lower standards in the process.
And so AIM was an offshoot, if you will, from the President's Management Agenda, but it is I think the reason for the President's Management Agenda, to say just as GIPRA was designed to say, and other strategic planning initiatives, that you can't do things the way you've always done them in a changing and dynamic marketplace. And the financial industry is probably the most fast-changing and most dynamic marketplace out there today. And for credit unions who only have three percent of the deposit base in this country, if you add all the deposits of America credit union together, they don't come up to the asset level of Citibank.
So we're a relatively small player, but an emerging player and an important player, and a player that you want to know that those $500 billion of insured deposits that are out there are safe and sound. But the changes that are being required of these credit unions require them to be able to adjust quickly and us to able to do so as well. And that's why when the President says in his management agenda that he wants agencies to be market-based in their approach, he wants us to realize that that marketplace out there changes faster than we as government do at times.
And if we are not willing to allow those that we regulate to adjust to that changing marketplace, we may create the very problems we're trying to avoid, and that is safety and soundness problems by virtue of the fact that the marketplace moves more rapidly than the ability to credit unions to adjust to it. So we have to change our approach to be empowering within the bounds of safety and soundness, to be willing to help someone meet a standard rather than lowering that standard. And I think that's where AIM and the President's Management Agenda mesh very effectively.
Mr. Lawrence: People are an important part of change, and I note that in the strategic plan for the next five years, human capital's called out rather boldly. What are the challenges you're facing in this area?
Mr. Dollar: Well, the challenges that we are facing are the same challenges that other agencies are facing, and frankly, the private sectors are facing as well. And that is that there is greater accountability for the bottom line of our budget from our stakeholders, but yet there is also at the same time a greater demand from them for a more effective organization, a more professional organization. So we had to have the challenge of walking that very difficult and fine line between efficiency but still providing the level of service that our stakeholders deserve. It's the biggest challenge we've had, but it's not unique to us, and I'm very pleased with the results we've shown this far.
Mr. Lawrence: That's a good stopping point. Come back with us in a few minutes as we continue talking about management with Dennis Dollar of the National Credit Union Administration. What does the future hold for NCUA? We'll ask Dennis for his thoughts when The Business of Government Hour returns. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dennis Dollar. Dennis is the chairman of the National Credit Union Administration.
Joining us in our conversation is Debra Cammer.
Ms. Cammer: Dennis, what are some of the new technologies you're seeing credit unions use to better serve their customers?
Mr. Dollar: You know, Debra, we've spent a lot of this discussion this morning talking about change and the fact that the environment is changing and the dynamic nature of the financial services industry is changing, and I would have never dreamed of some of the technological advances of the last five years in financial services. When I left my credit union to come to the NCUA Board, less than one percent of the credit unions even had a website, let alone interactive home banking.
Today, I just got our most recent statistics, that show over 10.7 million credit union members are now using online internet banking at their credit union's website. And when you realize that there are a little over 80 million credit union members nationwide, that's a remarkably high percentage in a very short period of time.
We've gone from a period where perhaps seven years ago, there were very few credit unions who had anything more than an informational website, to now where over half the credit unions have an interactive website actually able to do transactions, and very likely five years from now, a credit union would not be able to compete in the marketplace without that. I mean, that is a required change and adjustment for credit unions, but it is also for us, because all of a sudden now, we have to have our oversight program much more flexible and adaptable to looking at online transactions, online security -- when I said a moment ago that we're going to be a more risk-focused examination program, and if you're going to be risk-focused today, there's one thing you have to look at is the security of the internet transactions.
So I think that we have seen change, we will continue to see change. I'm not a very good crystal ball type of guy to know exactly what the changes are going to be five years from now or ten years from now. One thing I know for sure, there will be changes and they will be more expensive to deliver, and that more and more credit unions, 80-plus million and growing members will be demanding those changes to be provided and those services to be provided; more of them will be technologically based. And credit unions will have to walk that line from being high tech to also being high touch. And they don't want to become the large impersonal financial institutions that many traditional banks have become. That's a part of the credit union difference, a part of the credit union uniqueness.
But yet their members are demanding more and more of those services. They got to be able to find a way to provide those services, technologically advanced and costly that they may be, and while still maintaining that high touch that has been the nature of what a credit union is. So, it's going to be a challenge for credit unions. Its going to challenge for us, but it is one that I believe that credit unions are up to, and I know that we as an agency are adapting to and our strategic plan is very much focused towards being that type of an agent of change without lowering standards in the process.
Mr. Lawrence: But, I will ask you to pull your crystal ball out and talk about your vision for NCUA in the next five to ten years.
Mr. Dollar: Oh, we do have a vision statement for NCUA and a strategic plan that we just this month updated for 2003-2008 period. And one of the primary focuses of it if you can capsulize it is, yes, there are certainly human resources aspects, there are efficiency aspects. But one of the true foundations of this strategic plan is that we want to be much more outwardly oriented. So many times when you do a strategic plan, you focus inwardly. How can we restructure a department? How can we cut down on some of our procurement costs?
All of those internal type of things, and they are certainly important to study. But when you're in the regulatory arena, particularly regulating an industry in which the marketplace is changing as dramatically as it is in the financial services delivery arena, you've got to be outward-looking in your strategic plan. And so we have tried to draw a plan that is designed toward a maximum of earned flexibility. I emphasized the word "earned flexibility." We've put in place a regulation we call "reg flex" and an entire approach we call "reg flex," which is based upon earned regulatory flexibility. Not granting it to everyone, not deregulation, which removes the regulatory requirement for everyone regardless of their performance, but to realize that based upon a risk-based analysis, some credit unions don't have the same regulatory requirements applied in the same way as others. And we need to allow them to earn greater empowerment. And I think that is putting in place a regulatory regime, if you will, that is adaptable to these changes that we know are going to come, even though we don't what all of them are.
Mr. Lawrence: How will you measure the success of an initiative like that?
Mr. Dollar: I think you measure the success of any initiative in the foreseeable future by the overall results of the industry. And if you regulate an industry, although we regulate individual credit unions, our responsibility is to them but also to the overall credit union industry. And through that, through the members, those 80 million members who put their hard-earned dollars in those credit unions, I think that if five years from now, ten years from now, we see stronger credit unions, we see more credit union members, we see credit unions who have a more diversified field of membership and therefore are safer and sounder and stronger, if we see credit unions that are offering more products and service to more members from all walks of life, then I think we will have been successful. One of the challenges when you're in an appointed position such as I and my colleagues on the Board are in is that we have a fixed term, six years as our term.
Many times, if you are really going to try to be visionary, you're going to put in place programs that you will not be able to measure the ultimate success of while you are there. But rather than just dealing with the problems of today and the challenges of today, and the opportunities of today, I think it is incumbent upon us to look at tomorrow and try to put in place things like "reg flex," "Access Across America," "AIM," that may not necessarily pay dividends today. "Access Across America," for example, those 33 million Americans that two years ago were not eligible to join a credit union that are now eligible, it will be ten years from now, 20 years from now before we know how many of them actually joined, whether or not they get a loan, will they start a small business, whether or not they break themselves away from the pawnshops and the check cashers and are able to bring about financial self-sufficiency, maybe homeownership because they have access to a credit union.
But I believe it is worthwhile in doing, even though the ultimate evaluation period will be down the line. That's what visionary leadership is all about. And this is one thing that contrasts a little bit to my days in elective office. The tendency in an elective office many times is to try to come up with some project that you can have your picture taken in front of for the brochure of your next re-election campaign. Immediate results are what pay political dividends.
But I think as fast as the marketplace is changing, as important it is for government to be responsive to those changes and that dynamic nature of that marketplace, we've got to be willing to say, you know, some of our projects may not show the payday over the next six months or even the next six years. But that does not mean that they are not worthwhile projects for us to get ourselves involved in.
Mr. Lawrence: Well, given your unique perspective and your service and your career in public service, I'm curious, what advice would you give to a young person considering a career in public service?
Mr. Dollar: Well, first is just not to discount it. So many times in today's society, the lure of the paycheck of the private sector, to be the next dot com millionaire, many times makes certain of our young people as they come out of college or go into their careers to discount public service.
The ability to impact lives, the ability to be able to make a difference in their community is a reward within itself. And I think the pay of public service has greatly improved in recent years. I think that is a trend that will continue. I think that trend must continue so that we can compete for the best and the brightest in the public sector. But I think there is an addition to that; the reward from making a difference, in making a positive difference. Well, I would hope that any young man or young woman coming out of college, beginning their career today, particularly in this area, when there are so many public service opportunities available to them, would at least not discount public service as a possible source of career. And then secondly, I think, to involve themselves in the community, to involve themselves in the decision making process, because it is important that those of us in the public sector be aware of public issues and community issues and the like.
And sometimes, young men and young women say, "How do I get started?" It may be as simple as getting involved in a community organization. It may as simple as getting involved in a chamber of commerce on a local basis. It may be as simple as participating in the combined federal campaign. But some way to be able to interact with those in the public sector that are always looking for talent; that are always looking for the next generation of the best and the brightest. And I think that you have to get that exposure before you able to have those opportunities.
Mr. Lawrence: That's a good stopping point, because Dennis, I'm afraid we're out of time. Debra and I want to thank you for being with us this morning.
Mr. Dollar: It's been a pleasure. And let me just close by saying that if any of your listeners would like additional information about credit unions or about the "Access Across America" initiative, they can contact our website, which is www.ncua.gov. And we also have a special website for "Access Across America," which is www.accessacrossamerica.gov.
Mr. Lawrence: Great. Thank you very much. This has been The Business of Government Hour, featuring a conversation with Dennis Dollar, chairman of the National Credit Union Administration.
Be sure to visit us on the web at businessofgovernment.org. There, you can learn more about out programs and get a transcript of today's very interesting conversation. Once again, that's businessofgovernment.org.
This is Paul Lawrence. Thanks for listening.
Friday, October 4, 2002
Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, the co-chair of The Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about The Endowment by visiting us on the web at www.businessofgovernment.org.
The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation this morning is with Dr. David Chu, Undersecretary of Defense for Personnel and Readiness for the Department of Defense.
Good morning, David.
Mr. Chu: Good morning, Paul.
Mr. Lawrence: And joining us in our conversation is Bill Phillips.
Good morning, Bill.
Mr. Phillips: Good morning, gentlemen.
Mr. Chu: Bill, how are you?
Mr. Lawrence: David, what's the mission of the Office of the Undersecretary for Personnel and Readiness?
Mr. Chu: We're the 'people' people of the Department. That is to say, we manage everything ranging from what the pay table is going to look like for military personnel, through the health care system that provides for them and their families, all the way through to questions of overseeing the readiness of our units, in terms of the training that they get, and where they get that training and how it's going to be conducted.
Mr. Lawrence: And how does it fit in the overall mission of the Department?
Mr. Chu: People, as you all I think appreciate, are the heart of the Department. And of course, there are a lot of people. We have about 3-1/2 million people when you count the active reserve and the civil force of the Department, in terms of the direct employee workforce of the Department.
And without those people, who are quality people, who are well-trained, well-motivated to do the kind of job that the nation needs, there really isn't a military. So this is the heart of the Department's capacity to fulfill the nation's needs.
Mr. Lawrence: David, as the Undersecretary for Personnel and Readiness, what are your specific duties?
Mr. Chu: My job is really to set policy within the framework that the Congress provides by its statutes and consistent with the administration's aims and agenda. Now, in some cases, we'll go back to the Congress and ask for a change of policy.
But to give an example, we supervise the health care system for the military. We buy somewhat over half of the health care services that our people need from the private sector. We have contracts through which this is managed. In fact, at this very moment, we're re-bidding those contracts.
And so my job is to set the parameters that are going to describe those contracts. How many regions are we going to have, how many contracts are we going to pursue, what degree of competition should we aim for, what's going to be the nature of those contracts, what are going to be the incentives that those contracts contain.
I don't actually run the programs myself. The office doesn't run the programs directly. But it may administer the programs, or it may administer the agency that actually carries out the task at hand. That's an example, again, from the health care sector. We have the so-called Tricare Management Activity that actually runs the contracts for us.
Mr. Lawrence: Tell us about your career prior to this appointment.
Mr. Chu: I spent most of my life in and around the Defense Department in some fashion. I came in as a young Army officer during the Vietnam War. I got my chance to visit Southeast Asia, as every Army person I think in that era got to do. And coming out of that experience, I looked around and was fortunate enough to be hired by RAND, which is a research corporation, headquartered in Santa Monica, California.
And quite by accident, I started working on military manpower questions. I was originally trained as an international trade and development economist. But this was the focus of great deal of attention, this question of military manpower, in the early 1970s. Because as you remember, the country had made a decision to go to a volunteer force. Big experiment. No one had ever attempted to put together this big a military composed completely of volunteers before. The British had a volunteer force. Much smaller scale.
And so the Department of Defense engaged RAND, among others, to help it think through how are we going to make this successful? How are we going to make this work? And it was a big challenge. And you may remember some of those years in the '70s. The volunteer force didn't do so well at first, in fact, almost failed. Partly because they set the pay numbers wrong in the mid-1970s. And the quality levels of the force fell, and in fact fell further than people managing the Department of Defense understood to be the case, because they'd made a technical mistake. They had misnormed the so-called Vocational Aptitude Battery tests, the Armed Services Vocational Aptitude Battery tests, the ASVAB.
And the managers thought they were getting reasonably qualified people, maybe not quite the level they'd like to have. The sergeants kept saying, you know, these people aren't like the ones we used to get. They just aren't very good. It turned out the sergeants were right. It turned out they were taking in large numbers of people only marginally qualified for military service, by mistake in the mid-'70s.
Congress reacted to all this by setting standards for the military, in terms of the quality of recruits enlisted in the military. And part of RAND's job was to help the military and say, okay, if these are the standards, how are we going to get from here to there? How are we going to make this successful?
I came to work in Washington in 1978, at the Congressional Budget Office, where I ran the section responsible for national securities issues broadly. And I was invited by the Reagan administration to become what's called the Director of Program Analysis Evaluation, which is the sort of inside think-tank in the Pentagon. It's there to advise the Secretary on choices, on alternatives.
In some ways, it's the black hat of the Department. Your job is to be the Secretary's set of intellectual shock troops, to advance new ideas, ideas that may not be popular, in fact, generally aren't popular, but later come to be received wisdom.
I'll take an example. One of the issues we took on in that period of time is who should conduct the air defense mission of the United States? In that era, it was the air sovereignty mission. In other words, the airliner comes to the United States, you know, appropriately, who goes up and checks it out kind of thing. And it was being done by active Air Force units, even though it was a mission that we thought could be done equally well, and at somewhat less expense, by Reserve companies, Air Guard, Air Reserve units.
And you would have thought that we were heretics for raising this possibility that the Reserve components could do this. Well, after a long battle, the Air Force grudgingly agreed to try out using more Reserve component crews for this purpose. And of course, quite ironically, I came back to the Department, having been there from '81 to '93, came back in 2001 to discover we now had, at that time, all the air defense being conducted by Reserve component units.
So part of your job in that post is to get new ideas tried, to get them advanced, get people to look at them. I served in that post for almost 12 years, left as the administration left office in January of '93, Bush 41, as people call it. And I returned to RAND, as it turned out. I worked in RAND's Washington office, which I was the head of for a while, and then later ran one of RAND's major units, the ROIA (?) Center, which is the unit that advises the Army. And then I was invited by the present administration to come back in the post I now hold in June of 2001.
Mr. Lawrence: Given that career, what made you decide that you wanted to come back this time?
Mr. Chu: I have always found public service extremely rewarding. I recognize financially, often people take a significant step down in income to take these positions. But the psychic rewards, the sense of contribution that one gets, and the opportunity to help the nation do its business, is tremendous compensation. It gives you a tremendously good feeling about what you're doing with your life. And so it's that more than anything else that I think makes public service attractive.
Of course, the Defense Department, as I think you know, is a great place to work. It's a terrific set of people, highly motivated, very mission-oriented. Polite (?) did a survey of federal employees recently. You may have seen this piece of research. And while we have our faults -- and he pointed some of those out -- nonetheless, he was really struck by the degree to which morale in the Defense Department was not only good but getting better over time after the events of September 11th, because it's so mission-focused.
And it's just a great set of people to work with. It's a real sense of community, a real sense of pulling together, common purpose. And of course, in some sense, defending the country and its interest is the ultimate public service, the ultimate reason one had a central government.
Mr. Lawrence: It's interesting that you mention that it's such a great place to work, because the Department of Defense is the largest of the federal government agencies. And I'm just wondering with things of that scale, how do you communicate? How do you do the traditional management functions on that size?
Mr. Chu: Well, you use every instrument at your disposal, including programs like this, obviously. Part of it is just very straightforward. It's a bit like Woody Hayes and 3 yards straight up the middle. You write the memos; you make the announcements.
More important I think is getting out and talking to people, if not face to face, at least in some way that they can ask you questions, they can express their concerns. I am struck that many of the problems of the Defense Department -- and I think it's true of any large bureaucracy -- arise from miscommunication. As the military would like to say, what's the commander's intent? What are we trying to do here? What are we trying to accomplish? And why did we pick this way of getting to that goal?
And I am impressed at the power of just sitting down and talking with people. And of course, in an organization that large, a lot of what you need to do is talk to the leaders of subordinate units, to convey to them what are we trying to accomplish here? Why did we choose this method?
And of course, even better to have talked to them before you've made a choice, to engage them in thinking through how might we solve this problem? How might we address this issue? And I have always found that if you can get the leaders together like this, that you may come in the room with no idea of what to do about the problem at hand. And I am impressed at the number of times you leave the room with the outline of an answer, with the framework with which you can proceed. Because each person has contributed his or her particular insight.
And so I find the meeting -- I know people laugh a bit about meetings as being the bane of their existence. Actually, I find the meeting extremely productive. And with the tasks I have to be responsible for, a terrific way to get them to explain what we have to do, and to get them help tell us what a solution might look like.
Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our conversation with David Chu of the Department of Defense.
Human capital transformation is a key part of the President's management agenda. What's the Department's plan to address the human resource issues? We'll ask David when The Business of Government Hour returns.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu, Undersecretary of Defense for Personnel and Readiness for the Department of Defense.
And joining us in our conversation is Bill Phillips.
Mr. Phillips: David, can you talk to us a little bit about the efforts at the Department's human capital transformation process? How do the different pieces fit together, and how is that going to impact the overall mission of the Department?
Mr. Chu: I'm delighted to do so. Let me start with why we are trying to change things. We recognize this is a different world than the one that characterized the Cold War. The Cold War is over. The United States, as we all know, faces different military problems. We have to have the right kind of people, the right set of skills that are appropriate to that new set of problems.
The other thing of course that has changed is American society. It's a society a lot more educated than it was true before. It's a society where families have different aspirations than might have been true in earlier years. One of the most important changes is that most young Americans now want to go on to college reasonably soon after they finish high school.
In the old days, so to speak -- I'm almost old enough to be able to say that -- most high school graduates went out and got a job. And so the competition, so to speak, was not college. It was the job market.
Given all these changes, we have to change both what we're aiming at, and how we're going to get there. And that's what the human capital transformation is all about. To do that, what we've tried to do is to borrow from the business playbook, develop a set of strategic plans that look forward. In other words, instead of back to what our past practices were, let's look forward to what our future practices ought to be.
And separately for the military and civil forces of the Department, we have a set of efforts that are intended to give us those strategic guidelines. And I can say more about that in just a few minutes.
At the same time, for both the civilians and military, we recognize that a key part of why someone would want to join and stay with our organization, and really work hard and contribute with our organization, is the set of understandings between us and them of what this position, what this commitment is going to be like, what the social compact is, so to speak, emphasizing that we're all in this together. This is not us versus them, not employees versus management. We have a combined interest here.
And so, yes, we're going to ask you to do some difficult things, and to take on some fairly significant burdens, in particular in the military case, to risk your life or your health in the process. But at the same time, we're prepared to do various things to make sure that you're well taken care of. And part of what we want to do for both the civilian and military forces in the Department, is to make sure that that social compact is in good shape, that we are appropriately taking care of you.
That doesn't mean coddling people. It means being sure that their circumstances are what they find attractive that makes them want to come to work in the morning, want to contribute.
The terrific spirit we saw on September 12th, when the Secretary of Defense made a decision that if at all possible, the Pentagon would reopen after that attack. And I was really struck at the awe in the tone of media reporting, that my God, all of these thousands of civilian and military personnel are trooping back into the building while the building was literally still burning. And no one had any hesitation about coming back to work.
That kind of dedication is why you want to be sure that people are well taken care of.
Mr. Phillips: You mentioned the strategic plan and linking the human capital. Could you tell us a little bit about that strategic plan?
Mr. Chu: Yes. We start by asking ourselves, both military and civilians, what kind of skills are we going to need in this future world that we face? And then of course -- and that's a large debate. Obviously, there are going to be different opinions about that debate. I think the common element for both military and civil personnel is this is going to be a more educated force in the future. And so the old view that a high school diploma was enough, and that on the military side, let's say, and that we didn't really care very much if you got any further formal education or not, that's out.
We recognize that both for our good and for your -- to meet your desires, most young people enlisting in the military want to continue their education, since we have a whole set of programs designed to respond to that. And part of the strategic plan issue is how do we position these programs correctly. So, how much do we do on tuition assistance, for example.
The Army has a wonderful program called Army College Online, in which, if you meet various criteria, they will give you a "free computer" that allows you to do courses from various universities on an online basis.
Impressive results. I happened to be at Fort Lewis the day they were giving out the computers. Even though they had emphasized there were plenty of computers for everybody, that you didn't have to wait, people were there in line at 4:00 a.m. in the morning to make sure that they were going to get their computers. And these were not just privates. There were people wearing quite a lot of stripes on their arms who were there, making sure that they got the computer, and saw them signing up for their courses, and so on and so forth.
So there's a terrific thirst for continuing education on the part of our people. We want to slake that thirst, because we recognize it's also in our own interest. So defining what we need, thinking through what we're going to have to do to attract, retain, and motivate those people is the essence of what these plans are all about.
And so what they consist of is a series of, as we were phrasing it, lines of operation. In other words, areas we have to pay attention to. And then within each, the specific steps we'll need to take in order to achieve the results that we want.
Mr. Phillips: Let me just extend that thought a little bit. You've talked about some of the challenges you face with respect to college as an alternative to the military. You've talked about some of the programs that the Army has in place. What are the key things that the Department needs to do to continue to attract young people to the military?
Mr. Chu: Well, one of the first things that you have to do always, is to make sure that your compensation package is fair, competitive. No one's going to get rich serving in the military. But they shouldn't have to absorb undue financial burden either. And so you have to constantly pay attention to what are we competing against? And that's one of the big changes taking place that we have to react to.
Twenty years ago, the standard for thinking about enlisted compensation in the military was what could a high school diploma make in the American economy? That's no longer relevant. If most young Americans, particularly the ones that we want, seek to go on to college, the standard is what could someone with some college education, let's say a year or two, make in the American economy. That's a very different set of numbers. It's a higher set of numbers.
The President has responded to that by saying that a part of our pay raise in the last 2 years should be targeted to the mid-range in terms of experience of our both enlisted and officer communities, because in both those areas, we're kind of weak, when you, on the enlisted side, vet it against some college earnings line. We were not competitive, and we still aren't as competitive in that regard as we wanted to be. So we're slowly trying to bring our compensation level up.
But it also means, back to what you mentioned earlier, that we have to convince young people regarding college, it's not either/or. The military is not an alternative to college. We have to give you the chance to continue your education while you're in the military. Or the military could be the vehicle by which you accumulate the savings -- the Montgomery G.I. bill being the example -- so that you can, post-military service, resume a college education.
So we're trying to position ourselves so that it's not either/or, that you can do both, you can have your cake and eat it, too, and that's what we're trying to tell young people.
Mr. Phillips: You mentioned earlier the strategy for civilian members of the Department of Defense. Could you contrast that with the military strategy for H.R.?
Mr. Chu: We are starting from a much lower base with civilians. I think it's true of the federal government at large, and certainly the Department of Defense that we have not thought about our civilians as the kind of strategic resource they truly are. And one of the things I think that's giving everybody a wake-up call on this front is the coming wave of federal retirements. Everyone understands that because the civil workforce has been on a decentralized basis, what we have is a workforce with a lot of people nearing retirement age. Standard numbers are in 5 years, half the federal workforce could retire. That number applies to DoD as well.
Now, not all the people are going to retire when they become eligible. So it's not upon us quite as rapidly as some of the doomsayers may assert. But certainly in the next 10 to 15 years, the way we see it strategically as a problem within Defense, we have to recruit a number of people equal to approximately half our current workforce. That's a huge challenge.
It's also a different mindset. The last 10 to 15 years of DoD workforce management, true I think in most federal agencies as well, has been how to move off the payroll. How to downsize. How to shrink. We are not in the recruiting business. I'll take a very simple kind of issue. Do we have a booth ready to go to job fairs? Well, a few weeks ago, we didn't have a booth ready to go to job fairs. So, if I would call up and say "You know, XYZ is having a job fair. Where is our booth?" I would sort of get blank looks, because until recently, that hasn't been our problem.
Now, it is our problem. And we want to approach it strategically. We don't just want to wait for the retirements to swamp us and to drain all the talent at once. What happened, in fact -- you may recall this episode in New York City, when Mayor Lindsay let the senior workforce of New York City subway system maintenance unit all retire at once.
Well, a funny thing happened. For the next several years, the trains didn't work. Because not everything was written down in the manual. And it was those senior guys, mostly guys -- some gals, I suspect, though not many in that era -- who knew how to -- who knew those tricks, who knew how to make the trains actually run. And we don't want to let that problem happen to us. So we're trying to get ahead of that problem.
On the civil side, we're just beginning this journey. We're just starting to put the tools in place necessary to achieve these objectives. And one of them, a very simple one, is simply being candid with ourselves. How many people do we need to hire each year? Up to now, we'd never set a goal. We decentralized it, told, you know, component managers well, it's your problem Bill or Paul. You know, here are the civil service rules, here are the lists. You go hire someone.
We think we have to take a more strategic approach than that, in order to be successful.
Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our conversation about management with David Chu of the Department of Defense.
This is The Business of Government Hour.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu. David is the Undersecretary of Defense for Personnel and Readiness for the Department of Defense.
And joining us in our conversation is Bill Phillips.
Mr. Phillips: David, in our last segment, you were talking about strategic planning with regard to human capital transformation and a number of those things. Your current planning talks about a capabilities-based workforce, and that model. Talk to us about that, and how is it changing the way the Department does its business?
Mr. Chu: Of course, in the Cold War, we faced a single -- or often thought we faced a single major opponent. And we had a well-defined idea about how that opponent might act and threaten our interests. And so, if I may use sort of an economist's jargon, we had a point solution to every problem. We could optimize. We could pick what we thought was the best answer, because we thought we knew what the problem was we had to solve.
Now we face different problems, where the threats are not as clearly defined, where we may face over time a very different kind of problem, and one that we can't fully now foresee as I think the events of September 11th illustrated. So we're much more into a portfolio management problem, if I may continue the analogy, where we have to hedge against a variety of possible outcomes.
I'll give you an example, a practical example that I'm struggling with right now. Language training. What kind of language capacity do we want our military and civil workforce to have? Indeed, what kind of language resources will the Department of Defense need over time?
Now, 15-18 months ago, no one would have forecast that finding the Pashtun speakers in the military ranks would be a high priority task for the personnel system. Now of course we'll take every Pashtun speaker we can discover. And yet, you can't keep every possible language on hand. So, how do you get the capability here to interact with a variety of societies, some of them very different from the United States, certainly very different from Western European notions of what's the state, what's the role of government, so on and so forth. How would you function in this society?
And we need to be able to solve that problem to have the capability to operate wherever on the globe the President might send the military forces of the United States. So, it is a matter of being able to act effectively in a wide range of circumstances, whose specific parameters we cannot foresee that now constitutes the problem that we've got to solve. And what we're really coming to is I think a conclusion that to do so, you've got to have a range of capacities within your institution, not just something optimized for one particular problem.
If you're optimizing one problem, you know, it's like the watch that is stopped. It will be accurate twice a day, but it will be useless the rest of the time. Much better to have a timepiece that's perhaps not quite so precise, but that's more or less on the mark across the entire 24 hours. And that's where we want to try to take the Department.
Mr. Phillips: You have a number of initiatives in place to improve quality of life. Could you talk to us about those, and describe how they're impacting readiness and recruiting and those elements?
Mr. Chu: That's a critical issue for both the military and civil personnel in the Department. On the military side, I think it's something that's long been recognized. The military has a saying that goes something like retention decisions are made at the kitchen table, that it really isn't the retention officer that's doing the job. It's what the family decides is right for them. And that means it's not simply a matter of what is the work responsibility of the military member. It's also what happens to the family.
And that affects all aspects of their lives. Several are of course more salient than others. One is housing. The state of military housing is not good. The President spoke to that during his campaign and has emphasized it since. It's one of his personal interests. Our problem is that we have an old housing stock for those who use military houses. It was built, much of it, to the standards of the 1950s.
And to think back on what those standards were, I think we usefully recall what was a Levittown house. Levittown, as you know, was the late-'40s, Long Island, first suburbia kind of development. And it had just under 1,000 square feet. And it had one bathroom. There was no such thing as a family room, breakfast nook, or any of that sort of thing. There was only a one-car garage. That's not the standard that American families aspire to today.
What have we done? Starting in the last administration -- and I have to give a lot of credit both to Congress and our predecessors in this -- they realized that we couldn't do that all ourselves. And it was time to turn to the resources of the private sector, and to offer them essentially a long-term lease kind of proposition on government land, in which they would build the houses, and we would give them a preferential opportunity to rent those houses to our people. So we have a vast set of housing privatization efforts out there right now.
What does that do for us? First of all, it brings the capital of the private sector to bear so the government doesn't have to raise the capital outright. Second, it brings the skill of the private sector in figuring out what the housing -- what do people really want in a house? We're not necessarily all that good at it, and we shouldn't probably be writing those specifications. We want a result, which is we want a happy set of families. You tell me what they're going to like. Here's how much money they can spend, because everyone knows what the housing allowance is going to look like.
What's in it for the developer? Well, we have a good set of customers. Our people pay on time. Because in fact what we'll do is just send the housing allowance directly from the Treasury to developer if you want to buy the house. The developer still has to compete, typically, in these arrangements. He has to build a house, or a condo type unit that's attractive enough that the military members want to say, yes, I'd like to live in this. And so he's got a strong incentive to build a good community. And typically in these arrangements, he has a 25-year lease maybe with an option to roll over for another 25 years and certain refreshment stands. They're fairly complex vehicles.
But they're very imaginative. And the results, at least so far, are extremely promising. You can go to these various bases. An excellent set at Fort Carson, as one example. They're great houses. Military families are delighted to live in them. They're nice communities. The developer has a strong interest in making a successful community, because he wants to fill it with these high-end families that come on with their housing allowances, which means there's no vacancy rate, there's no cash flow problem, there's no delinquent payment issue for him. It's a win-win situation for everyone.
So that's just one example of how we have to respond to what our people aspire to. We can't just stick them in a 1950s Levittown, even if it's "free," and assume they're going to be happy.
Mr. Lawrence: Health care costs are rising throughout the country, and I'm assuming the Department of Defense is no exception. What are the major concerns about health care in the Department?
Mr. Chu: Well, the big transition in health care in defense was the move to a managed care like paradigm in the late '80s, early '90s, which we call Tricare. The early years, to be candid, were not a happy situation. We had a lot of performance issues. We're proud of how far we've come over these last 10 years. We treat this just as a private sector health care operation, where we do survey of our patients after their last visit. We send them a questionnaire and say what about this last visit? How did you feel about it?
We're very proud of our scores. We're right up there just about where the better private plans are in terms of patient satisfaction with the encounter that they've had. We do face the same challenge the civil sector faces, and that is the rapid rise of health care costs, although we're very proud of the fact that this past fiscal year, for the first time in 4 or 5 years, we finished the year within our budget.
And that relates to a major management effort we've made as the Congress likes for us to optimize the mix of resources we bring to delivery of health care, to improve how well we use both the contracts we have, as well as the set of military treatment facilities, hospitals and clinics that are government-owned and government-operated and staffed by government personnel.
Often we had a bad match in a particular local market. And increasingly, the way we're going to try to deal with the cost issues over time is to view the health care system as a set of important local markets. Each one has different conditions. For defense, there are 15 or 20 really big ones around the country. Washington, D.C., is an example; Norfolk, Virginia, is another example. San Diego is an example. Fort Hood is an example. San Antonio is an example.
In other words, a place where we've got a lot of people, and we have a significant number of assets, both government and purchase character. And the issue for us is how to put those together in the best possible fashion. We'll be appointing a set of market leaders, market managers, really, who will be the guru for that area, and with certain powers to reallocate resources, and reapply resources within that small region to get the best outcome for our people, and the best deal for the government.
Mr. Phillips: Does the changing nature of the population, its age and its size, pose different complexities for managing health care?
Mr. Chu: Absolutely. We have an older patient population now than was true 20 years ago because a lot higher fraction is composed of retirees and their families. And of course as you know, Congress made a decision 2 or 3 years ago to extend the Tricare benefit to those who are otherwise Medicare-eligible. Prior law had said once you became Medicare-eligible, you dropped out of our system, except insofar as we had space available in a military hospital.
That led to an outcry on the part of the retirees as they reached 65. Congress reacted by saying, okay, they're eligible, too. So, within the last 18 months, we've rolled out what's called Tricare for Life, starting October 1st a year ago. The pharmacy part actually started a little bit before that.
It is I think a great tribute to the people working with our health care system. They made this all work. This is a huge -- this is hundreds of thousands of additional households, for which we suddenly became responsible and the whole issue of paying their bills as second payer to Medicare. So it was a significant financial transaction operation to manage here. And then it's gone, I think, at least we believe, quite well. In terms of the transition, people are generally satisfied with the outcome.
But yes, it is a population that's much older on average than was true before. And we suddenly added all these much older families, so we've got a whole new set of issues to deal with in terms of how we manage the system, including -- you know, some of these things you don't think of in advance, in terms of what public administration requires -- including the whole question of eligibility.
And the way the military medical system works, to be eligible, you have to have a military ID card. Well, many older retiree families, especially surviving widows, haven't had an ID card in years. In fact, had no idea they were supposed to apply for an ID card, because there was no benefit to them doing so. So we had a big effort to get the word out, and to help people who haven't had an ID card to get one so they can be in the system. And it's not so much the card per se that's critical. They have to be in our automated register, so to speak, so that when you come to a treatment facility, they say oh yes, here's Bill. He's on my list. We'll pay his bills. We'll cover his care.
Mr. Lawrence: That's a good stopping point. It's time for a break. Rejoin us in a few minutes as we continue our conversation about management with David Chu of the Department of Defense.
This is The Business of Government Hour.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and today's conversation is with Dr. David Chu. David is the Undersecretary of Defense for Personnel and Readiness for the Department of Defense.
And joining us in our conversation is Bill Phillips.
Mr. Phillips: David, in the last segment, you clearly demonstrated a passion for the quality of life and the social compact with the military. Talk to us about education of children of military dependents.
Mr. Chu: I think this is one of the sleeper issues out there. And it illustrates the fact that what people worry about in terms of our quality of life shifts over time as the aspirations of Americans change.
And one of the things people aspire for now, as we all appreciate, is good quality education for their kids. We've done a terrific job overseas with Department of Defense educational system. Our schools overseas, if we were a state, and you gave us a standardized test -- and we do actually do take these tests like everybody else we'd be between 1 and 5 in the nation, in terms of test score outcomes, which is I think a terrific record.
But as I go around the country and I ask people stationed at Base X or Camp Y, how is the school system, too frequently, I get poor answers. I get answers where you recognize from their behavior that they are not satisfied. We have, in many locations, people either living a fair way away from the base in order to find a school system that they find adequate for their kids, or actually sending their kids to private schools. And it's not just officers. We now have some senior enlisted personnel, who, while we pay them decently, I don't think we're really paying the level where they can typically afford a private school, who are saying I'm going to somehow find this money, because the situation is unacceptable.
This is a big issue for the Department. The Department, of course, should not be running the schools in the United States. We do, for historical reasons, run a small set on the few bases around the country. But we shouldn't be in the school business because that's a local responsibility. And one of our big challenges in the Department of Defense is to find a way to work with local communities so they can improve the school system for everyone, but importantly including the children of our military personnel.
Now, one of the improvements which we seek all around the country, both from strong school systems as well as others, is being sure that they're sensitive to the needs of kids of families who move around a lot. One of the difficulties that occurs is, you know, tryouts for the sports are let's say the last week in August. Well, if you don't show up till September, you may not be considered by the school system.
Likewise, each school system has its prerequisites in order to take the calculus course, let's say. Well, if you didn't quite meet those, you know, you might not get that chance. And so we've got an organized program, importantly advanced by Mrs. Reimer (?), the wife of a former Underchief of staff, to try to sensitize school systems and school system leaders to the need to think about how your rules will affect an important part of your student body in those communities where you've got a lot of military children.
And I'm delighted many school systems are responsive to that overture when we make it, and start to think about how they could do things a little bit differently so that our kids have an equal chance as someone who has lived for 20 years in the same place.
Some of it's hilarious, and the local school superintendent can't do anything about it. One of the problems, as you know, in many school systems, is you have to take a course on the history of the state in which you live. And some of our children have taken the history course for several states, which is more I think than anyone really anticipated.
Mr. Lawrence: Many have wondered I think about the relationship between the Department of Defense and the Department of Veterans Affairs. Now, as I understand it, you're part of an Executive Council that's looking into the coordination between the two. I wonder if you could tell us about the goals of that Council?
Mr. Chu: This is something that Leo Mackay, the Veterans Affairs Department Undersecretary and I put into place within the last year to respond to the President's interest in seeing better coordination between the two departments. But obviously share, in some sense, the same population. The veterans are all graduates, alumni, so to speak of the Department of Defense.
VA runs a big medical system, as we all know, of course, to deal with veterans' problems, which are somewhat different from the active force. In some locations, we have facilities in the same place. And so one obvious issue is shouldn't we collaborate more? Shouldn't we find a way to work together? We also have issues of how we organize the benefit program so it's easier for them to deal with those programs. For example, could we not make the exit physical from the military the same physical that VA uses for assessment of disabilities?
Well, in the past, the physical didn't do all the tests the VA needs to have. So it's a matter of making sure that we have the same form, that the record can be read by both institutions since all records are now increasingly electronic, and that we make sure we cover all the testing VA has.
Some of it is quite straightforward. Some of it is quite complex, in terms of how we do things. And I'll give you an example. We already do a fair amount of business where they take care of our patient, we take care of their patient. An example in Honolulu is Tripler (?) Army Hospital has a VA outpatient clinic on its grounds. And if you need inpatient care, you go to the Tripler Hospital.
But each of these has to be crafted one by one as a separate agreement between the two institutions. A lot of argument of what the costs are, who's supposed to pay for each element of cost. And what Dr. McKay and I agreed was let's find a way to cut through these arguments so that the two institutions can work together more easily. And so what we did was simply say if you take care of my patient, there is an externally established schedule of prices. Essentially it's an extension of the Medicare schedule.
And we'll both agree to accept that, because we want to be able to meet -- actually, accept it minus 10 percent because there ought to be some savings here for the government and the taxpayer -- and let's not argue over exactly whether I used one more bandage on your patient than would be normal, and therefore I've got to charge you a little extra. It will all come out in the wash in the end.
And the idea behind this is to release the energies of the local leaders so they can come to the agreements, which they typically seek and want, because they want to do the best thing for their patient population.
Mr. Lawrence: David, let's shift and talk about the future. You talked earlier about the challenge of the pending retirement over the next number of years, significant people leaving. As you look out, what are the most significant personnel and readiness issues and challenges that you face and the Department faces?
Mr. Chu: It's how you sustain the contemporary success of the volunteer force. As American society changes, and the aspirations of young people change, and as we're conducting a probably long-term global war on terrorism -- this is not a short conflict, this is a long haul event, much like the Cold War in some respects, I think is the way we ought to think about it. That ought to be our mindset.
And how do you keep this force as it is today the best military in the world? Important because it's got the best people in it, and they are motivated and properly trained to do their job. And that's the other big challenge. How units will operate in the future, as I think operations in Afghanistan demonstrated, is going to be very different from the past. It's a much more, as the military like to say, joint operation.
So you had Army Special Forces operatives on the ground calling in air strikes from Air Force and Navy aircraft. And we don't practice enough for real, so to speak, in peacetime, in the peacetime settings with those kinds of joint operations. Not that services don't work together well, not that they can't work together - not that they can't improvise well. But our standard is and should be not to improvise.
In other words, this should be second nature. It shouldn't be okay, I've got to solve this problem on the aircraft on the way to the theater because I'm now facing the enemy. I should have done this over and over, so it's automatic, so I know what I'm doing, and I know how to work with someone from a different service, a different kind of weapons system than my own service provides.
And providing that joint national training capability is one of the Secretary's premier objectives. My orders are, stand this up by 1 October 2004.
Mr. Lawrence: Given all the conflicts you alluded to, what's going to happen to the size of the Department if that's --
Mr. Chu: Our expectation is the number of people in active service will probably be relatively constant over the foreseeable future. We need to realize the challenge the secretary has issued to the Department. Don't just solve the problems, react to the pressures of the present day by adding without thinking about what you're going to subtract. In other words, if I have a new, high priority mission, what older mission that maybe isn't quite so important, can I take off the table? What can I stop doing?
And why does the secretary want to do that? The obvious reason is we do not have an unlimited budget. Although we have a big budget, there is a constraint out there. And the secretary has to do two things with the budget. He has to win the current conflict, and he has to invest in those transformational articles that will change the face of the Department for the future.
If he allows new missions simply to be added on top of everything else we're doing, he'll never have any money with which to transform. And so my clear instructions are figure out what we can drop off, what's low priority, what doesn't have a real payoff in this environment, which might include civilianizing the function, which might include going to a contract to provide that function.
The constant question that I'm charged with examining is does this need to be uniformed personnel, which is our most expensive resource in the Department.
Mr. Lawrence: What advice would you give to a young person who is now considering an opportunity for career service?
Mr. Chu: Well, first of all, I'd congratulate him or her, because I think it's a terrific choice. Second, I'd emphasize pick something that interests you. Because if you don't have a passion for it, if you don't enjoy it, if you don't like it - there are a lot of vicissitudes that come with public service. There are a certain number of burdens. I don't want to be unclear about this.
And so you've got to love what you're doing. I think it's less important to chart a career in some kind of managed sense. If you do well, my take on the federal government is if you do well, you'll get a great chance, a great set of chances. So start with something interesting. Start with a set of issues that turns you on. Start with a set of people that you like to work with, especially pick a boss that you respect and that you think you can learn from, and it will take care of itself from there.
Mr. Lawrence: David, we're out of time. Bill and I want to thank you for being with us this morning.
Mr. Chu: It's my pleasure. Thank you.
Mr. Phillips: Thank you very much.
Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Dr. David Chu of the Department of Defense.
Be sure and visit us on the web at businessofgovernment.org. There, you can learn more about our programs, and get a transcript of today's very interesting conversation. Again, that's businessofgovernment.org.
This is Paul Lawrence. See you next week.
Wednesday, August 21, 2002
Mr. 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 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 this morning is with Mark Catlett, principal deputy assistant for management at the U.S. Department of Veterans Affairs.
Good morning, Mark.
Mr. Catlett: Good morning, Paul.
Mr. Lawrence: And joining us in our conversation is another PwC partner, Greg Greben.
Good morning, Greg.
Mr. Greben: Good morning, Paul.
Mr. Lawrence: Mark, let's start by talking about the VA. Could you describe its mission and activities for our listeners?
Mr. Catlett: The Department of Veterans Affairs is responsible for providing benefits to 20 to 25 million veterans and their dependents for the country. We do eight things for veterans, from health care through providing compensation payments for those who are injured or ill from their service; pensions for those who are of low income; education benefits, very important, from when they transfer out of the military; housing benefits, insurance benefits and vocational rehabilitation. Those are the primary ones. And a burial benefit at the end of their life, where we memorialize their service. So we do a lot of very important things for the people that defend our freedom.
Mr. Lawrence: It's a large mission, it's a large organization. How many people are in the VA, and what type skills do they have?
Mr. Catlett: That's one thing I've always liked about being at the VA. I've been there my whole career. It is a very multifaceted organization. We have, in government terms, a little less than 200,000 FT average employment, but it's probably about 230,000 employees to provide this mission. And it spans the realm from all the professions in health care, through specialists in business, such as the housing program. We provide a guarantee there, which gets into credit reform and specialized accounting with that; vocational rehabilitation; psychiatrists, psychologists. So it is a very, very interesting place, and something even after 26 years, there's things for me to learn, in terms of the things, many things that we do for veterans, and how well we do them.
Mr. Greben: Mark, as principal deputy assistant secretary for management, what are your specific responsibilities?
Mr. Catlett: Greg, my office is responsible -- we're a staff function, obviously, at the corporate level for the Department. And we are specifically responsible for policy and the oversight of the budget activities, the financial activities, and the procurement activities, and the fourth one, relatively new, the capital asset function. It's been available in the Department. We've consolidated that and brought that into our office within this administration.
In addition to that policy and oversight, those responsibilities, as well, we are the office that has the direct liaison to the Office of Management and Budget, and to the committees on the Hill for the budget of the Department. That's where I began; that's still sort of my first love in terms of my role in the VA, and an important part of the value I bring to the Department. Those are very important relationships and responsibilities we have in terms of the budget. And that's the direct role that we have. And as I said, that, as well as then what we do as far as normal types of policysetting and oversight for the basic business functions.
Mr. Greben: Mark, in your 26 years, you have a rather unique background in that you've served as both a political appointee and a career civil servant. Can you tell us about that?
Mr. Catlett: Well, that is interesting, Greg. I came to Washington 26 years ago intending on being a federal bureaucrat, proud of that. I enjoy very much what I do. And in the first Clinton administration, Jesse Brown, the Secretary who just passed away, asked me to be his political appointee as the assistant secretary for management, which is basically the chief financial officer. I said no, you've got to be nuts. Why would I change? I'm a careerist. I want to be a careerist. And I was assured by folks that I could return to become a careerist. I had the impression that once you left career service and a political appointment, that was it. You know, you were on your own.
I was about 40 at the time, and said, no, I think I'll stay. But through his very persuasive capabilities, and most importantly, the assurance that I could return to a career slot, I took that political appointment for -- well, I was there -- the day Jesse left is when I returned to career service, but continued to serve in that job another 16 months, as it normally goes in the government, trying to select somebody to follow me.
So I did the job for more than 5 years, technically, just a little more than 4 of it as the political appointee, as I am doing now. I'm the acting CFO, if you will, because we're still trying to fill in this administration. The last political appointment to be filled in the VA is the chief financial officer.
And what are we, 18 months in, and we're still waiting for that to happen. So for this whole administration as well, I have been basically the acting CFO or assistant secretary, even though my title is, as Paul read, I'm the deputy for that function. But I'm the guy in the spot right now.
And the other point I'd make, sort of that distinction, is that I think I'm very lucky, as many of us are. The VA is a very, very flat organization. There's not much hierarchy there. And while I was in the political position, I didn't see my job a whole lot different than it is now, as a careerist trying to do the same thing. You know, the business opportunity is there. Fortunately, from my view, I wasn't required to do a lot of political activities. I did a very few of them, but wasn't required to and wasn't expected to. So I wasn't the normal political appointee who came off the campaign trail, you know, and came in, and still obviously was interested not only in doing a job there for my department, but also having an interest in serving that president, and the re-election of that president.
I was never expected to do that. I didn't come from that. And fortunately, I walked into it not sort of getting the guarantee about that. But fortunately, I found that it wasn't expected of me, and I didn't want that. I'm very interested in politics and follow it. But I'm a careerist at heart, and like I said, was very much glad and pleased with the fact that I could try to do the job one step above from my former job as the budget officer, trying to do the job of bringing about better business practices and better management in the Department as the political appointee, even though, as I said, most of my time, almost all of my time, was spent on the business of the VA, and not on anything overtly political.
Mr. Lawrence: Tell us about your career prior to that. Sort of how long have you been at VA, and what --
Mr. Catlett: Well, as we were saying, and kidding as we started here, I'm sort of a landmark there. I've been at the VA now over 26 years, came there in '76. And I was through the Budget Office. The corporate budget office for the VA is where I was until 1989, when I moved up to, if you will, to the front office for the first time of the Office of Management. And then, with '93, with the political appointment.
So I basically looked at all the budget oversight for all the programs of the VA over my first 13, 14 years there. So I've got a good background. Again, I'm a Washington type, been in Washington my whole career. But I did have a good overview. And that's one thing I find in government; as some people complain about, particularly the folks on the Hill, budget seems to drive everything, particularly in this era. And the reason I see that is that that's the one time of year when the Executive Branch has to put down on a piece of paper and commit to what they're going to accomplish in the next year.
We've made some steps with the Results Act and better planning documents. But until that time, the planning documents meant very, very little. The budget was where you really committed. So as the budget officer, and as a budget analyst before that, that's where the crunch came in terms of a department and an administration making a commitment to what they intended to accomplish. We've gotten a whole lot better with identifying results that we intend to achieve, and the metrics that go with that. But like I said, over this era, I think budget has become what focuses.
And like I said, I was lucky. I fell into it. I came to town in '76. It was the Bicentennial Year, so every convention was in town. I was a graduate student, came to walk the streets. It was 95 degrees that week in April. I walked the streets with a couple of buddies, interviewing, and fell into the job at the VA.
I was literally on the bus going back to Connecticut Avenue, to my hotel, had to make a change on the bus, had time. There was a guy sitting beside me at rush hour, a young guy. I said, where do I change buses? And fortunately, we had 5 minutes until we got there. And he worked at the VA. We started talking, and the next day, he had an interview for me. He said, I know a guy that needs somebody. He said, give me a number, I'll call you tomorrow. So I fell into the VA, and great for me. I've been very, very fortunate, I think, to be at the VA.
Mr. Lawrence: That's very interesting. Now, you spent your whole career one place, and in the public sector. Have you ever thought about changing?
Mr. Catlett: No. When I was 15 years old, I knew I wanted to come to Washington. I lived 90 miles away. I wanted to come to Washington and be part of the federal government. It was a fascination with me, an interest. And I just wanted to be a part of it. I had no idea if I wanted to be involved politically or bureaucratically. But it's something I've wanted to do. I feel strongly about. I think public service is a great thing, and I'm very pleased, and feel very fortunate to be the part I am of it, at the VA.
Mr. Lawrence: And you've been around a lot of different leaders in your career, and I'm curious. What are the good characteristics of effective leaders?
Mr. Catlett: Well, really, in a nutshell, there's two things: passion and persistence. I think you have to have passion for your mission, for what you want to -- and I say mission, or what you want to accomplish. Jesse Brown, again, not just because of his passing, but was one that, you know, as the leader that I worked directly for, exemplified that the best, in terms of not just his advocacy for veterans, the broad theme of his life, basically, but as well, the things that he wanted to accomplish, that he had a passion for.
And then persistence. I mean, like any bureaucracy, I think either public or private, there's a lot of competing interests. And you have to stick to it, to see through the things that you want to bring about. And so, to me, like I say in a nutshell, I would say those are the two characteristics that are most important for good leadership.
Mr. Lawrence: That's interesting. But it's a good stopping point. Rejoin us in a few minutes as we continue our conversation with Mark Catlett of the VA.
The VA and the Department of Defense serve many of the same people. What's the relationship between the two? We'll ask Mark when The Business of Government Hour returns.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Mark Catlett, principal deputy assistant secretary for management at the U.S. Department of Veterans Affairs. And joining us in our conversation is another PwC partner, Greg Greben.
Mr. Greben: Mark, you were part of a task force at VA which was commissioned to look at the procurement process. Can you tell us more about the goals of the task force and your role in it?
Mr. Catlett: When the Secretary, Secretary Principi, came, obviously, he had a lot of things he wanted to accomplish. He knew the VA, and a lot of things he knew needed to be done through his previous role as deputy secretary, his commission work under the other administration, commissioned by the Hill in looking at veterans benefits.
And in our area, the one thing that he was most interested in was procurement reform. I mean, we have a good track record. Many people know about what we do with our formulary and competing prices for the pharmaceuticals that we provide veterans, and getting excellent prices in that. And he wanted to see that emulated across the rest of our activities.
We spend close to $6 billion for all types of medical supplies, including the pharmaceuticals and all other types of supplies and requirements to serve veterans. And he wanted to see changes there that would bring about the efficiencies and the competitiveness in the pricing that we were getting in pharmaceuticals. So that's it in a nutshell.
I served as the deputy chair, if you will. Dr. Bob Weeb from California, one of the network directors in our health system, was named as the chair. Obviously, as with most things, you have these competing interests. Obviously, trying to strive for efficiency in the pricing process, in the procurement, you have to be careful that you don't shortchange the quality of the material.
And so it was important to have a health leader lead the team, and we had strong representation from other field folks, and some clinical folks on the team as well, so that we maintain that balance. While we are striving from guys like me for, you know, better pricing, we have to make sure that we do that correctly.
The focus of the task force that we've reported and that we're now implementing were some basic things: standardization, which I've implied, as we have done in pharmaceuticals in the creation of a formulary. Bringing that to what we call the med, the medical and surgical supplies as well.
We've been attempting that over the last 5 years, but not very successfully. And again, it's sort of a physician's desire to use the product lines that they like. And so that's the competition we have. And they'll always discuss quality of care if you try to direct it too much. So we have to bring about standardization, and find a way that the physicians standardize. We can't, as procurement officials and budget types, say okay, you have to standardize and choose this product line. They know best, in terms of the care. So we have to have it physician-led, and that's what we're trying to get done.
The other broad area that we knew we have a concern about and what we have to address is basically the role of data, both for our customer and then for us as providers.
First for the customers. It's one thing to standardize, if we can, all these product lines. But they don't know where to buy it. They don't know where to go to buy it. Cataloguing that, we're trying to use GSA's Advantage System, trying to get where it's in real-time on screen, at their touch, where they can go to find in a good catalogue, find the product lines they need. If we standardized and said you've got to buy this, they have to know how to get to it. And we've made some progress there, but there's a lot of room to improve.
Secondly, for data as well, as the providers, we need a National Item File. We need to standardize the way, the nomenclature that we use for all of these tens of thousands of things that we buy. We need to standardize that, so that we -- I mean, we need to have a standard language for that nomenclature, so that we know how to bid that in the market competitively. We have to roll up and decide where is our best opportunities to get competitive pricing? So we have to know what we're buying.
So those are the primary focuses of the task force.
Mr. Greben: Clearly the procurement reform will promote better management. What are the direct benefits to the veteran?
Mr. Catlett: Well, the direct benefits to the veteran are in this way a little indirect, I guess is the way I approach it. We hope, as we are faced now, we have more in the broad scheme for health care -- and this is focused on health care, which is where our big bucks are. We have more patients than funds we have, resources we have to treat them.
So we have to stretch our resources that get the bang for the buck, basically. So the better we buy, as long as we don't compromise quality, the more efficiently we buy, means there's more resources for staffing, which is still our primary resource in providing health care. You know, 60 percent of our costs is payroll. We have to squeeze as much as we can out of the supply side, the non-payroll side, so that we can hire more physicians and nurses to provide care.
We are swamped with patients, and we are in a tough -- like I said, we're a victim of our own success if you look at the way VA has changed in the last 5 years. We've made access; we've made ourselves accessible with hundreds more clinics, and we have improved the quality of the service. We've made it the way it should be in terms of health focus, and not a hospital focus, so that means the care is out there, as it's being provided.
So we have more than doubled the number of veterans getting care from us, and probably by 2-1/2 times the number seeking care from us in the last 6 or 7 years. So we have to be as efficient as we can in order to provide as much service as we can within the dollars we have.
Health care is, for us, a discretionary expense. It's subject to availability of funds. A lot of the other things we do for veterans are mandatory, which means that whatever the demand is, the money is to be provided to them. There's transfer payments for compensation and pension, provide the guarantees for housing, find vocational rehabilitation. These are all mandatory. If the demand doubles, the money has to follow.
On health care, it's not that simple. We get an annual appropriation, and we have to live within the resources. And we are pressed to the point now of thinking about having to restrict the number of veterans who come to us for care, which we haven't had to do in the past, because the demand is so great.
Mr. Lawrence: The Department of Defense and Veterans Affairs have operated separately, even though the departments serve many of the same people. And I'm curious what the state of cooperation is between the two departments.
Mr. Catlett: With this administration, I think I have seen -- again, being around for a long time -- we've had efforts. And we always have efforts at core collaboration, and cooperation. As one example, we have probably 140 of our medical centers are or have a contract to be a TriCare provider. But literally, less than $10 million of care is purchased by DoD from us. So it's very, very minimal in that regard.
The thing that's improved with this administration is obviously, the President first established a task force to look at it. And there was an interim report just released within the last couple of weeks. But there will be another year before they report. And clearly, Secretary Principi was not satisfied with waiting more than 2 years to try to improve that.
The deputy secretary, Dr. Leo Mackay, and Dr. David Chu from DoD have formed a Joint Executive Council. Dr. Kaiser, in the last administration, formed a Health Council with DoD. And there was a lot of work on specific projects and activities. That's been incorporated now under this broader council at the top, with the deputy secretary, the number two guy at the VA leading it for the VA and bringing in a benefits council.
And now we're talking about creating a Facilities Council that would be something that I would be probably co-chairing, looking at how we better coordinate the expansion and the improvement of our facilities. I mean, that's where we can make the biggest bang. As we know, there's a lot of people that we overlap. But many, many more don't need DoD and VA.
There's about 600,000 military retirees who are those who could get care who are duly eligible. They can get care from the VA or from the military, as a retiree. But most veterans who leave the military don't have a career at the VA, aren't at the military, aren't retirees. So they don't have an option with DoD. They're at the VAs.
And then, with the military as well, you have many, many dependents, hundreds of thousands of dependents of current service members. So actually, the group that is the smallest piece of their population and ours, if you split it in two, are the ones where we have commonality, or where they have dual eligibility.
But still, 600,000 is significant. And to put it in proportion, that's out of about 6 million that are now enrolled with us. We have better, much more forceful leadership from the top to bring about -- and we are meeting quarterly in that group, and we have an agenda set. In effect, the next step is to create what we're calling our strategic plan for this group. We'll be meeting next week to try to lay out what we want to accomplish over the next 5 years.
I mean, they've laid out an agenda for this next year. We want to make it a little broader so we can reach agreement on that.
Mr. Lawrence: What's taken so long for this to come together? Are there historical issues?
Mr. Catlett: I would say the broad issue, as I tried to indicate, is the numbers of people that really have dual eligibility aren't all of them. It's the minority of the folks that get health care through DoD, and at the VA.
But most importantly probably I think is the military's concern with maintaining a military presence for preparedness when there is a conflict in which there would be a huge number of casualties. I mean, we have a backup role there. But, you know, practicing battlefield medicine and all of that intensity that goes with that, and the
follow-through with that, is something that we don't do.
And I feel that DoD military and DoD medicine wants to protect that. I mean, there's been some that say, ah, you ought to make it one system. Merge it. It's all veterans. What the heck? But I think it's DoD interested in making sure that they have a system of sufficient size so that you can have, keep the skill level up for the people who are needed when they're needed. So that, in effect, you have to have docs, you know, practicing their skills here -- and you can't practice, obviously, battlefield medicine. But still, surgery and some of the basics of health care, you have to have them doing something for when the time comes, and it's needed.
So, to me, that's it in a nutshell.
Mr. Lawrence: That's a good stopping point. It's time for a break. Come back with us in a few minutes as we continue our conversation about management with Mark Catlett of the VA.
What steps is the VA taking to get the green on OMB's management scorecard? We'll ask Mark when The Business of Government Hour continues.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Mark Catlett, principal deputy assistant secretary for management at the U.S. Department of Veterans Affairs.
And joining us in our conversation is Greg Greben, another PwC partner.
Mr. Greben: We've read a lot about the Capital Asset Realignment for Enhanced Services, the CARES program. Can you tell us about CARES?
Mr. Catlett: Sure can, Greg. It's of special interest for me, in terms of the changes that the VA needs to undertake. CARES focuses on our health care element. Obviously, that's our large infrastructure with our medical system. We have over 170 medical centers. We've opened, as I noted earlier, hundreds of new clinics in the last 5 or 6 years.
But as GAO has noted over the years, and the Congressional committees, and we ourselves, we need to change. We have an infrastructure that's from really almost 50 years ago. And medicine is not practiced the way technology has advanced that. And to put in context for me, again, I have referred to Dr. Kaiser and his excellent leadership in the health administration in the Clinton administration.
He brought about that change with some help. We got an eligibility act out of the Congress that allowed us to treat the patient and not -- I mean, we literally had rules before whereby you would have to be an in-patient to get certain services. So we were inefficient. In order to give care, docs who wanted to give the care would have to admit patients so that they'd give them some services, because the law over time, although well-intentioned, had been segmented. And they were basically trying to dictate medical practice in law.
And as anything happens in that over time, it accumulates. And things change. Particularly, technology changed medicine. It was outdated. We got that change. Kaiser was the forceful leader to bring about a focus, as he said, on health care and not on hospitals or not on the infrastructure. And we opened these clinics, and created these access points.
So we gained huge efficiencies out of that so that we could give more care. As I noted earlier, we've doubled the number of people getting care. But we've nowhere doubled our budget is because we squeezed out the inefficiencies that went with practicing medicine in a hospital setting.
We've moved the staff out. Now, the second thing awaits us, and that's what CARES is about. We've got to right-size, and I'm not trying to be cute about the word -- this infrastructure. We don't need it. We have tens of thousands of acres, and we have millions of square feet of space that we don't need. And in some cases, we don't need the entire facilities, because it's not the way medicine is practiced.
We have completed the one study we've completed in Chicago, or Chicago and the Wisconsin areas north of that in one of the 21 regions in the VA. I'm very pleased that the Secretary, in approving that last spring, we will be hopefully releasing that press release this third week of August, in which we are going to the implementation plan for that. We have $125 million appropriated now that we're going to release to Chicago.
We have, through one of our innovations that we're overseeing, called Enhanced Use Leasing, whereby the private sector financing is used to build that, we have underway nearly $100 million of improvements at our Chicago facilities right now. We're in the middle of them in Chicago twice in the last couple of months, signing the deals with the energy companies for cogeneration plants.
We have another enhanced use lease to be signed in September. And as well, then, we are going to seek, and we're going to close one of the four Chicago hospitals, lease that as invaluable property, downtown Chicago. And we intend to use those resources from that lease to help build out the hospital 6 miles west, still in Chicago, that we want to be our tertiary care facility in Chicago.
So, I'm very excited. We will be devoting, in the next 15 months, over $300 million in resources from all our means of financing to the Chicago and the broader network in that area, in that region, to bring about this infrastructure change. We'll be eliminating one facility; we have a second one of four in Chicago that basically we're ready to outlease, hopefully we'll be outleasing that to the military. The Navy's there in North Chicago. We're looking to that.
So CARES is about, as I said, we have dispersed the staff. Now, we have to manage this infrastructure. And if we can pull this off -- and we are underway with the studies now for the rest of the country. And in the next 2 years -- in the next year, basically, by next spring or summer, we want the plans proposed and approved by the Secretary that says this is how we need to change this infrastructure, where we need to get rid of it.
And I would be very careful of it, because it's very sensitive in veterans issues and politics here. Getting rid of buildings is not about eliminating care. It's about, again, as we talked about in procurement reform. We have to have more of our resources devoted to hiring physicians and nurses. And we are spending too much money on the infrastructure and the staff, the indirect care staff, the wage grade staff, to maintain that infrastructure.
We need to have more money for doctors and nurses. And that's what this is about. So we're excited that we've got to -- it took us a while. Chicago was our test. We've learned. It took us 2 years to get through it. But we've approved it. And we're going to devote hundreds of millions of dollars now to that. And our big challenge now for CARES is everyone � the Congress and OMB, everyone has been hyped and hopped, saying let's go. But I'm, as the budget officer, saying, where's the money?
We've got to finance. We're going to spend 300 million in Chicago in that region. I doubt if we'll spend anywhere near that in many other regions. But we need hundreds of millions of dollars for a system of our size to right-size, and to bring about the change. Everyone has said, yes, conceptually, buy it. But where do we get the money in financing that? Our budgets have to be supplemented to do that. And we will use not just appropriations, as I said, but this Enhanced Use Leasing Authority, which is a very interesting concept.
Again, we sort of led the way. We've had it for 12 years; we were slow starting it. But we are expanding that significantly, where we use private sector funding to improve the buildings that we need, or if we don't need them, where we generate a revenue stream for us, to help support our health care system.
Mr. Lawrence: It seems pretty clear the reasons why you don't want to have the ability to shift money to provide more direct health care from infrastructure.
Mr. Catlett: Right.
Mr. Lawrence: What have been some of the management challenges to get to that point?
Mr. Catlett: I would think it's the normal challenge. It's just the fear of change and the inertia that goes with it. The expectation, again, is sort of the thing I love about government is, you've got a lot of competing interests, and it takes a while to come to a conclusion and move. That's why I would envy the private sector. Say, when a business and a corporation decide to take a direction, obviously they're at risk to stakeholders, stockholders, and everyone else. But they move out as a unified team.
Here, we've got a board of directors that's unbelievable, from not just the Congress, but with the many different perspectives on the Congress, from appropriations to authorizers. Within the administration, you've got several points of use. So, with us, with a strong advocacy group, a lot of people are saying is this just the way to cut back on the health care, instead of improving the health care by redirecting the resources?
So overcoming that suspicion on some people's parts and I think just the general fear and inertia. As I said, another piece of it is, this will be dislocating a lot of our employees. We have tens of thousands of people that are wage grade employees, blue-collar employees that take care of our facilities, that do the food service, the engineering staff. If we get rid of facilities, we're not going to need those folks. And the transition for those folks, you know, and how we best do that to care for our employees, at the same time to bring about the change, you're talking about a very interesting and a very tough set of issues, because there's a lot of different interests here.
Mr. Lawrence: How did you overcome all those issues?
Mr. Catlett: Well, we haven't yet. But in Chicago -- and again, I think part of it is, again, it's tough as people look at it. But again, the basic dynamic that's underway now is that we have so much demand for care that everyone understands intellectually, we have got to get on.
We don't have the luxury of waiting and working through this issue. We have to speed this up. I mean, our appropriation is not unlimited. We will do as much as we can with this special authority we have to access private financing. But that will be a supplement only. It can't replace the idea of coming up with more money.
And so we have to, with a base of now 25 billion we have for health care, that we'll spend this upcoming year on health care, we have got to get it concentrated as much as we can in direct care, and physicians and nurses who are providing that care.
So, like I said, these issues have been with us for 2 years. They're going to be with us through this CARES study that's now being completed for the rest of the country. And like I said, all those dynamics and all those influences will play out as we try to get to a set of plans that we need to start financing in the 2004 budget, and the couple of years following.
Mr. Lawrence: With regard to your role in financial management, what steps is VA taking to improve its financial management scorecard grade, to get to green?
Mr. Catlett: The biggest change for us -- the scorecard has a lot of components. The financial management is one of the five common denominators for all of government agencies. For us, it's a big change, a huge change, as we're replacing our financial system and our procurement data system, our procurement system, in the field and centrally.
Like I said, I've been around a long time. This financial system, we brought up in '95, when I was the assistant secretary, the political appointment previously. It took us a while to do that. And we're now at the point where it needs to be replaced. That was the big change. And now what we hope to do is replace the two front ends out there in the field for the financial system and the procurement system for tracking our inventory with a new, integrated system, with our core financial system.
So we've been underway with that 2 years to study and develop. We have begun the pilots for that. And over the next 18 months now, we'll need to roll that out. So that is absolutely the largest challenge we have as the Office of Management within this department to bring about a new financial system -- well, I should say a new financial and procurement system for tracking this $60 billion a year that we're responsible for.
If we pull that off, then we deserve a green. I mean, that's our goal, to get that done. And this is bigger than anything that we've tried before, in terms of trying to get to basically one system.
Mr. Lawrence: That's a good stopping point. Rejoin us after the break as we continue our discussion about management with Mark Catlett of the VA. This is The Business of Government Hour.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Mark Catlett, principal deputy assistant secretary for management at the U.S. Department of Veterans Affairs.
Joining us in our conversation is Greg Greben, another PwC partner.
Mr. Greben: Mark, we spoke earlier about VA's challenge in updating its core financial and logistics system. Can you speak to us about some of the challenges faced and lessons learned?
Mr. Catlett: Yeah, Greg. Like you said, it's sort of a work in progress here, what we're doing. We're 2 years into the planning and design of that, with a lot of help and support, after choosing a system, from a lot of contract help. I guess there's two things I would say. One is, frankly, I guess it's not a surprise. But we get overpromised a little bit in terms of what these systems can do. I mean, obviously, we want to try to avoid -- over my career, you know, the lessons learned, or a big one is, you know, don't try to retrofit this new technology, this new software to the way you've done things in the past. You need a change your business practice to match the software.
But what they promise a lot isn't there. I mean, in particular, we've stopped a new payroll system, basically because they couldn't meet the load test. And again, VA's a big place, and maybe that's it. I mean, we have within that case, with 230-240,000 employees, the ability to process in real-time that much of a payroll. The system couldn't handle it that we were trying to bring up.
So, that and other reasons. But that was the primary reason we had to leave there. I think we're looking at, we're edging up on some of those same issues now, as we bring up the core financial and logistics system. It is, can they handle the capacity that we have to put through here? The tens of thousands of people that we'll have online at any time, trying to input into that system, is something new for a lot of the software and the companies trying to pitch us here.
So that's a big concern for us. That's not necessarily a lesson learned for everybody. But that is one thing. The biggest thing I think within the government setting when you try to bring about a change like this is communication. I mean, you just cannot have enough communication. And in particular, in our case with the field. I mean, you can get folks involved. You set up teams, you set up committees, you get people in full-time. We have folks in Washington brought in full-time to work with us to manage, from the field perspective, how to bring about this change, and hear them out in terms of the things that they need and how we do it.
But even with that, you can never plan. So you should, not just in terms of the time it takes to complete it, but your ability to identify -- I would call it the communication/training it takes to get to a system. In fact, with this system, with all these sites of care and of other benefits, hundreds of sites we have, the thing that we have learned in the middle of this, what we're trying to bring about now is a consolidation and a centralization of our financial and procurement activities in the field.
We don't want to bring this thing, this system up at 170 medical centers. We want to bring it up at 21 regional centers. And obviously, you're going to still have folks at each medical center doing some financial things. But the basic management of finance, we want to regionalize.
Some of our health networks have done that already. And we're pushing to standardize that for a lot of reasons. And one of them is, when we roll out this new financial system, we don't want to have to be dealing with the tens of thousands of people that we would have to if we were trying to put this system up at every one of our medical centers, our regional offices, and our clinics, as I said.
So the lesson there is communication, and making sure that you oversubscribe what you need to do in terms of as you look forward in trying to bring about a change like this.
Mr. Greben: Part of improving budget and performance integration is being able to provide the necessary financial information to managers in a timely manner. What plans are in place to improve in this area?
Mr. Catlett: This sort of touches on something near and dear to me. I've often described myself to VA audiences as sort of a Results Act nut. I think it is one of the better things that happened to government. I mean, Congress did it. In '93, they gave ourselves 5 or 6 years to pull it off. That was as required.
People could look at that and think government must be terrible, that it takes 5 or 6 years to bring about a change. But the change affects everybody. It's just not the way we manage, it's the way Congress oversees what we do, and the questions they ask.
So performance and budgeting and linkages has been a special interest of mine. And in fact, we are going to change our appropriation accounts structure with our next budget that we submit. I think we're the first HCR department to do it in total. We're totally going to change -- we have about 45 accounts. We want to get down to less than 20, and we want one for each -- I've described earlier in this conversation about the eight things that we do for veterans. We want an appropriation for each of those that would include all the costs, whether it's the entitlements, the mandatory payments or services to veterans, the administrative costs, the capital costs. All that together.
So in an oversight role, where even from the public perspective, they can look at us and say, hey, here's the things you do for veterans. Where do you spend your money? If you look at our account structure now, you cannot figure it out. You have to be a bean counter like me and 25 other people at the VA, or 50 other people who write these six books every year and submit a budget. And we're the experts, and somebody's got to ask us to figure what's going on there. We wanted to make it plainer and simpler to folks that this is where we spend the money.
But now, after my advertising, to get to your question. Actually, the interesting part of it is the financial data is not the problem. We have financial data, even with our current system, pretty much available as we need it to look at, particularly in the execution and tracking of this. And again, a nice thing that's happened at the VA, again, with strong leadership from our deputy secretary, we have monthly performance meetings, where the under secretaries, and the leaders of every organization are there to present. You can't delegate this to someone else to submit a nice little report. You have to be there, present, and explain the operation and the performance.
The problem we have right now is not the financial data, but it's the performance data, to getting that in terms of any real-time; getting, you know, the metrics that we're setting in place to determine the quality of the service that we're providing, the amount of service even. All those things which we call the performance data, they have come out of systems that are informal even, and end up folks calling to the field, tell us what you're doing, sort of collecting this by hand, if you will, or by e-mail, instead of having it standardized in the system.
So performance data is our bigger problem than financial data, towards having the data we need for real-time execution, tracking and adjustments as you look to try to implement your programs.
Mr. Lawrence: When you think out over the VA as a whole, what do you consider to be the biggest challenges over the next 5 years?
Mr. Catlett: There would be two things, Paul, that I would speak to there. I'll give you the first one, which is the coordination of health benefits. I think that, again, I want to get beyond just the health in terms of VA because there's another challenge there for us.
But health benefits, as we talked about, there's a lot of focus on our linkage with DoD. The bigger nexus is with Medicare. I mean, the 10 million-plus veterans over 65 who are non-service-connected, who are eligible to get care from us -- and a million and a half of them do, or are enrolled to get care from us -- they're all eligible. Or 95 percent of them are eligible for Medicare.
And we proposed in the last administration to try to get a coordination of payments on that. And again, the huge sort of small paid political opposition, inertia, you know, fear of the change or the inertia of sticking with what we've got, the fear that we'd be raiding the trust fund, the Medicare Trust Fund with all the pressures on it to manage and manage its costs. But that's the bigger coordination that has to happen. That's much more important than what happens between us and DoD, in my opinion. But from all three elements, that has to come about.
But the second thing over 5 years alludes back to the discussion we've had about CARES and our infrastructure shift. But it isn't limited to our health system. Technology has changed the way. I mean, we need to get to the Information Age in the way we provide service to veterans. We have 57 regional offices where you come and apply. We are doing that on the web now, obviously. But you still can walk up to the counter. And most veterans still interact with us by phone.
But we need to get that infrastructure, much less significant and much smaller than our health. We don't need it in the future, if we get to an Information Age service delivery mechanism. And so I think the infrastructure shift across the VA, both for all benefits as well as their health care system, is the thing we have to do.
We can pull CARES off for the health care system. I think the regional office, and, you know, the shift to infrastructure can follow as well in the next year, over the next 5 years. If we can pull that off, then our money will be much better utilized for providing service for veterans across the board, from benefits to health care.
Mr. Lawrence: What advice would you give a young person interested in career and public service at perhaps the VA?
Mr. Catlett: The advice I'd give is, despite sort of the allure of the previous up cycle in the economy, and the dot com frenzy that happened there, and everything and all the opportunity they have there, that it's interesting. And what I've seen, what I've alluded to, I've been very lucky to have, in a government career, I've been very pleased, almost beyond expectations at times, at the opportunity I had to move up in the organization, and to do new things and different things, and to be more responsible for what goes on.
But I think government gives a lot of opportunity. You're not going to get rich there, obviously. But you can make a nice living. And like I said, you have to come with the idea that you're there for the public service. Not to play a clich� here, but I think public service is something that has to appeal to you, in terms of being part of something bigger than you and a broader good for the public and for our society in general.
But with that, like I said, I think it's surprising folks will find how many opportunities there are to do things. At least, I find it in Washington. I know a lot of folks in the VA who work in the field can't wait to get back to the field when they come to Washington.
But if you're in Washington, you know, in the bureaucracy, and you can handle the ambiguity and all the competing interests, that's to me the fun of it, is to see something through when you've got to manage it through a structure that, at this time, is very unstructured in terms of who's in charge at this moment? Who's got the power to make things happen? Because there's nothing that ever can be completed when you have the Congress and the administration, particularly in this era of a split government, basically, as we've had.
So to me, being a bureaucrat can be exciting. I've found that more so than I expected.
Mr. Lawrence: Mark, I'm afraid we're out of time. Greg and I want to thank you for joining us this morning.
Mr. Catlett: Thank you very much. I enjoyed it.
Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Mark Catlett, principal deputy assistant secretary for management at the U.S. Department of Veterans Affairs.
Be sure and visit us on the web at endowment.pwcglobal.com. There, you can learn more about our programs, and you can also get a transcript of today's conversation. Again, that's endowment.pwcglobal.com.
This is Paul Lawrence. See you next week.
Wednesday, January 30, 2002
Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, a partner of 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 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 this morning is with Anne Chasser, commissioner for trademarks, the U.S. Patent and Trademark Office, which is a bureau of the Department of Commerce.
Good morning, Anne.
Mr. Lawrence: Great. And joining us in our conversation is another PWC partner, Steve Watson.
Good morning, Steve.
Mr. Watson: Good morning, Anne, thanks for joining us.
Ms. Chasser: My pleasure.
Mr. Lawrence: Well, Anne, intellectual property is a complex field that's probably not well understood by many outside the community. Could you describe the PTO's mission and activities within the intellectual property community for us?
Ms. Chasser: Yes, Paul. The mission of the United States Patent and Trademark Office is to administer the nation's laws on granting patents and trademarks and to advise the Executive Branch in the intellectual property protection.
Mr. Lawrence: Why is protecting intellectual property so important?
Ms. Chasser: Intellectual property is the economic capital of the United States. Inventions lead to innovation. It's very important to protect the innovation for those that have developed the intellectual property. American brands all over the world speak to the vibrancy of the economy, plus it protects consumers as well. Copyright, the third form of intellectual property, is thriving throughout the world with the radio and movie business and music business as well.
Mr. Lawrence: How many people work at PTO, and what type of skills do they have?
Ms. Chasser: We have a very, very interesting workforce at the United States Patent and Trademark Office. We have a highly trained, highly educated workforce. We have about 6,000 employees, most of which are professionals. We have scientists, Ph.D.'s, engineers in our patent side of the house. And on the trademark side of the house, we have a staff of about 800 employees, 400 of which are examining attorneys, so they have law degrees.
Mr. Watson: What are some of your responsibilities as commissioner for trademarks?
Ms. Chasser: Well, as the commissioner for trademarks, my responsibility is essentially the responsibility of any chief operating officer, which means I'm responsible for the overall strategic planning for where the trademark operation will be going, and that includes areas involving human resource, resource management, looking at future assumptions about where we will be going in terms of the amount of work coming through the door, how we'll process that work and deliver high-quality and timely products to our customers, who are the owners of trademarks.
Mr. Watson: Can we spend some time talking about your career prior to your appointment as the commissioner for trademarks? How did you arrive at your current leadership position?
Ms. Chasser: Well, it was a very interesting journey, quite unplanned and quite unexpected, to tell you the truth. I got a call out of the blue, in November of -- I believe it was 1998, asking if I might be interested in considering this position. It took me completely by surprise, and I decided that I would just follow through the doors as they opened.
My background is very unique, and I think somewhat unusual for someone in this position. I had come to the Patent and Trademark Office as a customer of the Patent and Trademark Office, in that my most recent position, and actually a position I held for most of my career, was with The Ohio State University. I was the director of trademarks and licensing for Ohio State University, and as a matter of fact, developed the program which was one of the first programs in the country at an institution for higher education to register its trademarks and develop a program to promote and market the trademarks for the university through products and services.
Mr. Lawrence: Are you a lawyer by training?
Ms. Chasser: No, I'm not. That's the other interesting aspect of this position. I think that I probably have the distinct, unique opportunity of being the first person who is not a lawyer to serve as the commissioner for trademarks.
And I think there was a little bit of concern in the early days, because as I mentioned, our responsibility in the trademark operation is the legal examination of trademark applications. Part of what my job is, is not a legal job per se, it's running a business. And having built a business at Ohio State -- and actually, it's very interesting because it was a business enterprise within the context of a public institution, which was very different because, as you know, the mission of a university is academic and learning, and to build a for-profit enterprise within the context of a nonprofit institution was a bit unusual. But the skills that I learned in building a business from the ground up, I think, have come to serve well in this role as chief operating officer for the trademark operation.
Mr. Watson: Can you tell us a little bit about the types of things you trademarked when at Ohio State.
Ms. Chasser: Well, yes. We used to joke quite often, because we would license products that would take you from birth to the grave -- I mean, from baby bottles to requests for the university logo on a casket, which of course we didn't license. We refused those kinds of things. But we literally had thousands and thousands of products at Ohio State. And the trademarks that we would use on these products of course were the institutional name, the logo, the mascot.
So I saw first-hand the value of a trademark registration, because, as you know, one of the most important aspects for an owner of a trademark, the onus of protecting the right falls on the owner of the trademark. Once you receive a registration, the responsibility falls back on the trademark owner. So that's why you're seeing companies all over the country spending millions and millions of dollars to advertise their brand, as well as to enforce their brand. It's a very important aspect of trademark protection, is the enforcement and protection of the brand or of the trademark.
Mr. Lawrence: You received the call to join PTO. What was it that drew you to public service?
Ms. Chasser: Well, I've been in, as I mentioned, the public service literally my entire career. I've had a very interesting career of well over 25 years in the public sector, having been at Ohio State for about 25 years.
And what I like best about the public sector, the work that we do is so vitally important, but I also like the spirit of camaraderie and the spirit of working together. You don't have the bottom line profit-and-loss kind of situation. I find the collegial atmosphere -- what I found coming to the PTO was that it's a very collegial senior executive group and collegial group within the PTO. On the trademark side of the house, it's very much a community and a sense of family, and we're all in this together. And I think that's a very rewarding way to work.
Mr. Lawrence: What of your jobs in the different positions you've held have best prepared you for your present position? And I know there's subject matter expertise, but I'm also thinking about the management skills that are required.
Ms. Chasser: Well, I think the skills that helped me the most coming to this job, I mentioned the aspect of building a business and communicating with a whole host of different kinds of constituency groups, senior leadership in the university. We were selling an idea that was a little revolutionary back about 25 years ago. I know now that it doesn't seem that odd, because colleges and universities, now, people recognize the value of their trademark licensing program because often it generates significant revenues that go back to the educational mission.
What I also did, I think, that was very, very helpful that has prepared me for this job is, I have been very involved in the community of trademarks and professional associations. Early in my career, I was instrumental in forming an association of collegiate licensing administrators, which is an organization today that has over 300+ universities and colleges all over the world. And we formed this as a clearinghouse for information and exchange of ideas. But what that did was, there was a group of individuals that had a shared interest in promoting college licensing. And it's very energizing, I think, to work with people that have a shared vision in the importance of what we're doing and sort of feeding off one another.
From there, I got involved with the International Trademark Association. I think the common theme throughout my career has really been the connection with people and groups and threads and things of that sort, where one thing leads to the other. In the early days of collegiate licensing, we felt it was important to affiliate with groups to give us credibility, because after all, we were just lowly college administrators, and nobody at our institutions understood what we were doing, and so we were trying to get credibility and acceptance. And we heard about this organization called the International Trademark Association, and one thing led to the other, and we built alliances, because it was useful for the International Trademark Association to recruit an interesting constituency, which were colleges and universities who valued trademarks in an emerging group.
And so one thing led to the other, and I got involved with the International Trademark Association and eventually became president of that organization, and that's what put me on the landscape for this position, no question about it, was my work in the trademark community.
Mr. Lawrence: That's a good stopping point. Stick with us as we continue our conversation with Anne Chasser of PTO. When we come back, we'll ask her to tell us about getting applications to be processed online. Come back in a few minutes when The Business of Government Hour continues.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Anne Chasser, commissioner for trademarks at the U.S. Patent and Trademark Office, which is a bureau of the Department of Commerce. Joining us in our conversation is another PWC partner, Steve Watson.
Mr. Watson: Anne, we know that the Trademark Office implemented the Trademark Electronic Application System, TEAS, to allow trademark applications to be processed online. What were some of the management challenges associated with implementing this technology change?
Ms. Chasser: Well, Steve, change is never easy. And, interestingly, the concept of transforming the way we do business is not a new idea. As a matter of fact, back in the early 1980s, a mandate was made by the then-commissioner Jerry Mossinghoff, who is a very well respected commissioner and member of the patent bar, who decided that the United States Patent and Trademark Office would become a paperless operation. Now, that was back in the early '80s, and that's an indication of how difficult change is.
Well, the reality is that the technology really wasn't there 20 years ago. The trademark operation, though, took this challenge very seriously and, in the early '80s, began to transform the way it was doing business with electronic searching back in the mid-1980s. And our plan to transform the way we're doing business from a 19th-century paper-based process to a 21st-century process maximizing information technology has really been part of the trademark plan of operation since 1994.
And how we began, this was working closely with our customers from the early days where literally the office had focus groups with customers all over the country, and established a pilot program back in, I believe it was, 1997 with 50 participants in the pilot. And based on the success of the early pilot, we launched the Trademark Electronic Application System back in 1998. So we've had about 4 years of experience on our electronic processing of trademark applications.
The key, I believe, to the success of the Trademark Electronic Application System is that it's an Internet-based system. And so, because it's based on the Internet, it's a continuously improving process. We get feedback from our customers, we get concerns about different aspects of the application system, and we're able to make adjustments and changes fairly quickly, so that the system that our early adapters used back in the ancient days of 1998 in this Internet society, it's a very different process. The beauty of our system is the simplicity, as it's an Internet-based process. We heard loud and clear from our customers that we needed to make it a simple process.
Now, on the trademark side of the house, we don't have many of the proprietary issues that the patent side has. So ours is quite a bit more simple than the Patent Electronic Application System.
Mr. Watson: What was the push-back when the idea was first talked about? It sounds like it's worked out great, and I'm just surprised that there was push-back when the idea was first introduced. What were the concerns?
Ms. Chasser: I think change is very difficult, internally as well as externally. And I think one of the biggest challenges is that we're asking our customers to do business differently and to change their behavior. And I think oftentimes, it's a challenge to maybe adopt new ways of doing business.
Mr. Lawrence: Were the expected benefits realized?
Ms. Chasser: Oh, I think that many of the -- I keep calling them as the early adapters, companies, oh, such as GE, as a matter of fact. We, this past June, celebrated the 100,000th trademark application received electronically through our award-winning TEAS application. And the recipient of that "award," I guess you might call it, was General Electric. As a matter of fact, in one day General Electric filed 52 trademark applications in a matter of minutes with the press of a button, and one of those 52 happened to be our 100th.
Well, in the ceremony that we had and the celebration, the trademark council for GE said that GE won't stand doing business the old way anymore; that they see the internal value from a cost-saving perspective, from an efficiency perspective of filing electronically. And, as you know, I mean, Jack Welch, the former CEO of GE has made digitization one of his primary goals, and GE is following through its electronic filing of trademark applications.
Mr. Watson: What percentage of the trademark applications are currently processed online, and how do you promote and encourage your customers to use online processing?
Ms. Chasser: Well, I was talking before about the value of selling. And an important part of my job I see is sales, quite frankly, and selling our electronic application system, because, really, my overall goal is to transform the way we're doing business and to be a leader in the federal government and eGovernment.
But having said that, how we promote it: Many different ways. We promote it through customer sessions throughout the country. As a matter of fact, next weekend, beginning a whole series of presentations all over the country where we go and we meet with large groups of our customer basis, and this time we're working through our Patent and Trademark Depository Libraries. There are 88 all over the country. So we'll be working in concert with the Patent and Trademark Depository Libraries and with local practitioners and corporations that are using our electronic application system and those that are not, to sort of give a balanced approach of the pros and the cons. We promoted heavily through these kinds of interactions, publications, opportunities like this to really spread the word of how we're transforming the way we do business.
Mr. Lawrence: One of your goals is to reduce the amount of paper files at the PTO, and I can't help but think that, given all that's gone on in the past, there is an enormous demand for space to store paper files, and we've been reading that you're getting ready to move.
So I'm curious to know, what are the challenges of coordinating this move and all this paper?
Ms. Chasser: Well, you're absolutely right, Paul, that storing paper places tremendous demands on space. I mean, you should visit the Patent and Trademark Office sometime and you'll see how we are literally drowning in paper at the Patent and Trademark Office. And that's why it's so important that we move into an electronic processing, because the cost of maintaining paper, as you can imagine, is tremendous.
But the process of transforming how we do business will be all part of our move to Carlisle as well. I mean, there will be space there to house paper, but it's a big concern.
Mr. Watson: What sort of benefits and cost savings do you anticipate with the consolidated building move?
Ms. Chasser: Well, one of the biggest challenges in planning the balance of the United States Patent and Trademark Office space at the Carlisle is to really lay out the space so that it's provided for future flexibility.
For example, the Patents is planning their space so that the square footage will initially house paper but then can eventually be recaptured for office space quickly and at a minimal cost, so that as the increased use of electronic processing increases in the future, we'll be able to adapt that space.
Mr. Lawrence: What are the management challenges surrounding this move? Is it easy just to pick up and consolidate, or --
Ms. Chasser: Oh, my heavens, no. It's a huge undertaking.
Think about this. Right now we occupy over a million square feet of office space in 18 buildings in a campus that spans about a mile in Crystal City. So thinking about literally picking up and moving, plus moving all of the paper files, is an enormous, enormous challenge. And I think we've got a really great team together that is heading the move. Fortunately, that's in another area. So I just have to worry about the -- my job is to get the work through the process of the trademark operation, but we have a wonderful team that's working very diligently in trying to figure out all of the possible contingencies into the move.
Mr. Lawrence: Let's keep pushing along on technology. We know that PTO has initiated a multi-million-dollar project to supply employees with things like desktops, laptops, and hand-held computers. How will this improved technology impact the way you do business?
Ms. Chasser: Well, again, now, this is a procurement issue and, again, that's not really my area. But we are always looking for ways to improve the efficiency and the effectiveness of our operation.
And just for example, on the trademark side of the house, when we are examining trademark applications, oftentimes there are design elements within it, and if you have a larger screen in order to examine the design element, it makes the job a lot easier.
Thanks to technology, we're able to literally -- I don't know if I mentioned this or not, but one of the advantages of our transformation to a fully electronic workplace is a very successful work-at-home program. And so literally, our examining attorneys could be anywhere in the United States. Right now we have one that lives in Boston, Massachusetts; one in Harrisburg, Pennsylvania. But in the near future, I could literally see our examiners anywhere in the country if, for example, a spouse has to move for a job. It's a great way to maintain a highly trained and skilled workforce. But the capability of examining and dealing with customers electronically is all made possible thanks to the innovations in our office.
Mr. Lawrence: That's a good stopping point. Rejoin us in a few minutes as we continue our discussion with Anne Chasser of PTO. PTO was one of the first performance-based organizations. We'll find out what impact that had on PTO when The Business of Government Hour Continues.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Anne Chasser, commissioner for trademarks at the U.S. Patent and Trademark Office, which is a bureau of the Department of Commerce. Joining us in our conversation is Steve Watson, another PWC partner.
Mr. Watson: In 2001, the number of trademark applications was significantly less than what was projected. What steps are you taking to adjust human resources to the reduced demand for your services, and how are you managing this impact on your employees?
Ms. Chasser: It has been a real challenge. What we saw in the trademark -- I keep calling it the trademark side of the house -- was, in terms of the level of our trademark filings, we found that we reflect the economy. For example, we did a tracking, and we saw that the trend lines in trademark application filings mirrored the NASDAQ from the 1990s. So as you can imagine the NASDAQ graph and the bubble in 1999 and 2000, we experienced that bubble where we saw unprecedented growth of 27 percent compounded 2 years in a row now. Can you imagine running a business that grew with that kind of a rate?
Well, then, what we saw in 2001 as the bubble burst, we saw that happened to our trademark application as well. This past year, we experienced a 21 percent decline in trademark application filings over the previous year. Now, having said that, that was still the second highest level in the history of the office.
But in terms of how do you manage that exponential growth and then retrenchment, what we were able to do was -- thanks, actually, to the performance-based organization status that we achieved through the AIPA, which is the American Inventor Protection Act of 1999 -- we were able to certain flexibilities in terms of incentive pay for performance, and we had certain incentive programs for our examining attorneys, plus I mentioned our work-at-home program, which resulted in higher productivity, the fact that we had more seasoned examiners.
So we were literally able this past year to work through our entire backlog, which was the first time in 13 years that we achieved a first-action pendency, which is a term of art that means the first time a customer receives an office action indicating the likelihood of their application becoming a trademark, and we refer to that as pendency to the 3-month period. We were able to achieve that, and then we saw this drop in filings.
I might also mention that we were able to achieve that with a net gain of only six examiners from the beginning of the fiscal year to the end of the fiscal year, so I'm very proud of that process. But what happened was, we didn't have the backlog to work off it, so we right now have more examiners than we need when you run your economic model. But how we're dealing that, we have made a commitment to work as diligently and as hard as possible to retain our highly trained effective workforce, because we know that the patterns of filings are inconsistent and up and down, and so when the economy recovers, we want to be prepared to maintain that level of customer service that our customers are expecting now, receiving actions in a timely way.
So what we have done in the short run is that we have been able to redirect some of our highly trained examining attorneys to other areas within the trademark business that we haven't been able to pay attention to these last several years, because we've been so focused on getting the work out the door. So we're working on infrastructure activities. We have detailed our examiners to the Office of General Council, to various offices that the trademark user's fees support within the USPTO. So it appears to be working well. We're monitoring this very, very closely. We are communicating very closely with our examiners and our employees, because after all, our employees are our most valuable asset, and so it's very important that we keep the lines of communication open. But it's difficult.
Mr. Watson: You mentioned some of the flexibilities you have because PTO is a performance-based organization, or PBO. How else has being a PBO affected, say, culture or the day-to-day operations?
Ms. Chasser: Well, the Patent and Trademark Office was actually the second performance-based organization designated, the first being in the Department of Education, Student Financial Aid. So we had a great opportunity, I think, to define what a performance-based organization is. And I think what it allowed us to do is really talk about how we're doing business and look at running the business as a business from a sort of strategic perspective. And it provided certain flexibilities, as I mentioned, with regard to pay for performance through incentive programs and so forth.
We are still, though, subject to Title V under the federal legislation. We're also subject to the appropriation process.
Mr. Watson: Measuring performance has become an increasingly important part of doing business in the public sector. We know that the Patent and Trademark Office has developed a balanced score card performance measurement system. How do you measure customer satisfaction, and what results have you seen today?
Ms. Chasser: Well, Steve, I mentioned earlier that we are an organization of engineers and scientists and lots of analytical kinds of professionals that work in the Patent and Trademark Office. So measurement is something that we are outstanding at. And we're very good at measuring all kinds of processes. You mentioned the customer satisfaction. We have an annual customer satisfaction survey that goes out every single year, I believe, for 5 or 6 years. So we have historical data, and we're very specific with our customers in terms of key drivers and what leads to customer satisfaction. So we have our external customer satisfaction survey, as well as a number of internal measures that we look at to evaluate how we're doing business. So when there's a disconnect between our internal measures and our customer satisfaction numbers, we know we have to laser into that area and try to meld the perception and the reality closer together.
Mr. Watson: Congress has mandated a reduction in the application processing time to 3 months. Could you describe how employee incentive programs are aligned and how they contribute to meeting this goal?
Ms. Chasser: Well, I did mention my little bragging rights a little earlier about how the 3 months for application processing time was achieved this past year. And we're very proud of it, because it was the first time in 13 years we have met that goal.
And I did mention a little earlier some of the incentive programs that we worked on in terms of productivity awards and so forth, which were very successful.
Mr. Watson: The agency's balanced score card system also measures employee satisfaction. I think you mentioned a few internal measures you have. What results have you seen in your employee satisfaction survey, and how does a program such as your work-at-home program help the PTO to attract and retain high-quality workers?
Ms. Chasser: Well, our work-at-home program is one of the most successful programs. And we have, actually, examiners lining up to work at home because of the tremendous -- not only the ability to work at home, but it actually provides more time to get the job done, because you're not sitting there in traffic, and we are able to measure the work being done because, as I mentioned earlier, we are an operation that has a deliverable, so we're able to measure the deliverables.
And having a highly professional work force, the ability to work on your own, without supervision and all those kinds of issues, is very, very positive. And so we're very pleased with our work-at-home program.
Mr. Watson: You mentioned you had employees lining up to join the work-at-home program. Why not roll it out quicker?
Ms. Chasser: Well, there's a cost associated with the work-at-home program, because we literally replicate the desktop in their home. And so we're talking about resource needs. We're also looking for broadband lines to the home. It's a resource issue at this point in terms of setting it. We currently have, I believe it's about 28 percent of our examining corps is working at home, and we're actually developing a new program, a pilot program, a hotelling concept. And I actually believe your company has a successful piloting program that we'd love to visit some time. But the hotelling program for your audience, it's literally -- think of it as five people sharing one office. And so what that is going to enable us to do is to eliminate valuable office space and turn it back for other uses, either within the PTO or through GAO.
Mr. Lawrence: Have you had any untended consequences or any disappointments with the work-at-home program? Often people like to work in teams together and meet at the coffee pot and discuss stuff, and that just can't be done. Have there been discoveries like that?
Ms. Chasser: Yes. I don't think that work-at-home is for everyone. I personally think that I probably wouldn't be able to work at home, because I'd find other things to do besides my work if I was at home. I don't think work-at-home is for everyone, because some people thrive in a more collegial environment and talking around the coffee pot and so forth.
What we have found is a community springing up among our examining attorneys through listservs or coming to the office one day a week and meeting colleagues and friends. One of the requirements of our work-at-home program right now is that you need to come to the office 4 hours a week to take care of administrative functions and training sessions and group meetings and so forth. So we try to provide some opportunities for interaction. And one or two of our examining attorneys who have worked at home have decided that it's not for them, that they prefer being in the office. So I think what we're trying to do is develop a menu of opportunities and choices of how to get the work done.
Mr. Lawrence: That's a good stopping point. Come back as we continue our discussion with Anne Chasser of PTO. How does one recruit, manage, and motivate such a highly skilled work force? We'll ask her when The Business of Government Hour continues.
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Anne Chasser, commissioner for trademarks at the U.S. Patent and Trademark Office, which is a bureau of the Department of Commerce. And joining us in our conversation is Steve Watson, another PWC partner.
Well, Anne, your position as commissioner of trademarks used to be a political appointment. However, you were hired on contract. Could you tell us the impact of your ability to manage and the way you approach this position?
Ms. Chasser: Yes, that's right. As a matter of fact, with the implementation of the American Inventor Protection Act, my position as commissioner of trademarks changed from a presidential Senate-confirmed position to a 5-year term position where I actually have an employment contract with the Secretary of Commerce.
How are things different? Not much different at all, because when I came in as a presidential appointee, I came in with a very clear idea of my job was to get the job done, and as a 5-year term employee, I still have that same perspective. It's to get the job done.
Mr. Watson: How will TEAS and other eGovernment programs change the way citizens interact with PTO?
Ms. Chasser: Doing business electronically is very different than doing business in a paper-based process. And I invite all of our listeners to visit us at our website, which is www.uspto.gov. And our website is really the portal to our customers' interaction with the United States Patent and Trademark Office. For example, our customers can check the status of their pending trademark application. They can search through the website and -- I'm not going to give the acronyms, because it's too confusing -- can search for marks that are used in commerce through our website. Every week the trademark operation -- and the patent operation as well -- publishes an Official Gazette, and the Trademark Official Gazette is a publication that lists all marks that are subject to registration as a trademark, and it provides an opportunity or public notice for those that believe that the mark may be confusingly similar with the trademark owned by an individual; they can challenge that potential registration. That's called the Official Gazette. You can check that every Tuesday on the web in PDF format, which is searchable, text searchable. You can find your trademark registration certificate through the web and print it off of the web. You can get information on how to file a trademark application.
It's a whole host of information, a clearinghouse of information through our website, and we believe that working through the website really will enhance your experience of working with the Patent and Trademark Office. And we're very pleased, again, with the USPTO website. It's an award-winning website, recognized by Yahoo! magazine as one of the best government websites available.
Mr. Watson: Throughout our conversation this morning, you've described a highly skilled and highly educated workforce. What are the challenges of managing these types of employees?
Ms. Chasser: Well, it's actually a joy to work such a smart, energetic group of professionals. As I mentioned, we have about 400 examining attorneys, attorneys that work in the trademark side of the house. We have paralegals. Our technical support staff is highly trained. It's really a joy, because you have individuals that see the importance of the work that we're doing at the Patent and Trademark Office and do what it takes to get the job done.
Mr. Watson: We hear a lot about the coming government retirement wave and the expected impact on Federal agencies. What kind of challenges will this present to PTO?
Ms. Chasser: Well, I think like all Government agencies, there's, what, 56 percent of the senior management will be gone within 5 years. So I think it's very important for leaders of any organization to be identifying and working with future leaders of the organization, because that is the future.
And so we try -- I personally try -- to identify those that have the spark and the passion, and you can just sense when someone is going to go places, and to sort of work and mentor. And provide opportunities, provide opportunities to succeed as well as to fail, because I think you learn a lot through the failure as well.
Mr. Lawrence: Do you have formal leadership development programs?
Ms. Chasser: Well, actually, we instituted a program just 2 years ago where we're working very closely with the Council on Excellence in Government where we've identified five Fellows in the trademark operation last year and this year. And I see them sort of as the sparks of energy throughout the organization. We've selected individuals from not only the examining corps, but from management and from technical support as well. And so I sort of see them as sparks throughout the agency, and we're going to start building circles and circles, and pretty soon we'll all be speaking the same language of where it is we're going in transforming the way we do business.
Mr. Lawrence: Why are they sparks? What are the characteristics that leads them?
Ms. Chasser: Well, I think oftentimes, when you step away from your workaday world, and you're involved with other organizations and other groups, and you learn what's happening in other areas in the Federal Government, and you take time to study leadership and what it takes to be a leader, and you step back and learn about yourself, often these programs involve self-evaluation -- for example, Myers-Briggs -- in how you put together teams and how it's important to have individuals with differing points of view, and differing perspectives only makes a stronger team.
All those kinds of skills, I think, eventually, as people are recognizing this and building, and we're speaking the same language, I think it's going to have a huge effect. At least I'm banking on that right now. We'll see what happens.
Mr. Watson: Earlier in the hour, you were describing your career, and you mentioned you were a customer of PTO's for many years. Now you're its commissioner. How have your perceptions of the organization and mission changed, going from customer to commissioner?
Ms. Chasser: Well, I think it actually helps me when we're making decisions, because I think that actually gives me some credibility within the trademark organization, because I can speak as a customer and how the customer would view it. So I see it as a real advantage.
Mr. Lawrence: Throughout our conversation this morning, you've described the tremendous technological and organizational changes that have taken place at PTO. What's your vision for the next 10 years? How might it change?
Ms. Chasser: Well, I think our workplace will be very different. I mean, when you look at how much it has changed in the last 10 years, 10 years ago examiners -- I wasn't there then, but people talk about standing around the bullpen, which was the one sort of search engine, to try to get -- I mean, and now we literally have examiners working all over the country. Eventually we'll probably have examiners that might be working on their boat in Key West. And so I think the whole issue of bricks and mortar will be very different in the future for us as we move into an electronic-based process.
Mr. Lawrence: How are those changes that we might imagine going to affect the people who manage or lead the organization? Normally we talk about increasing skills. We talk about the skills that the staff have, and we build those and train them. But it seems like the way organizations like what you're describing, would be managed and even led might be different too. What are your thoughts on that?
Ms. Chasser: Oh, I think so too. I have to keep going back to my sports day at a Big Ten university, and it really is all about coaching and teamwork. And I think it will be very different, because decisions will be made very differently. I mean, much less hierarchical and more on front-line decision making, which I think will happen.
Mr. Lawrence: And will the leaders of the future and the managers of the future learn those skills by being in those teams, or how will they --
Ms. Chasser: I think by providing as many and as varied opportunities as you can. And we often talk about getting people outside their comfort zone and putting them in positions where they don't feel comfortable, which is hard; you're asking people to do things that they don't feel comfortable doing. But I think that's where you learn the most, to sort of be in an uncomfortable position or a situation, because you find skills that you didn't think you had.
Mr. Lawrence: Interesting. Well, Anne, I'm afraid we're out of time. Steve and I want to thank you for being with us this morning.
Ms. Chasser: Thank you. It's been my pleasure. I've really enjoyed this time together.
Mr. Lawrence: Did you want to mention the website one more time?
Ms. Chasser: Oh, yes, thank you for that opportunity: www.uspto.gov. Come see us there.
Mr. Lawrence: This has been The Business of Government Hour, featuring our conversation with Anne Chasser, commissioner for trademarks at the U.S. Patent and Trademark Office, which is a bureau of the Department of Commerce.
Be sure and visit us on the web at endowment.pwcglobal.com. There you can learn more about our programs and research into new approaches to improving Government effectiveness, and you can also get a transcript of today's very interesting conversation. Again, that's endowment.pwcglobal.com. This is Paul Lawrence. See you next week.
Friday, December 21, 2001
Mr. 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 by visiting us on the web at firstname.lastname@example.org.
The Business of Government Hour features a conversation about management with a government executive who's changing the way government does business. Our conversation this morning is with Mayi Canales, deputy chief information officer of the United States Department of Treasury. Good morning, Mayi.
Ms. Canales: Good morning, Paul. I'm very happy to be here this morning.
Mr. Lawrence: And joining us in our conversation is Jay Tansing, a PwC consultant. Good morning, Jay.
Mr. Tansing: Good morning, Paul.
Mr. Lawrence: Well, Mayi, let's start by finding out more about the Department of the Treasury, its overall mission and some of the specific agencies within it.
Ms. Canales: Treasury is actually one of the most diverse agencies in government. We do everything from promote prosperous and stable American and world economies to taxation to producing coins and currency to safeguarding financial systems to law enforcement and trade to protecting the President. We have 14 bureaus and we run the gamut of operations.
Mr. Lawrence: And let's find out about your role as the deputy chief information officer. What do you do?
Ms. Canales: I get involved in a little bit of everything. As the Treasury deputy CIO I help the CIO oversee strategic planning, capital investments, manage the direction of information technology enterprise solutions. I sit on the Treasury CIO Council and on the Treasury CXO Council, which is actually the human resource, the financial, the procurement, and the information officers all together meeting to address programmatic issues across Treasury. I serve on federal boards and committees, which I think you'll hear about a little bit later as we converse but I get involved in everything Treasury does.
Mr. Lawrence: How many folks are in the Office of the CIO?
Ms. Canales: Well, we have about 220 government employees and twice that in contractors. I think we have almost 500 contractor staff.
Mr. Lawrence: And what types of skills do they have? I imagined they're all technologists.
Ms. Canales: Some of them are policy-oriented. Many of them are technology-oriented but more and more in the government as we buy solutions from companies like PricewaterhouseCoopers what we're looking for in the government are program managers who understand IT issues but more have the management skills to make large-scale IT programs successful.
Mr. Lawrence: Mayi, let's spend some time talking about your career.
Ms. Canales: I started my life in the private sector, designing missile systems in the Navy as a consultant and went from there, after the Challenger accident with NASA I went to work as a consultant for NASA designing a quality assurance program to try to prevent any future Shuttle accidents which I'm proud to say so far so good.
And then from there, I met someone who took me kicking and screaming into government life, but I have to tell you that I have enjoyed it thoroughly. I have met hardworking, talented people and I'm having a blast. I started with the Department of Veterans Affairs in their headquarters in what became the Office of the CIO. It wasn't called chief information officer back then but doing the strategic planning, the financing, nationwide solutions, and now I'm with Treasury and am the chief information officer and still having a blast.
Mr. Lawrence: You mentioned that you worked in the private sector before joining public service. How did those experiences impact or prepare you for your career as a public servant?
Ms. Canales: I think it just made me very resourceful. As a consultant one day you're working with NASA, one day you're in Army, one day you're in Marines, one day you're Navy, and you get to know all about government, which is interesting because you think internally people would get to know more about government, but what I found is that people get to know their agency and their mission very well but it's hard for them to get to know other agencies and other missions.
I think as e-government grows that will change a little bit because we have to get to know each other but the private sector just made me very resourceful. I got to know all the parts of government. I got very good at presentation skills and exposure, I think, just exposure.
Mr. Lawrence: How would you contrast the cultures? Some would have us believe that the public sector and the private sector are very close and very similar. Others would say that they're very different. How do you see it?
Ms. Canales: Well, I think that in the private sector as you get to huge companies, they actually aren't that different from government. The issues are the same. They have massive cogs that you have to turn to get anything done. That's historically what people say about government. How do you get anything done? But in the past two years where I've been with Treasury and the Federal CIO Council with the partnerships we've created we've done incredible things.
E-government has really moved quite a bit in the past two years. We've got FirstGov out there, the government online portal. We've got committees out there looking at processes across government, so I'd say large companies are very much like the government.
The smaller companies, they go in and they're like pinch-hitters. They go in and they attack a certain thing and then they go somewhere else and you're just exposed to little pieces and parts. You have a specialty item, so those are very different.
Mr. Lawrence: What drew you to public service and what keeps you here?
Ms. Canales: What drew me to public service was a very nice now passed away but a retired general who needed some help. The Department of Veterans Affairs was doing some nationwide networking and mail implementations and things like that, and he just didn't have anybody onboard to manage those contracts who understood the issues, who understood what a router did and how it connected to other things and what the heck a wide area network was and how people talked to each other.
So he brought me onboard and said just stay with me for three years and get this done and don't worry; it will be good for your career. And it was. I mean, I've had a wonderful time. I've done great things and right now I'm staying because I'm having a great time and I believe in what we're trying to do with e-government. With the new administration and Mark Foreman (?), who's come in to do e-government for us across the board in the federal government, I really believe in what we're doing. I think it's the right thing to do.
Mr. Lawrence: What are the skills that a CIO needs? I mean, you've moved between being a business leader and a technologist. Could you break the job apart into a couple of those categories?
Ms. Canales: Actually, you said the key word there. The technology background that I have, technology degrees, helps a great deal. I mean, I know what people are talking about. I know when somebody's trying to sell me something I don't really want. But what helps me a lot, I think, is my business degrees and the business background, understanding what government's trying to do, because if you think about it technology is there to support business and if we don't understand our business and our mission and what we're trying to do the technology doesn't make any sense so I think it's the business skills.
But I've found that the most successful people in life are people who take the time to listen; they're honest, they're fair, and they just treat everyone with respect and dignity. And in the higher levels that's what's most important.
Mr. Lawrence: Do you think those skills of a good leader are going to change as more and more of life becomes technology-enabled?
Ms. Canales: I don't know that they will need different skills. They'll have to understand how to read e-mail and send things electronically and approve things on a screen versus with a pen and paper. But I think, still, anybody who's a good enough leader to run a nationwide corporation or an agency that has impact around the world is going to understand those things.
I think the skills are still going to be important that they understand their business, they have whatever the business or mission, like with Treasury, a strong economic background is a good thing, but I think still just being able to listen to your managers that you have working for you who are actually responsible for getting things done and treating people fairly with respect and dignity I still think are the strongest things a good leader is going to have.
Mr. Lawrence: What are the management challenges of working with such a highly- specialized team as you have? They all probably have advanced degrees and they're all probably trained in these kinds of things.
Ms. Canales: No ego because they all know far more than I do. And I think the challenge comes when you have to make those tough decisions when the room can't agree and you need to make a call about which way to go on something and not everybody's going to be happy because as you change things, for instance, with e-government the talent or the task is not the technology, really.
I mean, it's combining processes, like, say, trade, commerce, Agriculture, Treasury, Transportation, Justice. We all have pieces and parts of that. If we combine that into one process imagine the culture change across those agencies. People's jobs are affected. Not that people would lose jobs but their jobs might change.
People don't like that. They don't want to change. They're very comfortable for the most part. People hate change. The change management or, I should say, the management of change, the facilitation, the people skills, are the critical things we need today.
Mr. Lawrence: How about the challenges of managing or dealing with a workforce that is, as you indicated a couple of questions ago, has a high component of nongovernmental employees?
Ms. Canales: Frankly, I hire companies like you. A company like PricewaterhouseCoopers is familiar with the issues, you have the technical talent, you can swap in a networking talent person one day and a web talent person the other day, which I cannot do in government very easily.
Mr. Lawrence: A lot of people don't think it has as many benefits as you describe and they say well, some jobs are inherently governmental and we ought not do that. Do you feel any of that tension or see that?
Ms. Canales: I think some jobs probably are inherently governmental. There are policy decisions, massive funding efforts, and, yes, somebody in government will always have the case that we truly are not interested in where that money goes. And in the private sector even an honest broker you're allowed to own stocks and things that I'm not allowed to own.
For instance, I don't own any Microsoft stock so that I can make Microsoft decisions without any impact to myself financially. You are allowed to have those things and personally you may have drivers that I don't have. So there are some things that I think need to stay inherently governmental but I need advice. And if I bring in advice from companies like PricewaterhouseCoopers or Bozo- Allen or other companies that are in the business of doing that I'm going to get across-the-board advice.
I use companies like GIGA (phonetic) and Gartner and Metta. They do research for me. They tell me what best practice models are out there. I can't depend on one honest broker, obviously, but I think definitely we need that more and more.
Mr. Lawrence: That's a good stopping point. It's time for a break. Rejoin us after the break as we continue our conversation with Mayi Canales of the Department of Treasury.
Are you aware of the latest goings on in e-government? Well, you'll find out about it from her when The Business of Government Hour continues. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and this morning's conversation is with Mayi Canales, deputy chief information officer at the United States Department of Treasury. Joining us in our conversations is Jay Tansing, a PwC consultant.
Well, Mayi, in our first segment you talked about your role with the CIO Council. Could you tell us about the Council and what it is it does?
Ms. Canales: Well, we're on the federal and Treasury CIO Council so I'll start with Federal. The new political appointee, Mark Foreman, who is the OMB Director for IT and e-government that we're working with federally, chairs the Federal CIO Council and my boss, actually the CIO of Treasury, Jim Flyzik, is the vice chair of the Federal CIO Council. We've reorganized recently to meet the demands of the new e-government movement on the President's management agenda.
We've structured into three standing committees, workforce and human capital, which are some of the key issues in government and, I think, in the private sector as well best practices where we have the models and looking at what people have done in industry or other governments that might be useful to us as we do things. And then we have government-wide architecture and infrastructure looking at the underlying standards and tools that we all need to interoperate or talk to each other across governments, local, state, and federal, not just federal.
Then myself and Craig Luigart, the CIO of Education, used to be the e-government committee. Well, everything is e-government now so what we're doing is we're coordinating for the e-government committees that are out there. We're trying to coordinate with the CFOs and CIOs and procurement people federally. We have what's called the Quad Council that we meet with. We coordinate with the state and local government. We provide the program management for Mark so that we all have performance metrics, business cases, business skills, access to somebody doing research for us, white papers as we look at models and things like that, so we provide all the underlying structures for Mark to kind of get e-government moving.
The Treasury CIO Council is really quite similar. We function as a board of directors for Treasury managing the enterprise solutions, what we're going to do together, how we want to spend our money, what are the underlying frameworks that we all have to live with, for instance, architecture.
Mr. Lawrence: Now do these councils really do their work? You mentioned coordinating, which is sometimes persuasive and not managing or directive. How do they get work done?
Ms. Canales: Well, in the Treasury CIO Council really we don't mandate. We look at what has the most value for us and it really is a business decision and we agree on certain business decisions like portal technology for one. We wanted to have a framework that makes sense across Treasury so we could do communities of practice like procurement, where we have may one agency or bureau taking the lead on enterprise procurement. Well, that means all the procurement people need to function as one procurement shop, so a community of practice or an interchange of information that's secure and reliable and makes them look and function as one community is something that made sense to us.
Records management, we were all looking at workflow, document management, records management. Only one bureau, the Mint, had done anything at all with document management. So rather than build 14 solutions we decided well, this is a good enterprise endeavor so we're doing that together. Our architecture, of course, is an enterprise endeavor, things like secure transactions, PKI technology, public key infrastructure, where we use that to authenticate and provide secure transmission of electronic files. We're doing that together. In fact we're doing that federally together.
But on the federal level it's a little bit different. We had a task force look at different e-government initiatives and what we should do federally and we had, I think, about 100 submitted from the different agencies. We interviewed all the key agency leaders, CIOs, deputy CIOs, deputy secretaries. I don't think they interviewed any secretaries. I'm not sure but they interviewed key people in all the departments, and we picked what was most important.
Many similar things fell out like travel, records management, architecture, PKI for secure transmissions, and then other things fell out, business processes that crossed many agencies like trade, grants, wage and tax systems that we deal with all the businesses on. But on the federal effort the key thing was citizen-focused, result- oriented. So we tried to pick things that citizens really wanted and had been asking for through the years and things that helped us in dealing with reducing the paperwork burden on businesses and states and local government, things that made life easier.
Mr. Lawrence: Are there barriers to coordination?
Ms. Canales: Definitely. The culture barrier, which I think we talked about a little bit earlier today, where it's going to be a change, things that happen across many agencies where each agency had its own little portion. Agriculture might be looking at just the farming issues associated with trade or things coming into the country associated with food. Transportation is concerned with the transport vehicles coming into the country. Customs is concerned with the law-enforcement side of imports. INS is concerned with the people coming into the country.
So we all had our own little systems that dealt with just those pieces. Now we're going to have a system that deals with the whole thing and that system is the easy part. It's getting all those people to work together as one seamless process that's the hard part.
What if you're applying for a student loan online, you have all the information there, and then you happen to be downtown one day and you walk into the Department of Education? You should be able to get the same service even if your loan was from the Department of Veterans Affairs because it really was a GI student loan. People don't really know where it comes from. They don't really care. Government needs to adapt to that. That's the hard part. That's the barrier.
Mr. Lawrence: E-government is a large part of what you're doing in your role on the federal and the Treasury CIO councils, and FirstGov is one of the big e-government initiatives. Can you tell us a little bit about what the involvement is in this project, and how will you measure its success?
Ms. Canales: FirstGov is for the first time a single entry into all government services. At first we started with just informational components but now as we progress we're moving more into transactions like student loans online, passports on line, grants on line. Not that agencies didn't have those pieces and parts by themselves, but this gives is more of a federal look and feel and all the components are in one place.
So if you look at FirstGov as the entry into government it's going to play a vital role. It may provide all of the tools and standards, the security. It may provide the architecture for us to the search engines. It will play a vital role in everything we do in the e-government arena across government.
I think as we grow in FirstGov, too, at first it was just federal. Then we started doing searches on states and the next link will be local. So it really is trying to tie all the levels of government together. I think the success will be measured by its popularity, how many people use it, citizens, businesses, how many people are coming in through FirstGov and finding what they need through FirstGov.
Mr. Lawrence: Let me ask you to take a step back and give us your definition of e-gov. I know you've described the transactions, and I've imagined doing them while you're doing it. Is that what e-government is all about?
Ms. Canales: Actually, that's the last piece of e-government. I think e-government is probably as little about the technology as about anything else. E-government is providing government in various forms to citizens and businesses, providing what they want from government in an easy way, whether it's online, which is most people think of e-government, a Web page, but if you think about it you should be able to walk in, fax, call, go online, do whatever.
E-government is providing government as a business process, in other words providing loans as a business process, providing trade as a business process, providing grants and assistance to agencies or other entities in business process, looking at that service as a whole. That's what I think e-government is.
Mr. Lawrence: What are the challenges of rolling that vision out while also dealing with the needs for privacy and security? One imagines filling out the loan as you've described, giving information or perhaps having information about me already resident at the place where the loan is being asked for. So how are you going to pull those together?
Ms. Canales: I know we will do all the tools and standards for security and privacy across government as one of the e-government initiatives. I have to say I have my favorite anecdote. People will hand their credit card to a complete stranger in a restaurant. That complete stranger who usually is not anybody you'd known on a regular basis just walks off with your credit card for 20 minutes, leaves it lying around where complete strangers can get it, and then comes back after a while and you sign for it.
People think of online security as being such a mysterious thing because it is online. I think what it is that scares people is that there is so much access to information. It's not just your credit card. It's everything about you and everything about everyone around you.
What we need to provide is a sense of comfort to people that shows this is the risk factor you're taking, and it should be minimal. Nobody is going to guarantee complete risk-free anything whether you're paying with your credit card in a store or whether you're going online to Southwest Airlines buying an online ticket. They can tell you this is the security we provide and we need to in government provide that, and the technology is out there to provide it whether it be biometrics, whether it be smart cards, or whether it be public key infrastructure with certificates.
Spain is looking at a solution where people go to the post office or to their mint, which does their currency and coins and identifies themselves, prove that they are who they are and they get a certificate, and the certificate works when they go online and buy government services. We just need to do something similar. It's not rocket science. So we need to find similar ways of doing that but the technology exists.
Mr. Lawrence: That's a good stopping point because it's time for a break. Rejoin us in our conversation with Mayi Canales from the Department of Treasury. This is The Business of Government Hour.
SPEAKER: How can your agency cultivate a culture of innovation? Find out by downloading the Endowment's new report "Understanding Innovation: What Inspires It, What Makes It Successful," by Jonathan Walters at email@example.com. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. This morning's conversation is with Mayi Canales, deputy chief information officer at the United States Department of the Treasury. Joining us in our conversation is Jay Tansing, a PwC consultant.
Mayi, we ended the last segment talking about e-government and I was left with a couple more questions. Where are we, the US federal government, relative to the rest of the world in e-government?
Ms. Canales: I think the US is just starting when you think about e-government. What's happened in the past few years is agencies as they respond to the need to put their services online have created, like, Treasury Online and Agriculture Online and Justice Online. So we have recreated government online with the existing building stovepipe, so now we have stovepipes online. Yes, it's fun. So now what we need to do is take those stovepipes and make e-government and business processes online.
So I think in this country that's an incredible challenge. If you look at a country like the UK that has really, really come a long way or Australia or Spain is just starting they just make the decisions to do these things, and their government is one country which is sometimes smaller than Texas and so they can get their hands around it easier. They're organized differently than we are.
For instance, all their health care services are in one place. They might be at the local and at the equivalent to our federal level but they're under one ministry. So we have it where not only are we huge, but then our health care is in five different places, our grants are in ten different places, our trade crosses 40 different entities, so we have that issue as well.
Mr. Lawrence: Where do you think e-government is generally in its life cycle?
Ms. Canales: In this country I'd say we're in the very, very early stages of planning and design because I think we actually have to take a step backwards in some cases and deal with the fact that we have all of these online services which don't talk to each other, maybe are not doing things when you look at whole process, and are not accounting for pieces and parts of that process. So I think we actually have to take a step backwards and look at some of those things, start sharing some of these tools and advances that we've made, and then maybe start doing away with some of the things we have out there and replacing.
Mr. Lawrence: Mayi, the Klinger-Cohen Act of 1996 changed the landscape of IT in government. Can you talk a little bit how this act has been implemented and its impact on Treasury?
Ms. Canales: Sure. The Klinger-Cohen Act, as you know, created CIOs, chief information officers, for which I am forever grateful because I love my job but I think some of the things that it made us look at are IT as investments. IT used to be we're getting the big end of year money dump, how many PCs can we buy, and there was no sense of what those PCs would support or standards or how we were going to fit them into our business processes.
So IT is now made an investment. We have a capital investment review board at Treasury as all the other agencies do. We have councils that function as board of directors like the Treasury CIO Council and the Treasury CXO Council which I mentioned earlier that has the CFOs, the financial, the procurement, and the HR people working together to identify all the administrative issues.
I think that the Klinger-Cohen Act made us look at performance metrics, how do we know if we're successful. Trade is my favorite example because yes, we have all these great systems that are online but guess what. The truck is still sitting for four hours on the border. Success ought to be getting that truck through the border as it drives up, everything cleared and secure.
Mr. Lawrence: The president's management agenda focused on e-government technology and many of the issues we've already talked about. How does the president's management agenda impact Treasury or affect Treasury? How does it roll out?
Ms. Canales: Treasury is very involved in four initiatives specifically for the president's management agenda, at least the e-gov portion, which is what I'm familiar with. We are directly managing the Easy-Tax initiative, which has to do with online tax filing and reporting. We are directly managing the unified and simplified wage and tax reporting with Social Security as a very strong partner to deal with the businesses that have to do all those forms for wage and tax reporting.
We are directly involved with Commerce as the managing partner. We're the strong partner in streamlining the trade process and we're also the managing partner on the wireless initiative, which provides interoperability or the ability to communicate across local, state, and federal entities for public safety.
Mr. Lawrence: What does it mean to be the managing partner for an initiative?
Ms. Canales: "Managing partner" is another word for lead but it's not just that you take the lead on an initiative because we are creating what we call program management offices. Those program management offices are not just the managing partner, in other words Treasury creating this management group and making decisions. They're staffed by, say, for the wireless initiative people from FEMA, people from Justice, people from Homeland Security. They are helping us make the decisions. They're helping us with the investments.
It means that we're pooling our money if we're playing nice together, which I hope we will, so it just means that we are creating the entities, the tools, the support structure for these other people to join in and be very strong decision makers in the overall effort.
Mr. Lawrence: How long is that supposed to take?
Ms. Canales: The 23 initiatives that we have defined right now for e-government under the president's management agenda are 18- to 24-month initiatives, doable initiatives. But as we're working on those we're going to be looking at the future, next steps, so maybe we'll do additional things with wireless. Maybe wireless will be done in 24 months and we'll move on and do case management. Who know?
Mr. Lawrence: How does the office of the CIO use performance-based management to promote effectiveness of agency operations? And how are the performance standards established and evaluated?
Ms. Canales: We have for investments performance standards that are related to the mission or critical business need of the investment. Like I mentioned trade, the truck coming across the border would be a metric. Waiting lines at the border would be a metric. So our metrics are changing to be related to whatever business we're supporting.
On performance-based contracts we're making some progress there. We've defined incentive-based contracts which are you come over, you help us do this, and we'll pay you out of the savings. For instance, we have one with several companies where we're looking at telecommunications. I'm going to pull numbers out of the top of my head but say I spend $200 million a year on telecommunications services nationwide. Well, say a company can come in and say you know what, you can do that more efficiently. You can do that for $100 million a year. I'll come in. I'll define the efficiencies, you only pay me if I save you money. That is the easiest form of performance-based contracting there is.
But on other contracts where we buy a solution or a service we're taking away the metrics which used to be, at least in the IT world, very IT-oriented, like, the system must be up 99.9 percent of the time with a turnover within five minutes should anything go down to the fact that agents out in the field in Alcohol, Tobacco, and Firearms, ATF, have access to their information immediately.
For instance, like, wearable technology is a solution. They have access to case information on an investigation that they're doing. Immediately online all the time they can plug stuff in so another agent across the country has the same information on a related case. That's a measure. So those are the types of metrics we're looking at.
Mr. Lawrence: What are the challenges to implementing performance-based contracting or even performance-based management? It seems too logical and clear as you described it.
Ms. Canales: The challenges are contracting challenges mostly. We need to redefine contracting in government. It used to be very specific where you would bring pieces and parts in and deliver them and set them up and hopefully they would work but now we're not doing that any more. I'm trying not to own any pieces and parts.
But contracting has had the biggest hurdle to jump here trying to define a contract where you guys are my partner, I'm opening up my books to you, you guys know how much money I have, which is forbidden in the government world. Show the books? Forget it. That way they would know what you're spending.
But if I'm buying a service from you how can you do it appropriately if you don't know what my budget is and what I have and where I need to streamline? So that's been the biggest hurdle is the contracting rules and regulations are not exactly created that way and we're trying to find innovative contracting methods and incentive-based contracting like what I described is one that has worked for us.
Mr. Lawrence: Accountability is also a big issue. How do you drive accountability into the IT investments that Treasury makes?
Ms. Canales: It's interesting because you go up on the Hill and you testify and you see the CIO testifying about modernization for Customs or INS and that's about as accountable as you can get. But I think what's interesting is that the IT people are now testifying on the business processes and what you're doing for the business and you're saying these are the things that I'm going to improve and this is the end state that you will see two years from now and I'm going to deliver this. Every year you will see these features.
We no longer say it's going to take me five years and you'll get this gray box at the end of five years. We're going to say it's a five-year effort. You will see these improvements in year one, these improvements in year two, these improvements in year three, and we're measured on that. We have scorecards. At Treasury every CIO employee has a scorecard that is directly related to the goals and strategies of Treasury for that year.
Mr. Lawrence: How has having such a scorecard affected performance and also even the culture?
Ms. Canales: Well, it's been interesting. At first they hated it, of course, because, like, my God, you're measuring me. You want to know if I'm doing my job. You don't trust me. But it's interesting. It's created a sense of I'm doing this to improve financial stability around the world. You see the link. Here is the goal, stabilize the economic markets around the world and then improve financial systems within Treasury, create the following mechanisms, IT employee working on this, this, and this. It directly relates to that. It really gives them a sense of being there for the mission of the agency.
So it's been a couple of years to get to that sense, but I think they now understand why they do the things, which made no sense in the past.
Mr. Lawrence: That's a good stopping point. We got to go to a break at this segment. Rejoin us in a few minutes as we continue our discussion with Mayi Canales at the US Department of the Treasury. In the next segment we'll ask her to pull out her crystal ball and tell us about the future of technology in government. 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 Mayi Canales, deputy chief information officer at the US Department of the Treasury. Joining us in our conversation is Jay Tansing, a PwC consultant.
Mayi, in our conversation so far you've been talking about technology and the different things that might happen. So I'm curious. How will technology affect federal employees in the way they do their jobs?
Ms. Canales: I think you'll see a lot more of being able to do your job anywhere anytime type employees. Unfortunately, I am now accessible 24 by 7 with e-mail, phone, paging, and it's all in one little box. I can do my whole job from a little wearable device but it's interesting.
I think that we now are not limited to our offices. We can work from home, agents can work from the field, and you have access to everything you normally have access to your desktop, and I think that's the biggest change I see.
Mr. Lawrence: Will it affect how the government is managed. For example, old models or hierarchical structures or ratio of managers to employees 1 to 7 or whatever that was, and now with technology how will that change?
Ms. Canales: I think it will make it easier for managers. A lot of what took so much time in the past was the paperwork, signing memos and routing them around and some person physically walking this memo around because it had to get out that day. Now I send a memo out and I send it to six people and I can either structure it so it gets approved serially or all at one time and I can say give me your input and it's all there electronically and I get all their input at the same time and I can make decisions right away and get it out right away. So I think as far as workflow it's made our lives so much easier.
I think you'll see lot more in government of, as I mentioned earlier, program managers where they're managing solutions and services and not managing people. So I think you'll see a lot of that type of change.
Mr. Lawrence: How about in terms of the technology and its impact on citizens?
Ms. Canales: I think you know anybody who has kids or has watched kids in grade school, in college, in high school nowadays, they don't wait in line for anything. They do everything online. I'm even that way and I'm in my mid-forties. So I think, as this next generation grows up government better be responsive and provide government in lots of mechanisms online, offline, buildings, phone, fax. I think government needs to adapt to that and provide the services based on what our citizens want. I think our citizens of the future are online citizens, and I see governance going online.
Mr. Lawrence: Are there any interesting new technologies on the horizon that you're looking at that you think will play an important role in Treasury's overall activities in the future?
Ms. Canales: Yes, I think wearable devices are going to play a critical role which is wireless technology but for solutions where agents can wear devices that allow them to (1) get access to information, (2) see things that you see these virtual components where another agent is in another area and they can actually see that other agent and what that agent is seeing and what's he's dealing with and things like that.
I think in health care, which is not a Treasury mission, technology is going to play a huge role, people with wearable devices that tell them go to the hospital because in the next five minutes you're going to have a heart attack. Imagine the life saving that that will have. So I think wearable devices and wireless technology are the hot things coming up.
Mr. Lawrence: How far away do you think that is?
Ms. Canales: It's here. It's here. It's not all over the place but it's like DVD players. They're under 100 bucks now and they used to be 1,000. So you'll see them more and more.
Mr. Lawrence: We hear a lot about the difficulties that the federal government is having in recruiting and retaining employees, especially technology workers. Can you describe the Treasury's Information Technology Work Force Improvement Program?
Ms. Canales: Yes. We actually have several features but I think the one thing I'd like to mention up front is that in the old way of thinking people used to take a job and they'd stay with that company or with the government 30 years until the day they retired. In the private sector you guys have adapted very well to the fact that sometimes you get somebody in three years and then they get bored and go away.
In the government we are just learning that. It's okay to come and work for the government three years and then go somewhere else. That keeps you getting new blood. You don't need everybody staying for 30 years, which is a new mentality in the government.
I stick out like a sore thumb because I have never had the same job for three years ever in my entire life. I get bored and I move on or I might stay with one company but I work Navy one day, NASA another day, and health care another day. What Treasury is trying to do to address some of those issues is creating program managers and project managers.
We've got two interesting programs that I'd like to mention, the executive potential program and the management potential program. The executive potential program is for what are called GS-14s and 15s, which are one level down from the top, the Senior Executive Service, and it trains them and it sends them to different facets of government and private sector and opens them up to things like what happens on the Hill, what happens in OMB, what happens in other agencies, how does the private sector deal with this. It gives them team building and facilitation skills and business classes. So we've got that. It's an 18-month program, and it sets them up for Senior Executive Service.
Then we've got the management potential program, which is the next level down. I believe it goes to GS-13s and 12s. I'm not sure of the grades but it does the same thing. It prepares them to be senior IT managers in the government, and it opens the up to program management skills, team- building skills. Performance-based contracting is one of the things we're teaching them in there. So it's interesting. We're trying to build a succession ladder.
Mr. Lawrence: Are those retention tools? Normally when we talk about acquiring IT workers people think about just recruiting but I'm curious about retention because I'm imagining by the time people are in Treasury and they develop these specialized skills they have other opportunities perhaps in the private sector but also in other parts of government.
Ms. Canales: Right. I'm not as worried about retention because I think if you're providing a place where somebody is growing and happy that will happen. But what I've found is that even when people leave and go somewhere else, especially if they go to the private sector, generally their skills are coming back to help Treasury anyway.
When I was a CIO for one of the health care networks in the Midwest I lost three people I could say to Cisco. Sure enough, within a year those people were back helping Cisco identify ways to improve the health care network that I was in. So I got them back anyway because they liked to stay in the area, that's what they know, and they had better jobs. They were happier but they were still helping me, so that was fine.
But even if they leave and they go to another agency it's still for the good of government or for the good of whatever technology. So I'm not as concerned about the retention factor as I am about the factor of giving people what they need to do their jobs and making them happy at work and making them feel like they are well- respected and cherished employees.
Mr. Lawrence: I know there was talk on the Hill of having ways whereby I think technology workers could move across the sectors to get more training. You've done that in your career but I'd be curious about how you think that might work.
Ms. Canales: With the federal CIO council work force program we do have mentoring initiatives where we share workers at the different levels. They'll come and they'll do a year; they'll come and they'll do three months. It depends on the initiative they want to work on but we share them. I've personally had four or five in the two years I've been at Treasury, four or five people that have come over in mentoring programs and worked with us, and I have two people currently out on mentoring programs in different agencies right now.
Mr. Lawrence: What were the lessons learned?
Ms. Canales: They love it. They come back and they have all sorts of new ideas and did you know they did this or guess what, I showed them what we did with this. And they'll be working with something, something budget-related especially, which tends to cross our agencies now, and they say I know who to call over there and they call somebody especially when you send somebody on a detail. In fact I have a third. I just remembered I have somebody on a detail at OMB, and he's learned all of our budget contacts, I know who to call who can answer that, and it really excites them. They like it.
Mr. Lawrence: What advice would you give for a young perhaps who's perhaps interested as a career maybe a CIO?
Ms. Canales: Actually, I would say a technology background is great but when you get your masters or you go on for your advanced degrees get a business degree, focus on business, even get something you like. Like, if you're interested in finance or health care or something like that get a health administration degree or a political science degree or a finance administration degree. Focus on an area that you like and learn the business.
Mr. Lawrence: How about in terms of the types of experiences that they should be having, should they be trying to work on very technical projects or large groups of people? What would be the most relevant experience?
Ms. Canales: I think it depends on what they like to do but it helped me as I was growing up in technology to be very technical at first and to understand what the issues really are because when engineers come to me I understand their pain, I hear their pain, and that means a lot to them. I may say no but I understand what they're talking about and that means more to them than I can say.
Mr. Lawrence: Our final question, what's your vision of the office of the CIO for the next ten years at Treasury?
Ms. Canales: I think it will be an investment management firm. I believe that we're going to be doing investment management, making decisions about where to spend money, how to streamline things, not just at Treasury but across government because Jim likes to talk about the government blob. My boss, he likes to say government as we do these business processes across you're going to see a blob of government that's focused on trade and a blob of government that's focused on grants and you shouldn't in the future to be able to tell where people work.
Mr. Lawrence: That's a good stopping point, Mayi, because I'm afraid we're out of time. Jay and I want to thank you very much for joining us this morning.
Ms. Canales: I enjoyed it thoroughly. Thank you.
Mr. Lawrence: Did you have a website that you wanted to mention?
Ms. Canales: Yes, actually I was going to plug FirstGov so people can see what we're doing across government, www.FirstGov.gov, and I think that on there it tells you the new things coming up with e-government.
Mr. Lawrence: Great. This has been The Business of Government Hour featuring a conversation with Mayi Canales, deputy chief information officer of the US Department of the Treasury. Be sure and visit us on the Web at firstname.lastname@example.org. There you can learn more about our programs and research and you can also get a transcript of today's fascinating conversation. Again, that's email@example.com. This is Paul Lawrence. See you next week.
Tuesday, January 22, 2002
Mr. Lawrence: Welcome to The Business of Government Hour.� I'm Paul Lawrence, a partner of 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 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 this morning is with Norman Bowles of the FAA Logistics Center in Oklahoma City.
Good morning, Norman.
Mr. Bowles: Good morning, Paul. It's a pleasure to be here.
Mr. Lawrence: Great.� And joining us in our conversation, also from PWC, is John Kamensky.
Good morning, John.
Mr. Kamensky: Good morning, how are you doing?
Mr. Lawrence: Well, Norman, let's talk about the FAA. It's received a lot of attention recently, but I'm guessing that many of our listeners don't know it's a full range of responsibilities. � Could you describe its mission, its activities, for our listeners?
Mr. Bowles: The FAA is the one-stop aviation safety organization. � Most people know us for our air traffic control system, so if you're going to fly from New York to San Francisco, you're going to go through the air traffic control system. � But we also provide the regulation of the airlines and the flight attendants -- the pilots, the people who person the airlines. We also, if you have a large airport in your city, Federal funds from the FAA have gone into that.� We also regulate something that's very unusual, the commercial space transportation.� Those rockets that are putting satellites into space are now regulated by the Federal Aviation Administration.
Mr. Kamensky: Well, how does the role in the activities of the FAA's Logistics Center fit into this broader FAA mission?
Mr. Bowles: When we talk about the air traffic control system, there's something like 45,000 different systems that make up the air traffic control system. � These are located in 28,000 locations around the United States.� We provide the parts to the air traffic control system -- to radar, to the landing systems. � We also do what is known as depot-level repair.� Those things that can't be repaired in the field, we repair in Oklahoma City. � We also have traveling teams that go around and repair the radar that are used to the air traffic control system. � We do logistics consulting.
And all of this is done now on a fee-for-service basis.� We now have a new service that we are offering, and it's solutions through a contracting device comprised of 150 companies where people in the FAA who are trying to find additional capability to modernize the air traffic control system can get help.
Mr. Lawrence: How big is the Logistics Center?� How many people, what type of a budget do you have?
Mr. Bowles: We are about 600 people, 550-so Federal employees, and we have another hundred or so contractors.� Our revenues are on the order of $120 million a year.
Mr. Lawrence: And you described a wide range of activities in terms of the different functions.� What type skills do these employees have?
Mr. Bowles: We have engineers, item managers, technicians, logistics consultants.� A wide range of professions and disciplines.
Mr. Kamensky: Norman, let's spend some time talking about your career. � You and I first met probably about 8 years ago.� Tell us a little bit about your career as a change agent in the Government?
Mr. Bowles: Well, John, I've had a marvelous career, I think, from that perspective.� I've worked in a number of different programs.� I started off in the Federal Railroad Administration in the mid-'70s, and went to the Office of the Secretary of Transportation in a time when the Department of Transportation was relatively new.� For those people who are not familiar with the Department of Transportation, we have the Coast Guard, FAA, Federal Highways.� At the time that I had gone there, those agencies had come from different places, so the Treasury Department was the one that provided the Coast Guard. FAA was an independent agency.� The highway program came from the Department of Commerce.
So in the very early years, we were trying to create a consolidated and unified Department of Transportation. � I worked as an internal consultant and at that time got an opportunity to work with all of those different agencies.
At one time we tried to merge the Federal Highways and the Transit Administration, two organizations with very different cultures, different constituencies. We came very close to being able to do it. During this time, we were consolidating the field, rationalizing the field among all the different organizations.
I had an opportunity to work on one of the first studies that recommended privatizing the National and Dulles Airports. At that time, they were part of the Department of Transportation.
During this time, there were a lot of things going on in transportation.� There was deregulation going on, so they were sunsetting the Civil Aeronautics Board.� The Northeast Corridor Railroad System back in those days failed, and so the Federal Government did a takeover, and we created a new organization called the United States Railway Association.
And so in that period of time, I had the opportunity to work with a lot of different programs and learn a lot about the different cultures of organizations and how you lead them through a change period.
In 1984, President Reagan made the decision that we were going to privatize commercial space transportation, the launch of rockets into space.� Up to that time, it had all been done by NASA and by the Air Force. � Secretary of Transportation Elizabeth Dole wanted that function, and so did a number of other agencies. � But the argument that won the day in terms of which agency got it was the agency that said this industry was going to have to be regulated in a brand new and entirely different way.
So I had the great experience of being tasked with building that brand new regulatory function, and I did that for 10 years.� It was really quite a challenge, because of a number a things.� Number one was that the Air Force and NASA dominated space at that time, and in the privatization effort, they could be both a support, but they could also be a barrier.
The second thing that made it a challenge was, there's really a very different view between the Federal Government about what space should be used for and the private sector, which saw it as a great place for commercial exploitation.
Then the other challenge that I found that was a very broadening experience is, it involved a lot of work with a brand new industry as well as some established industries. � It involved a lot of work with the Hill, with the public, and the press.
So in that period of time, I got to do a lot of firsts for the Federal Government.� I licensed the first commercial space launches, approved the first commercial space launch site, set the insurance requirements for a brand new industry, and even had the distinction of being the first one to approve space for the use of burial of human remains.� So it was quite challenging, and it was a very different experience.� The thing that I came away from that one with is that you can go on the assumptions of what conventional wisdom were and how things ought to be, because every time you turned around, somebody had a different idea than what was the prevailing thought.
After that, in 1995 is was when I got to meet you, John.� That's when I went to the National Performance Review.� That was another exciting experience, and one in which I really got an opportunity to see the best of the change leaders in the Federal Government.� During that time, I was on a team lead that was overseeing and facilitating changes that were taking place in seven different cabinet agencies.� I had the privilege to be a project director for a National Performance Review book and to participate in a number of different other changes.
In 1996, mid-'96, is when I went to the Logistics Center, and I've been leading their effort ever since.
Mr. Lawrence: Tell us about your role as the program director.
Mr. Bowles: As the program director, I'm the senior official in the Logistics Center.� It's a leadership position that I really see primarily as a change leadership.� The Logistics Center has a very interesting place within the Air Traffic Control System.� It's actually a leverage point that we can talk about a little bit later. � And if you can introduce changes into the Logistics Center, they actually have a tendency to carry all the way through into other parts of the FAA and really boost the rest of the agency's performance.
Mr. Lawrence: Was there any one job, as you describe your career, that best prepared you for this present job?
Mr. Bowles: I think it was the combination of all of those jobs. � In the first 10 years, it was dealing with all those different agencies -- the one thing I could tell you would be that whatever you would find one agency thought was illegal, another agency was doing.� And if anything, that becomes that real beneficial perspective of that part of my career, as well as working for the National Performance Review: It is that most people in the government's perspective of what's doable is limited by their own imagination, or by their own perception of the rules.
And that's actually, I think, one of the biggest impediments to the changing Government. � We really are bound at times by narrow interpretations of the rules that are founded by our own agency cultures.
Mr. Lawrence: Did you plan the changes you made throughout your career?
Mr. Bowles: Each job seemed to come at the right time and the right place, and it almost seemed to be a natural segue. So the first 10 years gave me a lot of exposure to different regulatory programs. And the reason that I think I was selected to lead the one for the space program and build the regulatory program for that was because I was able to see that there were a multitude of different regulatory strategies and approaches.� And had I only been in one agency, I never would have been able to see that.
Then going from space to NPR was an easy jump because of the concepts of dealing with different agencies on a fairly big change plane.� It was a fairly easy to do. And besides, space is really an out-of-the box experience.
Mr. Lawrence: Come back with us after the break as we continue our discussion with Norman Bowles of the FAA Logistics Center.� We'll ask him about the changes that have been taking place. � In particular, we'll ask him why they became ISO 9000-certified. If you don't know what ISO 9000 is, you'll learn more when The Business of Government Hour returns. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour.� I'm Paul Lawrence, a partner of PricewaterhouseCoopers.� And this morning's conversation is with Norman Bowles, program director at the FAA Logistics Center in Oklahoma City.� And joining me, also from PWC, is John Kamensky.
Mr. Kamensky: Thank you.
Norman, when you left NPR in 1996, you went out to Oklahoma City, you took over their Logistics Center. � What did you find when you got there, and what did you do?
Mr. Bowles: I found an organization with a great group of employees and a really challenging mission, but I also found an organization that was in trouble, like a lot of the logistics organizations around the Federal Government. � Norman Mineta at the time had been asked to do a study for Al Gore on the air traffic control system. His commission recommended, among other things, that the logistics function be outsourced.� At that time, there was some senior associated administrators who were asking, or suggesting, that the Logistics Center should be closed down.� And every time I'd go into D.C. to meet with our number one customer, his question to me would be, "Well, Norman, why do we need a logistics center?"
So that was where we were 5 years ago.� To give you kind of a teaser, here's where we are today.� The Logistics Center 2000 and 2001 won the President's Quality Award recognition. � One year we were a merit award winner and the next year we were a finalist.� We were, by the way, the only nonmilitary organization or nonmilitary-related organization to win those 2 years.� A GAO report this year went to Congress and touted us as a model of employee empowerment.� We're listed in -- two management books have sections devoted to our strategic planning process. � And we're ISO 9000-certified. � And we believe that we're the highest-performing organization in our class in the Federal Government. � And in the last year we've been recognized by industry, by the Office of Personnel Management, and by the FAA for some of our accomplishments.
We did that by two things. Five years ago, in 1996, we set two goals. One goal is that we want to take our $120 million in appropriations -- because at that time we were an appropriated organization -- we were going to give all the money away to our customers. � And we were going to go into a revolving fund, and instead of giving parts away free, we were going to charge them, and that's how we were going to collect our salaries and our contracts and our benefits money.� And it would also make the FAA work better if we did that.
The other thing was that, since we're going to give our money away in 3 years, we figured we'd better really do a turnaround in 2, so that when our customers got the money, they didn't decide that they wanted to go elsewhere.
Mr. Kamensky: What did your employees feel about all that?
Mr. Bowles: It was kind of a mixed feeling.� Everybody was a little bit worried about the fact that there was so much discussion about us being closed down, and at the same time, the prospect of giving money away that contained our salaries was kind of a frightening prospect.
Mr. Lawrence: Well, how did you get there?� You decided you were going to give away the money, you were going to turn it around in 2 instead of 3 years, but how did you actually get there?
Mr. Bowles: We did it with an incredibly wonderful work force that wouldn't quit.� But we did a number of things.
To make changes like this, most Government agencies would say, "Oh, well, we need additional money."� And we recognized that our budget was declining and our staffing was going down, and we weren't going to get any more money.� So we decided we would take the approach that they do in the private sector, like Chrysler back in the '70s when the Japanese auto makers were coming in. � It was the idea that you're losing market share, you're losing revenues, you're laying off employees, and you've got to get your product better than your competitor, who actually is the one who's flush with money.� So we decided that if we got cut in a budget year, we would cut ourselves even more and take that additional money and invest it.
We moved all of our managers. � The idea was that we would not own the organizations that we were heading.� We were going to be responsible just for making the changes. � And so this gave all of our management team a lot more flexibility to make changes.
Mr. Kamensky: That meant your CFO went to go ahead with something and your IT expert --
Mr. Bowles: Our engineer, our top engineer, went to the distribution organization.� And so we moved people around. It was really a marvelous experience, because this is where you learn the difference between management and technical knowledge within the Government.� Probably a lot of other places as well.� People get promoted because they're technically proficient.� What this meant was that we were going to be taking people and we were going to be relying on their management skills, rather than their technical skills, to lead this change.
We really had to increase the training for our workforce.� As you say, they were a little worried.� In a 9-day period we took 600 employees, 200 at a time, in intensive 3-day sessions, learning how to be a customer-driven organization.
Mr. Kamensky: And you led all those yourself?
Mr. Bowles: I participated in the training of every one of those sessions, yes, I did.
We created a lot of teams. � There were a lot of gaps that we had. �We had no performance measurements. � We didn't do very well in the way of customer service.� So we created teams wherever there was a gap, and these were almost entirely employee teams with no supervisors, or just occasionally there might be a supervisor.
These teams were tasked to become experts in their particular areas, because they would help us come up with the fixes. We had the opportunity or the choice of either going to expert consultants and having them tell us what to do -- and you run into that problem of not-invented-here -- or what we could is use our employees to become experts, and then they could adapt to whatever they knew. � So what we did was, we created those teams, and then we let them do benchmarking.� And our turnover is not very great in Oklahoma City. � At the Logistics Center, it's about 3.8 percent at that time. So we weren't getting an influx of new ideas.
But by sending these teams out to the best places in the United States and giving them their opportunity to see the best, they came back with a number of things. Number one, so dissatisfied: They didn't want to work in a place that wasn't what the best was. � So that was number one. � Number two, we came out with large numbers of change champions, people who had a passion for what they were doing. � And so we ended up with the makings of a very good cost and performance measurement system, with a 1-800 24/7 customer care center.� So at one point in time we had somewhere between 10 and 20 percent of our workforce off making changes.
We did all the changes simultaneously rather than sequentially.� If you have only 2 years, you don't have a lot of time to do things one at a time.� Since we're going to be a business, what we did is, we decided we would throw away the traditional way of tracking the money the Government sends in.� We brought in the controller from one of the largest food distributors in the United States the day he retired, brought him in to change our books over to a financial private sector-like system.� So today we use private sector-like financial statements. � We do have the backup Government types of documents.� But our organization runs entirely off of private sector-like financial statements.
We partnered with the union. � There was no way that we were going to give away our money and make all these changes if we didn't have a very good working relationship with our union.� So at that time, since this was kind of a Hail Mary pass, what we did is, we just included the union in everything. The concept of management rights, we just totally ignored.� Anything they wanted to see, they could see.� Anything that we were going to decide, they participated on.� But it gave us 2-1/2 years of a really rapid change process. � Then we realigned our organization. � It had been all functionally aligned. � We went into a product division structure.
The outcome was really pretty phenomenal, in fact, so much so that last year that there was a study that was done by the Reason Foundation on privatizing their traffic control system. � And they had all their discussion about how other countries had already done this.� But they said that the reason that it would work in the United States was because the FAA had already proved that it would work in the FAA, because there was an organization down in Oklahoma City that had essentially privatized itself and had these phenomenal performance changes.
Mr. Lawrence: Could you tell me the role of money?� You mentioned two things in that description that were very interesting.� First you said you were going to give away all the money.� Then you said it was very important that you have private sector financials to, I guess, track the money.
Why were both of those things so important?
Mr. Bowles: Well, giving away the money was very, very important because number one, it was going to have a lot of changes to the FAA. � You've read a lot about the air traffic control system and the modernization process.� The Logistics Center, in giving away all of the parts, was not -- probably was not, in the long run, something that was good for the agency. � It just had been a practice that had been done for a long time.
It also made a lot of difference to the Logistics Center, because if we were on a kind of fixed mission, and that mission was slowly declining, there was no opportunity for the Logistics Center to get into something new.� But if we gave away the money, then we, in essence, would be contractors, and now our performance would really make a lot of difference. � So that covered the first one.
The second thing that you were asking about was the --
Mr. Kamensky: The importance of financial systems.
Mr. Bowles: Oh, the financial statements.� With the financial statements, we would really be able to tell how well we were doing.� It wasn't a matter of working with budgets.� It was trying to be able to track our gains and determine our costs as well as they could in the private sector. And, in our minds, if we were going to be super efficient, we really had to be as efficient as in the private sector.
The goal was this. � The goal was that if we were in the private sector, you wouldn't want to compete with us.� It wasn't if you were in the Government and you were in the private sector, looking at the Government, saying, "Oh, they're not doing a bad job."� The goal was that if the Logistics Center ever got privatized, you wouldn't want to be one of our competitors.� So the best way to do that was shoot with that as the target at the outset.
Mr. Lawrence: Great, and that's a good stopping point. � Rejoin us after the break as we continue our discussion with Norm Bowles of the FAA Logistics Center.� This is The Business of Government Hour. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour.� I'm Paul Lawrence, a partner of PricewaterhouseCoopers.� And this morning's conversation is with Norman Bowles, program director of the FAA Logistics Center in Oklahoma City.� Joining us in our conversation, also from PWC, is John Kamensky.
Mr. Kamensky: Norman, you told us a little bit about the kinds of changes that occurred at the FAA Logistics Center.� How did that affect the rest of the FAA?
Mr. Bowles: A number of different ways.� Let me just talk about the one about the giving away our money, though, first. The best way to describe it is what we had was a free-issue system, meaning if somebody in the air traffic control system needed a part, all they had to do was call us and get a free part.� DOD used to use that kind of a system.� They eventually got rid of it.� They described it as a communistic system, and they had a hard time figuring out how they could fight the Cold War using a communistic system. � So the last vestiges of free issue disappeared in DOD in the last 20 years.
I personally believe that the free issue system was part of FAA's problem in modernizing the air traffic control system. The FAA has got many really dedicated and talented people. � And so the people in the field -- the 6,000 people in the field who repair the air traffic control system -- can fix just about anything.� The people in the Logistics Center can fix any part, no matter how old it is. � And so when the agency would start running short on funds and they would say, "Well, we'd like delay the modernization of something, of the particular system." They would go out to the field and they'd say, "Well, what would the effect be if we delay the implementation or the replacement of this?"
The people in the field would come to us and they would say, with the effect, "Are you going to be able to support us with this old equipment?"
Our answer would be, "Yes, of course we can."
And then their answer to the headquarters, they'd say, "Well, there's no impact."
Over the long period of time, that began, I believe, to have an effect, a negative effect. � When we started charging people for parts, all of a sudden the people in the field were able to connect their labor with the parts and the costs of the parts. If you're a technician and your job is to repair things and if somebody keeps you with the free parts, that's fine. � But when you start seeing what the costs of those parts are as a taxpayer is when you start to have your reaction. � And so there have been a lot of changes in the field in terms of the behavior.
Mr. Kamensky: Can you give an example?
Mr. Bowles: Oh, I can give you a number of examples. � One of the problems that the agency was running into was that, because there would be repeated cuts of various programs, projects for implementing or deploying new systems would start to run out of money toward the end of those programs. At that time, the people who were doing the installation of new facilities would turn to their operational counterparts in the field and would say, "We're out of money. � Can you get parts?"� And so they would come to the Logistics Center, they would order the parts -- the parts were free -- we'd send them the parts, and the facility would get completed.� Now, there was a hidden subsidy there, because the operational capabilities and dollars of the agency were being drained by the lack of funding on the implementation side.
The first time that the people in the field had to pay for those parts, the first time that somebody came in and said, "We don't have enough money to finish this facility," the person that failed said, "I'm sorry, this is my money, I'm not going to finish this project for you.� That's your problem," that created a crisis within the agency that quickly got resolved.� And as a result, these facilities now have enough money to be finished.
It used to be that when you were in the field, if you needed a part -- and since the performance of the Logistics Center was a little bit uncertain -- if you needed a part, you might order three.� What happened is, when we started -- or you didn't know what the value of a part was, and so you might take an extra part, you might store it, and then later on, when you need another part, you might order another one.� When people started having to pay for their parts, all of a sudden they started ordering only one.� Or if they were going to order one and they realized they had one on the shelf, they might use that one instead.� The first 2 years, the demand for the traditional parts dropped something like 30 percent.
There were a lot of decisions that were being made when parts were free, when somebody would say, "Oh, I've got this radio. I need to have it repaired," and they'd send it to the Logistics Center to have it repaired, because that was free. � Because they couldn't see what the cost of that was.
However, when we started charging them, what they saw was, it cost $2,000 to repair a radio or you could buy a brand new one for $400.� I got a call from one of our top customers in Washington, D.C. � He said, "Norman, is it true that you'll carry different things now that we're paying for these parts?" � My answer was yes.
He says, "Well, you know, we're noticing that this particular monitor for this radar system costs $28,000 to repair. It's a black and white.� And we notice that there's a $7,000 color monitor that the air traffic controllers like better.� Can you start carrying that?"
Well, in the past, that organization would not order new equipment, because that was the job of the acquisition side of the FAA.� But all of a sudden, they're able to see what the real cost of it was, and that it makes a lot more sense to buy a brand new one than pay $28,000 for a repair. � So rather than waiting for the acquisition side, the operations side was now beginning to modernize the air traffic control system.
There are all sorts of examples where people couldn't see obsolescence within the air traffic control system.� But today there's a particular radar that's got just six parts that have gone up in cost a million dollars in the last 2 years.� And in the past that would have been invisible, so the agency wouldn't be able to deal with it. � The Logistics Center might know, but unless anybody was really paying attention to what we were saying, that might not get addressed. Now there are 6,000 people in the field who can see those obsolescence costs, and so the agency now is getting a lot better at being able to address those.
It really is a fundamental systems change, and what's really powerful about it is, it's not one that requires top management direction.� It's a systems change that just alters behavior, because it's a fundamental paradigm shift.
Mr. Lawrence: In the last segment you talked about the period of change that has taken place during your tenure, and I'm curious. � Normally, employees resist change in these kinds of periods. � How do you incent the employees to facilitate the change?
Mr. Bowles: Actually, first of all, I don't believe that people consciously resist change.� All of us deal with change every single day in our lives.� If you bought a computer and it's a brand new computer, one year from now it's going to be obsolete.� And car metals change on us and food products change on us and our favorite television shows change.� People really aren't resistant to change.� I think a lot of times, it's the system itself or people are not motivated or they can't see why there's a need for a change.
In our case, we've got two programs that we're particularly proud of.� One of them is an informal award system where it involves a recognition of less than $50.� We partnered with an employee association store to carry something like 50 different items, all of the same value, and we have coupons that we give out to our work force when they do things right.� And we try to give out about 10 percent of those coupons a month. This is to reward risk taking, innovation, those kinds of things.
This year we were moving something like 300 of our employees from one building to another. � Our performance levels were really, really high, and we really wanted to get our work force to focus on specific goals of maintaining the quality level, the responsiveness that we have, and at the same time try to break even.� So we came up with a program where we offered our employees a bonus of $500 apiece at the end of the year if we hit these four targets.� We told the union we definitely wanted to be able to pay out, and so we worked with the union to get the performance standards into every single employee's performance standards, so they were all tied to those goals, and each person had their specific task.� If they did and they all added up and we all achieved it, we would get those bonus.
We came very close. � We gave out $350 in bonuses to every single employee this past year.� That cost us a couple hundred thousand dollars.� But we would have been willing to pay millions to get that kind of performance in the first place.� It worked really well.� In fact, we're going to do it again this year.� Our workforce responded very well to it.� It helped them stay focused, and it gave them a sense that they know where they fit in the mission of the Logistics Center, and it gave them an opportunity to believe that they can make a difference.
Mr. Lawrence: We know the Center became ISO 9000-certified. � Why was that important?
Mr. Bowles: It was a number of things.� Number one is, ISO 9000 is the international standard of quality. � It's a very rigorous standard. � It's not something that you just get. � Actually, it's certification. � You get audited every 6 months.
And so while we're making all of these changes, it was a difficult enough process that tied everybody in the organization to the same thing, and this allowed us to make a lot of other changes while they were all focusing on the ISO 9000.
The other thing is, if you really want to be able to turn on a dime and make a lot of changes on a continuous basis, the difficult thing is keeping quality, because you've got some things that are working, and then you're going to make another change and it's going to affect those things that are working.
ISO 9000 actually is a very good platform for that, because it documents everything that you do. � When you start making changes, you document those as well. Now you know what the effects -- and you can trace the effect of that change throughout the whole organization.� We have one organization, the item managers, that in the last several years made 600 changes to their work constructions. � Six hundred different changes.� And ISO 9000 lets us know exactly where we made a mistake. � You can do something that will show up 6 months later in your quality, and with ISO 9000, you can trace it back to when you made that change.
So it's a phenomenal tool. � We really exported that throughout the FAA.� A half dozen FAA organizations have now adopted ISO 9000.
Mr. Lawrence: That's a good stopping point.� Rejoin us after the break as we continue our conversation with Norman Bowles of the FAA Logistics Center.� This is The Business of Government Hour. (Intermission)
Mr. Lawrence: Welcome back to The Business of Government Hour.� I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Norman Bowles, program director, FAA Logistics Center, in Oklahoma City. � Joining us also from PWC is John Kamensky.
Mr. Kamensky: Norman, you've told us some fascinating stories in the last segment about change.� What lessons have you learned through the restructuring process at your center that you think you can share with other agencies?
Mr. Bowles: I think that there are a lot of things to be learned from the Logistics Center in our experience.� First and foremost is that change is chaotic.� And if anything would cause people to back off from change, it's the fact that it is chaotic.� So if you're interested in making performance changes, you have to look past the chaos and you have to focus on the results.� I believe that results are more important than process, and chaos is process, if you can understand that.
The other thing is that performance changes that come out of a change like this are not linear; they tend to be exponential. But once you start getting those changes made, it's really important to start focusing on what the successes are, rather than wait till the Big Bang at the end.� For the Logistics Center, I think that's what made it so that our employees were able to continue through this process, because we spent a special effort on trying to communicate the successes.� In a process like this, it's really important to focus on measures rather than perceptions, and the reason being that the chaos of change -- and it's a positive term, not a negative term -- can be a little bit misleading.
And let me give you an example. � We were about into the second year of our change.� We'd been taking 10 to 20 percent of our workforce off the job to be making these changes. � And all of a sudden, I start getting some managers coming to me, saying, "You know, we've got to stop this. � Our production is going down and our productivity is going down."
This was a little odd, because at the same time, I was hearing from our customers that they didn't know what was going on down there at the Logistics Center, but, boy, whatever it was don't stop it, because they really liked it.
So we created another employee team -- of course, that's our solution -- to take a look at it, and they started taking a look at why were our numbers going down. Well, what they found out was that we were measuring the wrong thing.� We were measuring outputs rather than outcomes. � And so if you deal on the perception side, it's very easy to get discouraged about the change. � But if you're starting to watch the results, that becomes really important.
And then finally, I think that the thing I would say that we learned is that you don't change the people. � My management team is pretty much the same as the one that I started with, and my employees are all the same. � All of these achievements have been done with that same group of people.� It's not that the people don't want to do a great job; it's that the systems that they're working in are the barriers.� So if you start looking for systems changes -- things like ISO 9000, that gives somebody a better basis on which to do their quality -- if you give away your dollars and it allows people in the field to make a better decision, you can get some really startling and amazing outcomes.
Mr. Kamensky: Well, you've just described the change in the system at FAA Logistics Center and then also the change in behavior.� What kinds of these changes do you think are replicable elsewhere in the Government?
Mr. Bowles: I believe that everything that we have done is replicable. In fact, we believed in that so much, and we took a sheet of music from NPR and we started doing publications.� And so we have two publications that we share with other Government organizations. � One is a book called "Paradigm Shift: Changing Government Using Private Sector Approaches." � And it chronicles how we made our changes.� We have another one that's a little more light-hearted, but equally serious, and it's a book that was called "A Taste of Reinvention."� We first published it back in 2000.� It's "A Taste of Reinvention: Sizzling Change Recipes from the Heartland." And we've got wonderful recipes in it like "Chaos and Risk-taking in the Kitchen," "Communication Omelet," "Strategic Plan for a Reinvention Restaurant."� It's written by managers and by employees, and it actually describes the strategies that we are using. So there have been a number of organizations that use this for training their workforce.
But it is replicable. � I believe that you're seeing the trend toward the same thing taking place throughout Government. The franchise funds were the start of that. And, by the way, actually when we say a revolving fund, we used a franchise fund for this purpose.� But President Bush has a proposal, or will be making a proposal that would take all the funding for administrative programs and put them in the program operations, and those program operations would pay for the services that they get. And it's just yet another sign that the Government is moving more and more into the business mode.
Mr. Lawrence: Throughout our conversation, you've talked about dollars and measuring and having outcomes, and even having a bottom line. � Why is it so important in a public setting to have a bottom line?
Mr. Bowles: I think because in the private sector, we use the bottom line to determine what companies will stay and what executives in those companies will stay. There's nothing like a bottom line to get somebody focused on using measures and on genuine performance.
On the other hand, take the 10 worst Federal agencies -- and take your pick, whoever you believe those are -- where there is no bottom line, and those are still here today. � And so are all the executives. � And how do you measure? � How do you really determine that you're not getting your money's worth?� I think that there are some people in the Federal Government who say that Government is not a business.� I believe we are a business; in fact, your radio show is called The Business of Government. � We do a lot of things in the Federal Government that seem to be, we believe, unique.� We give out grants, we do research and development, we do major insurance programs.� But just virtually anything that we do in the Federal Government, you're going to find a private sector counterpart and maybe a not-for-profit, like the Ford Foundation, and I believe the Endowment probably gives out grants.� And all of those organizations have a bottom line, and it's the means by which they decide whether they're going to stay in business or not. � So I believe that it really makes a tremendous amount of difference in terms of accountability and how much the taxpayer gets for its money.
The one thing I would say with the Logistics Center is, our performance is 30 percent higher or more, and it's all because we created a bottom line, because now we really have a lot of real-life incentives to make sure that we're not only delivering a really service, but there's a value for our service.
Mr. Lawrence: Let me ask you about the people who were involved in the change. What qualities do leaders need to implement these changes?
Mr. Bowles: Well, I think for a change leader, it's a number of different things.� You certainly have to have a vision. You have to see beyond what the current reality is to what the potential is beyond. Perseverance is a really important trait. There are a lot of factors that would encourage people to slow down or stop a change. � And for those who do, that's where the term "flavor of the month" comes from.
I think a focus on results is probably a very important factor.� People who tend to get caught up in a process -- well, they would get lost in the change, because you get caught lost in the fact that you're proposing to make changes and you're planning to make changes, but unless you're really focusing on anything happening as the results of your effort, you're likely to not see the results that you're looking for.
And I think the ability to communicate becomes really important. Imagine, one change affects a lot of things for a lot of people.� Two changes now makes it so you've got twice as much.� But one of the first changes starts to affect the second change. � When you do what we did within the Logistics Center, there's a lot of potential for confusion, because everybody else's changes are having an effect on the last change that they just made. � And so there needs to be leadership that's continually communicating the vision, so that people -- everybody's going to figure out what they have to do make a change possible, but they need to see that vision.� They need to know how they are doing in the context of what the goals are -- are we succeeding? � Are we not succeeding? � And then they just need a lot of encouragement.� So communication becomes a really important trait.
Mr. Lawrence: I was surprised a few minutes ago when you said that the personnel on your team hadn't really changed throughout this process. � Was that as you expected, or did you imagine you would have to change people as you went through this restructure?
Mr. Bowles: It never really became a question.� When we started out, everybody on the management team wanted to get someplace.� Their comment was, "As we've tried in the past, we've never gotten there. All we need is that leadership to make the changes."� And I think the only thing that I did was support their ideas, and then not quit when the going got tough.� And so I think that's where the perseverance comes in.
It's a wonderful workforce. � It's a wonderful organization. � There are a lot of people who see a bright future in the Logistics Center, and they were willing to do whatever it took to make that happen.
Mr. Lawrence: What advice would you give to a young person interested in a career in public service?
Mr. Bowles: Oh, I think that Government service is a very high calling. And my recommendation is, if you really do care about this country, if you really do want to make a difference, this is a great place to be. � And then the other thing I would say is, don't buy the notion when you go into the Federal Government, when people tell you that you can't do something, because somewhere else, somewhere, someone is doing what they are being told they can't do.
Mr. Lawrence: That's a good ending point, Norm, because I'm afraid we're out of time.� John and I want to thank you for spending some time with us this morning. Thank you very much.
Mr. Bowles: Thank you very much, Paul.� Thank you, John.
Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Normal Bowles, program director, FAA Logistics Center in Oklahoma City.
Be sure and visit us on the Web at endowment.PWCglobal.com.� There you can learn more about our programs and research and you can get a transcript of today's conversation. Again, that's endowment.PWCglobal.com. � This is Paul Lawrence. � See you next week.
DECEMBER 6, 2001
MR. 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 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 Clarence Crawford, Chief Financial Officer and Chief Administrative Officer of the Patent and Trademark Office. Good morning, Clarence.
MR. CRAWFORD: Good morning.
MR. LAWRENCE: And joining us in our conversation is another PWC partner, Steve Watson. Good morning, Steve.
MR. WATSON: Good morning, Mr. Crawford. Thanks for joining us.
MR. CRAWFORD: Thank you.
MR. LAWRENCE: Well, Clarence, perhaps you could begin by telling us about the Patent and Trademark Office or PTO as I understand it's referred to, and perhaps tell us about its mission and its activities.
MR. CRAWFORD: Well, we are a $1 billion fee funded agency. Our mission is to promote the intellectual property rights in the United States, to strengthen the economy. We essentially have two major lines of business; one is a policy role, where we provide advice to the Secretary of Commerce and to the President on intellectual property rights and protections. We also have a secondary role, which is a very large role, and we are, in effect, a factory.
We issue patents and trademarks. We issue hundreds of thousands of patents and trademarks each year. We play a critical role in the economy. If you listen to the Federal Reserve, they will argue that much of the economic boom of the '90's was driven by technological innovation.
Well, this is what we do; we issue protected technological innovations. And if you continue to listen to the Federal Reserve, you will hear them also state that that same technological innovation will probably help bring the country out of the current economic slow down.
The PTO is an exciting place. We think of ourselves as being like a business, not a business, we are a federal agency, we still have to adhere to federal rules, we are part of the executive branch, we receive an appropriation, although we're fee funded. But our mission is a very important one, but in some ways it's a very easy one and it lends itself to being business-like. We produce things at the end of the day. It's pretty easy to figure out whether we've been successful. Do we issue a patent or do we issue a trademark? Those are pretty easy to measure.
The kinds of employees that we have, we're about 6,300 employees. Most of our employees are in the patent organization, they are engineers and scientists. We recruit, just like the private sector, for the very best people we can find. On the trademark side, we have trademark attorneys.
Again, the competition is very steep. Intellectual property is a very hot area. We've had to be very, very creative in our recruitment and retention strategies. In addition, we have other lawyers and our general counsel's organization. We have a sizeable information technology organization, you have my organization, made up of administrative people and financial people, and we also have technical people. We have a number of support staff, and we have a good number of contractors. We have seen a change and we anticipate a change in the way we'll do business. We'll become more digital in the future. So we've made a conscious decision to hire more of our technical support staff under contract as opposed to career government employees in anticipation of changes in the work force.
MR. WATSON: Clarence, what are your responsibilities as Chief Financial Officer and Chief Administrative Officer; what skill sets does this position require?
MR. CRAWFORD: I'm a pretty simplistic guy, so I've had to distill it to something that I can understand and remember. One of my chief responsibilities is to create and grow value. Not unlike CFO's in the private sector, my goal is to help the organization improve the quality of their products and services and to do it at the lowest possible cost. My responsibilities include financial management.
We have a great organization. We have received clean opinions in our financial management area for the past eight years. We merged our strategic planning and budgeting shop several years ago, so we have an integrated planning and budgeting shops already in place. We've been recognized as being one of the better ones in the Federal Government.
Our procurement shop is considered a leader in federal procurement. We're about to start a pilot, looking at reverse auctioneering. Our human resources shop, we've made a number of changes there. They were very successful in helping the patent organization achieve a 10 percent special pay rate, one of the few in the Federal Government. We've made a number of changes and improvements. Our civil rights organization, when you look at the Patent and Trademark Office, we're probably one of the most diverse employers in the entire country.
In our administrative services area, we move thousands of files a day. Some files are just a couple of pages; some files can be boxes of pages. Space acquisition, we're going to be moving to Carlisle. We are in the final stages of the planning. We hope to go to closing within the next 30 days. When that happens, and when we construct the complex, we will be the fourth largest federal complex. We'll be over two million square feet; we'll be in five buildings. This will be a great improvement over where we are today. We're in Crystal City; we're in 18 buildings on 118 separate floors. So managing it and managing the process, it's a little bit of a challenge when you're so spread out.
I also have security. Had we had this interview in August, I would have just mentioned security and moved right along. We've made a number of improvements there. We have worked hard and we've reduced the numbers of crimes against our property, theft of property, we've cut that about 47 percent in a year. But I think probably one of the more interesting and challenging aspects in this area is in the wake of 9-11. We are the largest recipients of express mail in the world. Our express mail comes through the Brentwood facility. We receive 10 of those mail carts a day. That's about 7 to 8,000 pieces of mail a day.
We had an anthrax scare, since we're downstream from Brentwood. We had to bring in a contractor to test the environment. One of the things that we did very well, I'm not sure exactly how we figured it out, maybe just being very fortunate, we communicated and told everyone everything. So we ended up bringing in a firm. They came in their spacesuits, and we did our testing, tested the air filtration systems and the like.
Then we got a call back and said that three of the samples were suspicious, so we went out and told the employees everything, put it all out for them. Working with the CDC, we concluded and found that we didn't have anthrax. It was a great lesson.
We have beefed up our security in the organization, but nothing will be probably as it was. Since about the middle of October, we receive very little mail through Brentwood, so we've had to come up with an alternative mailing process, but for us, that's about six weeks of mail. The mail not only includes applications, the mail also includes sometimes checks. And since we have what is called an offsetting appropriation, we're fee funded, the money is appropriated back to us. In order to spend the money, we have to collect the money, so we are watching this very carefully as we go.
I think in terms of the skills, I think having a good understanding of the business, having a good mix of financial and administrative skills and experiences, I think the leadership is very critical; the interpersonal skills are very critical.
When I spoke before about my role in helping grow value, I don't own the patent process, I don't own the trademark process, I don't own the CIO's activities. So much of what I have to do is by way of encouragement and working with my colleagues to make improvements.
Sometimes, as anyone in this business knows, you also sometimes need to have a little thick skin, as well.
MR. LAWRENCE: It's time for a break. Come back with us after the break as we continue our conversation with Clarence Crawford of PTO. In the next segment, we'll ask about the new technology PTO is using. This is The Business of Government Hour. (Intermission)
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Clarence Crawford, Chief Financial Officer and Chief Administrative Officer of the Patent and Trademark Office. Joining us in our conversation is another PWC partner, Steve Watson.
MR. WATSON: Mr. Crawford, in your last segment, you discussed your responsibilities, a wide ranging set of responsibilities. Can you tell us a little bit about your career and the positions you've held that prepared you to handle that diverse set of responsibilities?
MR. CRAWFORD: Sure. I started out as a police cadet and police officer in the District of Columbia. And I went to school at night as a police officer and earned my bachelor's and graduate degree. My graduate degree has a concentration in financial management. I had decided I wanted to be the chief of police in the District, and then realized, no, I want to go to something else.
I decided then I wanted to be a city manager and decided, well, I'm going to have to leave the police department to do that.
One day I happened to be at school, and I saw an announcement for the Presidential Management Intern program. I didn't know what it was. I figured, well, I'll apply, but I cannot imagine that the Federal Government would have anything of any interest to me, and maybe I'll go do it for two or three years if I'm selected and I'll go back into city management.
Well, that was in 1979, and I've been with the Federal Government ever since. I went over to the Internal Revenue Service and as a presidential management intern, and everyone thought with my background, I would end up either in the criminal investigation division or in the budget or finance arena. And what I ended up doing was going to Atlanta, moving the family to Atlanta, to be a labor relations specialist for about two or three years in Atlanta. Came back to Washington as a planning officer in Strategic Planning, went over to the research division where we did quantitative research on tax compliance, had a wonderful time there, a budget officer for IRS's headquarters budget, director of planning and project management, the tax systems modernization. I had responsibility for developing the project management system, doing the planning, and the budgeting.
I went over to the General Accounting Office, into their SES candidate development program. And I concluded, well, I'd probably end up auditing the IRS, I would be in law enforcement, I would do something maybe in financial management.
My first assignment out of the SES candidate program was to be the associate director for education and employment. So I'm looking at K through 12, student loans, job training programs. And my first day on the job in that area, I testified before the Congress on gender equity issues. So I arrived on a Monday, I testified as GO's lead witness before the congress on Tuesday on gender equity.
I had a wonderful time there. We did a lot of work for the appropriations committee, so I learned a lot about appropriations, did a lot of testifying before the committees, especially on the senate side. And from there, I was asked to go to the National Security and International Affairs Division as one of the deputy directors there. I had no background in this area either. We were changing our job processes, our audit processes. I'm very happy about what we did. We significantly improved the timeliness of our products. We reduced the cycle time and the cost of those products. We earned the highest quality score ever given for an assignment. We increased our usefulness to the Congress.
I decided I wanted to return to the executive branch. I wanted to get back into the executive branch. So I applied for and was selected for the associate director for administration position in the Office of Management and Budget in the White House.
There I learned an incredible amount. I had never worked at OMB before. This gave me some insight then to understand how OMB interacts with the agencies, how OMB supports the President, how OMB works with the domestic policy counsels. So it gave me, again, another piece of -- especially on the financial and administrative side, of how government gets done.
I had seen it on the Congressional side, working with the members and the chairs, but now having an opportunity to see it at OMB and see how it happens in the executive office of the President. And in November of '99, I was very fortunate to be selected as the CFO CAO for the Patent and Trademark Office. I was very interested in the organization. I wanted to go some place that wasn't so large that you -- some places are just so large that driving change is almost overwhelming. Patent and Trademark Office is big, but it's not too big. The mission is easily understood. They're great people. And most importantly, everything I had read about them and understood about them, this organization was committed to improvement and to quality and willing to try new things.
MR. LAWRENCE: In our last segment, you talked about the technology that's being used at PTO, and I had done some research in preparation for the interview and learned about a large acquisition to supply PTO with desk top, lap tops, and hand held computers; could you tell us about this project and its goals?
MR. CRAWFORD: We call it the smart contract. It's a contract to replace our desktop hardware. I think the real story is not the numbers of PC's that we're buying or the hand held. The real story is the story behind the story, the why.
We recognize that technology is going to be an increasingly important part of how we do business, whether it is processing applications or whether it's needed as part of our recruitment and retention strategy for top-flight talent. The PTO has made a number of key investments over the years. We have greatly improved our automated search systems. We have issued six million patents. Part of the process of determining whether an invention is patentable is, you have to look at all of the prior patents, you have to search those, you have to search what we call non-patent literature, other literature where innovation may be referenced. You also have to search foreign literature.
Well, with our search systems, it has allowed us, in part, to keep pace with the massive growth that we have seen over the past few years. It also provides us with some other benefits. We're now far enough along that we're now getting within two or three years of rolling out the next generation of technology. And this will allow us to better manage our files.
Right now, we have paper files. We have paper files that are, if you go to some of our rooms, that are probably 12 to 15 feet high. We have a warehouse full. It's overwhelming to see the amount of paper that's in our active files.
Well, if you have paper, sometimes things get lost; if you have paper and it's actively being examined. As I said, we're in 18 buildings on 118 floors, so if an applicant needs to send an amendment, just the logistics, I was trying to figure out where, in Crystal City, or maybe in one of our storage facilities, so that we can associate that amendment with the actual application. We've already done some studies and we believe that we're going to be able to bring down our cost of operations and handling paper.
And again, the paper handling is one of the areas where, over the years, the organization made some wise decisions, and that would be to hire contractors versus career employees and recognize that within a few years, hopefully much of the paper handling will go away.
It also serves as a recruitment and retention tool for us. The technology gives us an ability to attract and retain top talent. When you're in the schools or in the private sector trying to bring in electrical engineers or computer scientists, they expect to have not necessarily state-of-the-art, but clearly, very useful tools to do their jobs.
As we move to more of a digital environment, people will need to be able to have systems that allow them to examine and analyze applications on a computer screen versus paper. I don't think we'll ever get rid of all paper, but I think our ability to receive applications to process and manage that we'll be able to do electronically. This is, again, part of our strategy of sort of an electronic, more of our electronic environment. We are the first intellectual property organization in the world to receive both patent and trademark applications over the Internet.
An applicant can file anywhere in the world an application with us. You can come online and you can check the status of your application. You can pay any fees. You can go, for example, and research issued patents back to 1790 over the internet.
We envision down the road, we have a work at home program that has been very successful. With the work at home program, we have been able to hold onto a number of our employees that probably would have gone otherwise. And I think down the road you're going to see work at home will increasingly mean working outside of Washington/Metropolitan area.
MR. LAWRENCE: That's a good stopping point because it's time for a break. Rejoin us after the break as we continue our discussion with Clarence Crawford of PTO. This is The Business of Government Hour. (Intermission)
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Clarence Crawford, Chief Financial Officer and Chief Administrative Officer of the Patent and Trademark Office. Joining us in our discussion is another PWC partner, Steve Watson.
MR. WATSON: Mr. Crawford, before the break, you were talking about the extent of the PTO's business that you've moved online. What are the security and privacy concerns that the government faces in the future as more services are conducted online, and what steps are you taking to address these concerns?
MR. CRAWFORD: I think that what is very evident is that the internet has changed the way we will do business. I think also, 9-11 will have changed that, as well. I foresee an increased reliance upon technology to do business.
One of the challenges that we're working on, and from a security standpoint is, like the private sector, we take payments electronically, so we've had to make sure that our systems are secure, that when someone gives us a credit card or pays by credit card online, that those transactions will be safe and secure.
In terms of our basic infrastructure, we have intrusion testing. We've enhanced our firewalls; we will continue to do that. We just see that this is the right thing to do. And being online gives us also a capability to communicate with our employees differently. In the trademark organization, for example, we have 100 employees who work at home. They're much further along than the patent organization. We're implementing a hoteling pilot this fall, where the employees will only come into the office one day a week; they will work at home over the internet.
At home, we are beginning to realize into the future could be any place in the world, so we've got to have secure ways to communicate with our employees so that they can access our data bases, examine applications, and then transmit that information safely either back to the Patent and Trademark Office or in their communications ultimately with our customers.
MR. WATSON: We know that many Federal Government agencies anticipate a critical need to modernize their financial systems in the next few years. What kinds of technology does the Patent and Trademark Office use to manage its financial operations?
MR. CRAWFORD: I'm very fortunate to be here at the Patent and Trademark Office. We have a strong history of excellence in financial management. We have had clean opinions for the past eight years. The last three years, we haven't even gotten any management letters or anything in that area. We have a modern system and we're upgrading. We are currently on the FFS system, and we're in the process of migrating to Momentum. What Momentum will give us is easier access and easier queries. It's a web-based application. It will facilitate not only people working at the Patent and Trademark Office, but people also potentially on the road, our employees on the road.
We also have implemented activity based costing, that's very important to us. It's an integral part of how we do business. We're required by statute to keep separate trademark fees from patent fees. So it is a process that we use to make sure that we do not spend trademark related funds on patent or non-trademark related activities.
We also use the ABC system to give us data as we're putting together our budgets and for the future year budgets, also when we're putting together our financial plans and managing our financial plans. We look at sort of the allocation of funding. Are we still consistent with what we need to do to ensure the separation of trademark fees from patent fees?
We're also looking more closely to make sure that the fees that we are charging actually cover the costs of the patent and trademark operation. So we have a culture that has used financial systems, we have modern systems, we're upgrading them, and we're now at the point, we're not perfect, but we're now at the point that we have the basic infrastructure in place, we're now beginning to learn how you actually use it to support executive decision-making, how to use it to make resource allocation decisions, how to use that as we get ready to plan a new activity to see whether there's historical costing data.
We have a data warehouse where we our managers, we probably have about 300 users. A good chunk of those users are first line supervisors in the patent and trademark organizations, where they're going in to get financial and program data for their own units, tailoring the reports in a way that makes sense to them.
So we're beginning to understand how to use it. We're not there quite fully, but we are making, I think, the right steps. And, again, we have a culture that values this information and the use of the information.
MR. LAWRENCE: The Patent and Trademark Office was, I believe, the second Federal Government agency to become a performance based organization or a PBO. What managerial flexibilities do you have as a result of being a PBO?
MR. CRAWFORD: I think the first thing I'd like to mention is the notion of the PTO becoming a PBO. I think the most important thing is that making a transition, while it has been challenging, was a logical next step for the PTO. For years our employees have been on performance standards for goal, for quality and production. That makes it easier for us with our work place flexibilities. People can come in as early as 5:00 in the morning, stay as late as 10:00 at night, work the weekends, because we generally know how much work a person does.
We also, because we're sort of business-like, we have a mission, it's pretty clear, you either issue a patent or a trademark or you don't. We have the financial systems in place.
What the performance-based legislation has allowed us to do is to take the next step on the performance arena. The patent commissioner and the trademark commissioner have signed performance plans with the Secretary of Commerce.
And what we have been working on is, in taking those performance plans and commitments and cascading those first through the executive core to the managers and then linking those to the employees, we're not to the employee level necessarily quite yet because we're highly unionized, so there are a lot of issues about negotiations. In terms of the management flexibilities, we have control of our human resources program. We have a very good relationship with the Department of Commerce, and we have a very supportive relationship. While we have the flexibilities, we generally keep them informed of everything that we're doing, but we can control our human resources, we can make our own selections for executives, we can resolve union agreements without having to go to the Commerce Department, we're able to prepare and submit our budgets directly to the Office of Management and Budget.
But again, we work with the Commerce Department in keeping them advised and working with the Secretary and deputy secretary. We have flexibility in the procurement arena. We're going to put some new regulations out soon that gives us some additional flexibility.
We now have a full service legal shop, so we now have our own general counsel. I think one of the other things that we've had, which has been very good, is we now have the public advisory committees, we have one for patents and one for trademarks, and they are our advisors.
We've now engaged them in our budget formulation process. They also take a look at proposed regulations. So it has been good. These are people from the private sector who have some private sector experience with patents and trademarks, but also some business or academic experience, as well.
MR. LAWRENCE: PTO has developed a balanced scorecard performance measurement system, I think you hinted at this a little bit in your last answer; could you tell us about that?
MR. CRAWFORD: On a quarterly basis, each business unit in the executive committee makes a report on the balance scorecard. If you look at patents and trademarks, the kinds of things that are on there, everyone has a financial management component, but then when you look at the patents and trademarks, essentially they have two major goals, improve the quality of the products and services, improve the timeliness.
So there are a number of measures that patents and trademarks use to report on how well they're doing in terms of overall, how long it takes to get a patent or a trademark, how long it takes to get to what we call a first office action, which is important for people that are applying for applications.
We look at quality. We have our own in-house quality review activity. We also look at customer service. We regularly survey our customers. We take that data and we look at what our customers are telling us. And as the customers point out problems, we then try to address those problems in our operations. We look at employee satisfaction. And for most of the organization, especially in the two business units, they actually use that data as they are preparing performance appraisals for their senior executives and for their managers, so it actually gets used.
MR. LAWRENCE: Well, that's a good stopping point. It's time for a break. Come back with us after the break as we continue our conversation with Clarence Crawford of the PTO. This is The Business of Government Hour. (Intermission)
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner of PricewaterhouseCoopers, and today's conversation is with Clarence Crawford, Chief Financial Officer and Chief Administrative Officer of the Patent and Trademark Office.
Joining us in the discussion is another PWC partner, Steve Watson.
MR. WATSON: Clarence, we hear a lot about the coming government retirement wave and the expected impact on federal agencies. What kinds of challenges will this present to PTO and what solutions are you considering?
MR. CRAWFORD: I think in some ways, our challenge is perhaps a little different than many other federal agencies. By comparison, our executive cadre is younger than the federal average. Our managers, many of our managers are younger than the federal average. And when you get into our workers, especially in the patent and trademark organizations, they are much younger than the federal average.
We have about 70 percent of the PTO employees are in the FIRS retirement system. And when you look at the patent and trademark examination corps., you're probably looking at 80 to 90 percent are in FIRS.
Now, what that does for us is, it makes things a little different. Because these are highly skilled people and they're highly sought after in intellectual property environment, we're far more sensitive to changes in the economy. When the economy was going very well, we compete directly for the private sector, and because these people have pension portability. I think FIRS is probably one of the most effective programs ever implemented by the Federal Government, for it wanted to give people pension portability, wanted to reduce retirement costs, done both. We're now living with that. So we now have to, in terms of our strategies, have strategies that come close to matching salaries. We will not match the kinds of salaries that our employees can draw from the private sector.
So we've implemented a number of workplace flexibilities. If we can't match the dollars, can we match the flexibilities? I think we probably have one of the most flexible workplaces in the Federal Government, where people can take mid-day flex.
I've often said that I want to go to the movies at mid-day, I've yet to do that, hopefully at some point I will. But people can mid-day flex, you can start early, you can stay late, you can work on the weekends.
We have attractive incentive pay packages for sustained performance, quality, and production. We're very fortunate working with the Office of Personnel Management in achieving a special pay rate for patent examiners. It's a 10 percent pay rate for patent examiners. Which along with perhaps a slowing economy, we've seen a dramatic reduction in our attrition. We went from double digits to around 5or 6 percent. In the trademark area with the work at home, we've yet to see any of the employees who work at home leave. We have training programs and graduate education to help keep our skills of our employees current. I think the challenges we're looking at in the future as we try to do more mid-career hiring; the federal system is not very good for mid-career people.
If you've worked for 10 or 15 years in a private sector, you come to the Federal Government and you get four hours of annual leave and four hours of sick leave a pay period, these people probably had two or three weeks of annual leave. So we want to look at how can we change the system to do that, how can we let them roll over, for example, their pension, their 401K's into the TSP system, those kinds of things, to make it more attractive, and maybe even look at using TSP down the road as a vehicle for encouraging people to pay, stay long, we'd allow them to make larger contributions to TSP.
MR. LAWRENCE: What kind of advice would you give to young persons who's interested in joining PTO?
MR. CRAWFORD: I think this is an exciting place. I think that it's exciting on a number of levels. I've had the opportunity to talk with patent examiners and trademark attorneys and have them tell me that, did you see that particular logo, I registered that trademark, or I've had some tell me that, with some of the latest innovations, let's say in medical science, that they issued that patent.
The other thing that's exciting about the Patent and Trademark Office as an employee, once you're fully trained, you can issue a patent or register a trademark on your own signature. You do this on behalf of the federal government. There is no supervisory review. So you have a lot of flexibility, you have a lot of responsibility. It is, at times, a pretty challenging job, but it's also pretty rewarding.
The environment is great. We're going to move to a new facility in a couple of years. We're going to have a nice atrium. My private sector colleagues tell me I need to have a climbing wall so people can climb the walls. Maybe this will be for someone else.
But again, the flexibilities, the opportunity to see some of the new inventions and new trademarks that are coming along, the opportunities to meet some of the inventors or the proponents of the different trademarks, and it's a good place. It's not too big, it's innovative, and we do try to have fun.
MR. LAWRENCE: What type of skills would such a person need? It sounds from your description of many of the highly technical occupations at PTO, they would need advanced degrees in law and engineering and the like; is that absolutely true or are there less specialized positions?
MR. CRAWFORD: Well, I think if you wanted to be a patent examiner, then you will need an engineering degree or a science degree. And I think that in the future, more of our work is going to be electrical and computer related. So I think having those skills make you very, very competitive. Graduate training is fine, but we also provide some of that and will help you with that, as well.
On the trademark side, we're looking for trademark attorneys, people who have actually passed the bar. But there are a number of other great opportunities. People in my organization are generally not engineers or lawyers. These are people who may be accountants, or computer scientists, program analysts. It is just a very, very good place. It is a growth place. It is growing in importance and in stature, I think, for the federal government, but I think also for the country, it's a fun place.
MR. LAWRENCE: Pull out your crystal ball and look into the future. How do you think PTO might evolve over the next 10 years; what might it look like?
MR. CRAWFORD: I think, if you look closely today, you begin to see the initial indications of the way PTO will be. I think on the international front, all of the patent and trademark organizations around the world are having the same problem we have, growing workload, difficulty in recruiting and retaining highly skilled employees.
Right now, there is a considerable redundancy. We examine a patent and we issue property rights for the U.S. The U.S. company wants to do business overseas, then it must file again overseas. I would imagine over the next 10 years there will probably be more harmonization where either there's some type of reciprocity or recognition of an intellectual property right that's granted here, for example.
I don't envision a paperless organization, but I think you'll see one that is far more digital than we are today, which will give our employees considerable flexibility.
I think we will always have a core complex, but I think over the future, to meet some of our recruitment needs and quality of life needs, it is not inconceivable that we would not have a good chunk of our employees working essentially any place. Right now, two career families, one leaves the area, the other one has to quit. We're now starting to look, especially in the trademark organization, of the possibility of letting that spouse actually travel and remain an employee.
So I think it's going to be very, very interesting. I think you're going to see an explosion continue on the electrical and the computer related, and I think you're going to see a greater recognition of the value of intellectual property as underpinning the continued health and growth of the American economy.
MR. LAWRENCE: As you've described the type of people who do this work, are highly educated, as you describe the type of work, it sounds very complex. I'm just sort of curious from just a simple management kind of perspective, how challenging is it to manage these complex issues with highly educated people?
MR. CRAWFORD: Hopefully, our people won't be listening. What this requires you to do is to think and be creative, for we have extraordinarily talented and capable employees across the board, whether you look in my shop or you look in the patents or trademarks in the CIO. So what it requires and what it does is, it pushes us, it pushes us to think, they challenge our conventional wisdom about this or that. So I think it helps keep the organization alive and very vibrant. But it is intellectually challenging, for they can come up with things you just could hardly imagine.
MR. LAWRENCE: Well, that's a good stopping point. Clarence, I'm afraid we're out of time. Steve and I want to thank you for joining us this morning.
MR. CRAWFORD: Thank you very much. This was a pleasure I enjoyed it greatly.
MR. LAWRENCE: And if anyone is interested in PTO's or a website they can go to to learn more?
MR. CRAWFORD: Yes, you can go to uspto.gov.
MR. LAWRENCE: Thanks a lot. This has been The Business of Government Hour featuring a conversation with Clarence Crawford, Chief Financial Officer and Chief Administrative Officer of the Patent and Trademark Office. Be sure and visit us on the web at endowment.pwcglobal.com. There you can learn more about our programs and research, and you can also get a transcript of today's conversation. Again, that's endowment.pwcglobal.com. This is Paul Lawrence. See you next week.
Friday, October 5, 2001
MR. 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 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 Joe Cipriano, program executive officer for information technology at the U.S. Department of the Navy.
MR. CIPRIANO: Thank you. It's good to be here, Paul.
MR. LAWRENCE: And joining us for our conversation is another PWC partner, Bill Phillips.
MR. PHILLIPS: Good morning, Paul.
MR. LAWRENCE: Well, Joe, since the terrorist attacks, Americans are more acutely aware of our military forces. However, many of our listeners probably are not familiar with the specific missions and the roles of the U.S. Department of the Navy. Could you describe the Navy's missions and activities for our listeners?
MR. CIPRIANO: I'll be glad to. The Department of the Navy is made up of maritime services, the U.S. Navy and the U.S. Marine Corps. In times of war, the U.S. Coast Guard also becomes part of the force.
The Navy is responsible for all fighting at sea, and the Marine Corps is responsible for fighting from the sea; they project power ashore. We work very closely together, obviously, the Navy and the Marine Corps, to accomplish that mission.
There is a common mission that both services, in fact, all services, share. And that is the mission to train, maintain and equip the war fighters to fight and win, to maintain freedom of the seas and to deter aggression.
MR. LAWRENCE: Can you give us a sense of sort of the size of the Department of the Navy in terms of the number of military personnel, and also, the number of civilians that assist in supporting them.
MR. CIPRIANO: In the Department of the Navy, there is over 900,000 people, so it's a big department. In the Navy, we have about 350,000 or 375,000 active duty and we have another 170,000 or so in the reserves. Civilians total about 180,000 of that number, and the Marine Corps has about 212,000 active and reserve members.
MR. LAWRENCE: What are the challenges of managing, essentially, three groups under the same umbrella?
MR. CIPRIANO: Well, there are challenges, because obviously, there are some differences in culture between the civilians and the military and also between the Marines and the Navy. But we share a lot of common objectives as well.
And we tend to work together, between military and civilian, by alternating management levels. And so you will have, at one level of management, a civilian, and the next level up might be a military, the next level up might be a civilian and so forth. And we tend to, at least in the shore establishment, alternate levels of management so that we have both perspectives at every level -- if the principal is a military, the deputy will be a civilian and vice versa to get both of those perspectives as we go up.
And the military brings an understanding of the mission, understanding of what an objective is and the civilians tend to have more in-depth training on the rules of contracting and law and administrative things necessary for procurement and to exercise the other functions. So they bring functional expertise, and the war fighters bring understanding of the mission and focus to the job.
MR. PHILLIPS: Joe, let's switch gears and talk about your career a little bit. What drew you to the Navy, how long have you been with the Navy and what has been your career path?
MR. CIPRIANO: Well, I first joined up with the Navy right out of college. A recruiter came to Baylor University, where I was getting a degree in physics, and they were looking for folks to help with missile programs in the Navy. And that sounded interesting to me. It was the lowest job offer I got, but I took it because it was in California. I had never been in California and it sounded like it might be fun.
So I went and signed up with the Navy as a civilian at the time, became a missile guy. Stayed in the weapons and combat systems business for about the first ten years of my career with the Navy and enjoyed it immensely. Very challenging, very exciting, great people to work with.
But then I left the Navy; went to private industry. And I spent about three years in private industry, became vice president and head of a cost center in industry. And then, after a time, the Navy asked me to come back during the Reagan defense build-up to help them with that, and I did. I came back to the Navy, took another pay cut to go back, and spent a number of more years working my way up to the point where I became the head civilian of the weapons and combat systems business for ships and submarines in the Navy.
And then I left again to go to the Department of Energy, where they asked me to come over and be the project director for the super-conducting super-collider project. And I spent some time there, and then came back to the Navy; once again, to help with another transformation the Navy's going through, which is transforming itself into a network-centric organization.
And that had enormous implications to everything that the Navy did, on how it designed ships and airplanes and all the pieces on it, to how we were organized and how we budgeted. And so it was another very interesting challenge.
MR. PHILLIPS: I guess you were meant to be in the Navy, right?
MR. CIPRIANO: I guess I was. And I've enjoyed immensely working with the people there.
MR. PHILLIPS: Now, of all those things you've done, Joe, what best prepared you for the position that you have now?
MR. CIPRIANO: Each job, I think, contributed something. I've tended to have more of a military career than a civilian-type career in that I've changed jobs every three or four years, and I've learned and moved around with most of those job changes. So I've learned a lot of stuff.
And my industry experience, I think, taught me how to manage cost and cost centers; how to make a profit, how to understand how much things cost, and control those things better than any job I've had in government could have. The super-collider experience helped me understand how Congress works. And when you're working on a big, big project with lots of money and visibility, the other things that you have to consider in management besides just meeting a costing schedule, there's national, there's regional employment concerns and lots of other considerations that have to be taken into account.
And then a couple of jobs I've had, I've created organizations from scratch. In other words, they gave me a charter and said go build a warfare systems directorate, for instance. And here's a secretary and a charter and good luck. And so figuring out how to do that -- and I've done that a couple of times, also helped, because that's kind of what happened with this job; this job being PEO for information technology, didn't exist. They asked me to go create it and gave me -- I didn't even have a secretary -- they gave me an office and I started from there to put the organization together, to be able to treat or deal with information technology at an enterprise level.
MR. LAWRENCE: Well, speaking of your present job, tell us about it. What are your responsibilities as the program executive officer for information technology?
MR. CIPRIANO: The program executive officer for information technology is the enterprise acquisition manager for IT. So I buy IT for the enterprise. And in the past, we have bought IT at various levels in our organization and each requirement was tailored to support one of our echelon commands or missions.
And we found that in doing that, there was inter-operability problems. There were problems talking to each other because there were no standards that were being imposed across. And we also had security issues with some of the places that made it difficult to exchange information with them -- have to go through firewalls, which again caused problems. And it wasn't particularly efficient.
So as we were moving to a network centric, if you will, kind of organization, where we're trying to speed up our decision making -- that's really what we're trying to do -- is to use information so that a decision maker has in front of him the best information available to make a decision and so he can make it quickly -- that we needed to be able to share all that information that was resident in all these different places around the world and be able to access it and get it in front of the decision maker very quickly and securely.
So the PEO-IT was created to do that, and we have kind of two big organizational chunks: One of which is to put the infrastructure in place, which is NMCI's job, so that we can move information seamlessly across the enterprise and it enables that information flow and access so that everybody has access to the knowledge that's available to support their decisions.
And then the other piece is to work on applications that are enterprise wide applications. Some of the big projects we have are DIMERS (?), which is a joint OSD manpower and pay system. And the Navy is executive agent for that program for OSD, and PEO-IT is the Navy executing organization. So the DIMERS program manager works for me. And we're responsible in that program to develop this system to a set of requirements given to us by OSD to support all personnel pay for the Department of Defense, a big, big enterprise wide system. We have some others that are Navy wide systems that we also manage out of PEO.
And that's our primary focus, is infrastructure to support information movement seamlessly across and securely across the Department, and then managing large applications that are used by many people across the Department.
MR. LAWRENCE: Let me just get some context. What's the relationship between your job and other IT professionals in the Department of the Navy? Do they all report to you? How does that work?
MR. CIPRIANO: We have a couple of different relationships: We have a CIO for the Navy, who is Dan Porter; the Marine Corps has a CIO and the Navy has a CIO as well. So there's a Department CIO, a Marine Corps and a Navy CIO. And we have an Information Executive Council, which I'm a member of, which has those three CIOs on it, and also comptroller folks and things like that, to help with the financing of whatever great schemes we come up with.
So they have operational responsibility, the CIOs for systems, and they have policy responsibility. I essentially am responsible for equipping -- I do the equipping part of the mission; buying the capability that those CIOs say they need. And then after I buy them, they're turned over to them to operate and maintain.
MR. LAWRENCE: That's a great point for a break; we've got to stop. Stay with us through the break. When we come back, we'll ask Joe Cipriano about one of the largest and most innovative contract awards ever made. If you don't know what NMCI is, you will when we continue with The Business of Government Hour.
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Joe Cipriano, program executive officer for information technology at the U.S. Department of the Navy. And joining us in our conversation is Bill Phillips, another PWC partner.
MR. PHILLIPS: Joe, in our first segment, you described your responsibility to head this thing called the Navy/Marine Corps Internet, NMCI project. Tell us, if you would -- tell our listeners what exactly is NMCI, and what do you hope to accomplish through it?
MR. CIPRIANO: NMCI is a service, a voice, video, and data service that we provide to everyone in the enterprise, military and civilian. And that service is provided to a guaranteed service level. So they can count on it being available a certain percentage of the time, they can count on message traffic moving across it with packet losses less than some number, and with cross-country transit times less than some number. They can count on it being refreshed. And essentially, what we've done is, we've said, we're going to treat IT as a service rather than a commodity.
Prior to NMCI, we bought stuff. We bought software, we bought hardware, we bought networks, we refreshed them as we could afford to. Hard to synchronize those refreshments. And so we could continue to talk to each other when one guy got a bunch of money and could buy the next upgrade and the other guy couldn't. And it was very hard to synchronize that across our very large and diverse organization, where individual commanders were making decisions on the priority of these investments versus other priorities that they had.
And so we looked at this and we said, you know, this is what we want to do. In order to be able to share this information to improve our decision time, as we desired, and also address security issues across the board and inoperability issues, we really needed to think about this differently.
And we decided that operating and maintaining networks wasn't a core competency of the Department of the Navy, that there were people in industry that did this better than us, did it less expensively than us. And we imagined that if, without spending any more money than we were spending today, by just letting somebody do this for us, where it was in their core competency, we could get all of these improvements we were seeking without spending any more money.
So the objective that I was given was, don't spend any more money than we're spending now; I want service for all of these people, including an extra 55,000 that don't have service today that need it. I want this improved security; I want this improved availability; I want built-in tech-refresh; I want help-desk services; I want standard software packages that everybody has and that are automatically upgraded; and I want it all without spending any more money than I'm spending today.
The first step was to agree on what this service, what these service levels had to be, because they had to support, you know, 400,000 people that are on active duty and civilians and military that are ashore at any one time.
So agreeing on what those were took some doing. And everybody insisted that their requirements were unique, that nobody else but -- you know, I have special requirements that nobody else has.
We found that in fact that there is a core set of requirements that everybody shares, and we were able to agree on a service level that if this service level were met by the network, it would support everybody's requirements for information. And so this became the basis for a contract.
And we went out to industry and we said, here is a statement of objectives, this is what I want to do; here is a design-reference mission; here is the environment it has to work in because our environment is different than maybe what some of the commercial IT industry was used to working in. But this is how our surge requirements impact, information technology requirements; we may have four- or five-time increases in traffic during certain times. This is where our people are and here are the service levels that we want you to meet.
And we gave them no other direction than that. We did not specify any hardware and we did not specify any software. And we said you go figure it out, I just want to buy this from you as a service. And we had a lot of discussions with industry so they could ask a lot of questions, and then we put this RFP out.
The second thing we did was, we said we want to get out of this business. And so we turned over to industry our existing infrastructure. We said you can have it and you can use it if you can, and if you can't, fine; just make it go away because we want to be out of that business. We just want a service, like a telephone service or electricity, where it's just there and I don't have to worry about however it is gets there. It's just there every day and I can count on it and I want to be able to count on IT that same way.
So industry responded to this challenge. We asked them to bid against this service level agreement, and also to give us a best-value proposal, because we, quite frankly, didn't know where the knee and the curl was between costs and performance for the elements in the service level.
We didn't know if getting four 9s availability versus five 9s availability was a lot cheaper or just a little bit cheaper. And we didn't know, you know, if specifying certain packet losses -- for instance, cross-country costs a lot of money, or I could get better than that for very little more investment, or I could get just a little bit less and save a whole bunch of money.
So we let industry tell us where the knee and the curl was for their particular technical solution, and we competed at best value. And so we allowed innovation that was out there to be a big part of this effort.
MR. LAWRENCE: It seems very logical to spend no more money and get a consistent level of service, yet I can't help but think that the people who had the different systems at various levels all believed what they were doing made some sense, and therefore, were comfortable where they were. How did you get them to understand, sort of, I guess, sort of global optimization?
MR. CIPRIANO: Right. And that's a very good word is optimization, because everybody had optimized their network for their situation, and that may not be optimized for the next echelon or the echelon several echelons up. So the trick is always to -- how do you optimize requirements for everyone without decreasing anybody's requirements? And it was difficult.
The other thing is that anything that's managed out of Washington couldn't possibly be as good as something I'm managing myself; just previous experience would lead one to conclude that. And so we had to work on that.
We did some things. First of all, we met with all of these people every month. And we facilitated these meetings with very senior Navy leadership, four-star-level participation; the CINCs, the commanders-in-chief from Atlantic fleet and PAC fleet, from the CNOs office and so forth -- so we had very senior Navy leadership saying this is important to us, and re-enforcing that idea.
And then we listened to people's concerns about it. And then we put provisions in the contract and in our governance structure to accommodate those concerns, to the extent we could. For instance, there was a concern that, since a contract was held centrally instead of locally, that the contractor would try to please the central holder of the contract instead of pleasing the end-user.
And so, in NMCI, we dealt with that by having a customer-satisfaction incentive that's built into the contract that is up to $200 a seat, per person incentive, which adds up -- which can come to $150 million a year. It's a lot of money -- that is controlled based on surveys of the end-users; it isn't based on whether I'm happy or not with the service, but is the end-user happy with the service. And so every quarter, they're given an opportunity to fill out an online survey. And based on that survey, the contractor can earn $25, $50 or $100 a person more, if he delights those people with the service.
And that was intended to focus the service provider on making the customer happy and take some of the focus away from worrying about meeting every little contract nuance. We were more concerned about customer satisfaction than we were on meeting all these very specific metrics that had been specified in the contract, because who knows if they're right or not.
So customer satisfaction was given a lot of attention as a way to help settle that. But to change management is always hard, and the hardest part of this as we transition through this is that.
Another factor that was identified, another concern was, there were a lot of people's jobs that were affected by NMCI, since we had about 2,000 civilians and military that were operating and maintaining networks that would no longer have that responsibility once NMCI came to their sites. And of course these people were concerned about what had happened to them as a result. And we asked industry to help us with that, too.
And so each of the industry proposals contained a how we think you should deal with this problem. The proposal we selected has a very nice program for dealing with this. For anyone that we identify as being impacted by NMCI to the contractor, the contractor promises to hire them. They get a 15 percent raise; they get a hiring bonus; they get guaranteed employment for three years. And so they have a pretty nice package to transition to industry if they want to continue doing the kind of work they were doing before.
If they want to move into knowledge management, or if they to move into some of the other areas in IT where we are growing people and moving, then we were offering training opportunities for those people, and said, you know, if you decide you want to take this industry offer, great; if not, we will try to place you in the Navy in other locations to help with some of the remaining responsibilities we have, because these are very talented, very high-value people. And IT people, as you know, are in short supply, so it's not like we wanted to get rid of them or that it's hard for them to find jobs.
MR. LAWRENCE: How long did all this take, describing the vision, selling the vision and executing such a big contract?
MR. CIPRIANO: We started in May of 1999 with an off-site, with all of our echelon two commands, facilitated by one of our 4-stars, where we come up with a vision for NMCI. This is what we want to do; here's the scope of it, and began an acquisition strategy.
In December, we issued an RFP, so between then and December, we got all the requirements together, got agreement on the service level agreements, did industry visits of everybody who had provided this service to over 100,000 people, and learned, therefore, you know, how they had done that, and tried to incorporate that in our process. And so it took less than a year to go through the whole acquisition process.
MR. LAWRENCE: And speaking of time, it's a good point for us to stop. We're talking with Joe Cipriano about the NMCI project. Stick with us through the break. When we come back, we'll ask him more about this large and fascinating project.
This is The Business of Government Hour.
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Joe Cipriano, program executive officer for information technology at the U.S. Department of the Navy. Joining us in our conversation is another PWC partner, Bill Phillips.
Well, Joe, let me ask you one more question as we're coming out, about the challenges at NMCI. You describe that as a result of this, the Navy will now be buying a service, whereas it once actually did it itself and owned all the infrastructure. That seems like a huge management challenge to come around to that point of thinking and actually execute it. How was that done?
MR. CIPRIANO: It actually was a process that was started a year or two ahead of NMCI, where the Navy looked at and identified what its core business was. And we also looked at where our people were. And we had an objective of putting more of our people assets, because we were seeing challenges in recruiting and retaining kinds of people, that the ones we had, we wanted to make sure were focused on the areas that were our core business areas.
So we identified those core business areas, we identified how we had distributed our knowledge workforce and our talents to support that. And then we started doing business cases on the non-core areas, to understand how much it was costing us to do them ourselves, and then, how much it might cost us to have somebody else do them for us that could do them more efficiently.
And we did that within NMCI; we did a business case. If we were to do this ourselves, this is how much it would cost. We had that done before we got the proposals back from industry. So we said this is how much it's costing us to do it ourselves, and this is the result of that cost. And then we got bids back from industry that said this is how much it would cost us to do that same thing if we had industry do it. And by comparing those two, it's a very compelling business case in this particular example, that it's something you want to let somebody else do for you.
MR. LAWRENCE: Did the numbers alone work or -- wasn't there the argument made -- I think you just made it, that of course, somehow me touching it and controlling it beats any number differential? How do people get over that?
MR. CIPRIANO: There's always that, and you have to keep enough in-house expertise, I think, in these things so that you can be a smart buyer. And so we made some decisions about, you know, we looked at our workforce and made sure we retained enough expertise and enough work for them to do that we could continue to be a smart buyer and continue to reinforce the fact that yes, this is a valid business case; yes, we are getting this service, meeting our requirements, and we're doing it in a cost-effective way.
So it's not something you can stop, I think. It's something you have to look at and continue to look at over time.
MR. PHILLIPS: Joe, you've described a number of specific success measures over the course of your response to our questions here in the last few minutes. But when you sit in a room with the Secretary of the Navy or the CNO or the four-stars or the senior leadership of the Navy, what things are they asking you and wondering about to measure the success of NMCI?
MR. CIPRIANO: Most of the measures from their viewpoint are customer satisfaction. Are the customers or the users happy with the service that they're getting? That's really the key. If you did everything right, they are; and if you haven't, then there's things you need to do. So customer satisfaction is a big one, and something that we try to stay right on top of.
Like I say, we have online surveys that we do, even starting out during the transition to do these surveys and so we can find issues that are involved during that period of time.
But when we're done, and I'm sure this will change -- the questions will change, you know, as now we're getting started and we're identifying budgets and so forth and going through transition phases. I think the question when we're done is going to be, have we in fact sped up our decision making process? Because when all is said and done, if we aren't making faster, better decisions as a result of this investment, then we didn't do it right. That's the real reason for doing it, because I think faster, better decisions is the key to success in business, and it's the key to success in warfare.
So to the extent that you can do that and take advantage of technology to allow you to do that, I think you will be successful on both of those fronts.
So we've tried to identify measures. It's hard to measure the reaction time of an organization directly, but we've identified about 200 metrics that we think in a group allow us to get an indication of the reaction time of the organization as a system; that if these metrics are being met, then we are -- have optimized our reaction time as an organization.
Lots of elements -- NMCI alone doesn't do that; you have to work the applications side. We have other initiatives, such as Taskforce W, which is a web-enabled initiative or web-enabling applications. We have organizational issues where we're changing how we look at requirements to buying capability instead of buying stuff. And that is impacting how we're organized, how we budget, how we prioritize things. And so there are lots of things that come along with this.
But I think if you keep in focus, bottom line, how do you speed up the reaction time of the organization, and is this speeding up the reaction time of the organization? That's really the bottom-line measure.
MR. PHILLIPS: You used the phrase:"A faster, better decision." that's clearly consistent with what Secretary Rumsfeld has said that he expects the Department of Defense to do. Are there applications of NMCI and what you're trying to accomplish there elsewhere in DoD, in the Army, the Air Force, or for that matter, across the federal government?
MR. CIPRIANO: I think there are. The other DoD agencies and other government agencies as well have asked us what we're doing, and we've briefed them. In fact, foreign governments even have. And so NMCI has raised an enormous amount of interest across the government, here and abroad. And we have talked to them about what we did and how we did it. We've freely given them copies of our service level agreements and contracting strategies and whatnot so that they can borrow from those, improve upon them, which is what we did.
We went out and looked at everybody else that had done this and tried to come up with a little better way than anybody else had. And I'm sure others that choose to go this path will find a better way to do it than we did; you know, here's what worked well and here's what didn't.
But I think there is a large part of this that is directly applicable to other government agencies and even commercial agencies, because we tried to follow best practice, you know. And we went out and discovered what that was and followed best practice to the best we could understand it at the time. Tried to make it better in some places. So best practice is best practice, and to the extent that we were successful at identifying it, I think it is directly applicable.
MR. LAWRENCE: Do you give them any other lessons learned from your experience?
MR. CIPRIANO: We had a couple of things that we would recommend people do in preparation for this. One in particular is that most big companies, IBMs and so forth, Microsofts, have 80 or 100 applications that they run their business with that are critical to their business.
In the Department of the Navy, we have like 100,000 of those that were identified as critical; I can't do my business without them. So we had a very, very big, large number of those. And to make all of those run in this new environment didn't make a lot of sense. So we wanted to rationalize those applications. And that rationalization process is being done at the echelon 2 level, and then again at the enterprise level. So we have to come to two levels of rationalization.
First of all, we were somewhat surprised at the number of them. There were more of them than management was aware of that had snuck in over the years. And it has taken us a little longer to get that rationalization process done. So I would start with that process in advance of NMCI would have started a year ahead of time, working that a little harder.
The problem is you can't get anybody to work on it unless you have a forcing function. NMCI is providing the forcing function, so we're working on it. But if you can figure out a way to get people to work on that problem in advance of the forcing function, maybe the threat of the forcing function would be very good.
MR. LAWRENCE: If one thought about the place such an innovative idea and project would have come from, they might not have immediately thought of the Navy; rich in tradition, not prone to change, and that's probably been an attribute of its success. What sparked this innovation, or what in the Navy culture makes innovation possible that people really don't understand?
MR. CIPRIANO: I think there's a lot of innovation, I believe, in the Navy and in the other services as well. Because I believe innovation is fostered by a results-oriented organization or management approach. When you are the commanding officer of a ship at sea, and you have command of all these resources and you are being held accountable for success of a mission, innovation is important, and allowed.
You have a lot of authority to make decisions on how to do things and you are being held accountable for result. And in the culture of the Navy and in the Marine Corps, accountability is very strong. And so innovation, you know, what does it take to be successful, which is where innovation comes from, is right below the surface, if not at the surface.
And the balance of that, with complying with policies and procedures and all those other things that we're required to do in government sometimes means that the innovation doesn't break through the surface. In this particular case, I was very fortunate that the ASN, Assistant Secretary of the Navy for Research Development and Acquisition, at the time this was created said I'm going to give you extra credit for every rule you break. I want this contract done as fast as humanly possible. You have my full authority to waive any procedures or processes, and if it's a statute, come tell me about it and I'll work on that, too.
So I had that kind of support from my boss as we started this thing. And we had a sign that was hung on the front of the contracting team's office that said this team has been bludgeoned into believing they can do anything consistent with common sense; please do not convince them otherwise. And that was signed Lee Buchanan (?). And that was actually hanging out in front of the door, just to remind people that, you know, it's okay in this case, to think out of the box, to look at things that you may have been told or led to believe you couldn't do and to challenge those.
And we found there wasn't a single statute that had to be changed or violated. And in fact, we have an enormous amount of freedom, if we use it, to do things very quickly and efficiently.
MR. LAWRENCE: Great. It's a good stopping point. Rejoin us after the break and we'll talk about the future with Joe Cipriano. We'll find out how the possible retirement wave might affect many of the things he's been talking about with us.
This is The Business of Government Hour.
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Joe Cipriano, program executive officer for information technology at the U.S. Department of the Navy. And joining us in our conversation is another PWC partner, Bill Phillips.
MR. PHILLIPS: Joe, in the last few months and the last couple of years, there's been a lot written about retirement and the retirement wave that's impacting the federal government. The Navy, I'm sure, is not immune to that. What are your thoughts on that situation? What are the specific challenges that the Navy has? And what kinds of things are you considering to help deal with that?
MR. CIPRIANO: Yes, that is a concern, Bill, for us and for the Department of the Navy, and we're looking at it in functional areas. The IT workforce in the Navy, for instance, was one of them where there was an aging population; we're looking at our average going up. We're looking to getting to a crisis situation not too far away because our demands for that expertise were going up and the number of people we had were going down.
And so one of the ways that we're dealing with that is by turning over to industry responsibility for those things that aren't core, aren't things that we absolutely have to have our people do, so we can free up the folks we have left to do the things that we have to do ourselves in-house that are core to our mission.
And I think that is a mitigating thing that can help. And I think that for those areas that are not core mission, that is the strategy, I think, that's quite effective. Because if you give it to somebody where it is their front-room business, they could probably do it more efficiently, with less people.
For instance, one of the reasons that NMCI has allowed us to get more for the same amount of money is that they used technology to reduce the number of people necessary. About 70 percent of the cost of running an IT network is personnel.
But when you have a large enterprise network where you can consolidate server farms; you can have automatic fail over, so they don't have to be manned; you can have a guy show up once a week to replace modules and what-not; you can reduce that cost greatly. You can reduce the number of people it takes to get that capability.
And I think there's a lot of opportunities like that, when you look across a big enterprise, that aren't available if you're looking at a piece of the enterprise, but become a cost-effective way to reduce manpower requirements; when you look at the enterprise from the top-down perspective, that will become evident.
The other thing we try to do is we try to target key expertise that we need and recruit it at places that we've had success in the past, use people that have come from there to help us with recruiting so they can go tell them what great fun they're having working for us. And we offer in the Navy, and I think all the services, very challenging jobs. And what I found -- and I've left a couple times and come back -- is, it's hard to find a job with as much scope, as much excitement as you can find working in the government.
So people that are interested in that, that are interested in that big, big project challenge, an opportunity to work on multi-billion-dollar programs and do things that nobody's ever done before -- there are a certain kind of people that love to do that kind of stuff, and we were able to attract them.
MR. PHILLIPS: Are you finding, as you have changed the mix of technologies, you're moved technology off to the private sector, are you finding that the people who are remaining in the Navy are becoming more engaged and more excited about what their roles are, and therefore, urging them to stay or join?
MR. CIPRIANO: I think, as a matter of fact, NMCI has improved our retention in this area because the work that's left is exciting work; it's more fun work, it's more challenging work than perhaps the work that they were doing before. And so I believe our retention numbers are up even in the enlisted and on the military side.
MR. LAWRENCE: With the widespread expansion and advancement of technology, what kinds of skills does a young person need who might be contemplating joining the Navy either as a civilian or a service member?
MR. CIPRIANO: Well, I think most of our young people today are a lot more savvy, at least in computers and things than I was, certainly, and some of us were when we went through because it's been built into our education system from elementary school on up these days. And those skills, I think, are important today, will be continuing important because I believe the military, as well as most every place else, is going to be working on speeding up the decision process, which I keep coming back to.
And IT is key to that; the technology that that technology brings enables that speeding up of the decision process. And anyone, therefore, that has those kinds of skills is going to be valuable for a long, long time to come and be able to be used on many different kinds of jobs.
The military, you know, starts with good people and we teach them unique things that we do, but if you have a good strong background, understanding of technology, systems engineering is another discipline that is highly valued. We engineer the largest systems in the world, and we have great jobs for systems engineers. And so we're always looking for them, but those kinds of skills are very important to us.
And if you want to do it for a time, all branches of the military offer great opportunities for a young person to come in, get experience, and get training that looks great on their resume for whatever they want to do for the long-term.
MR. PHILLIPS: What kinds of specific steps are you taking to get people, to attract workers and to retain them? You've described a number of things about the characteristics of the job, but how do you go out and actually get them and find them?
MR. CIPRIANO: They find us. When you're doing something that's new and exciting, people come and they want to work for you. We have people coming into the PEO all the time that want to work there because they've heard about the project. It sounds exciting, it sounds like something that they want to be involved in. It's something they always wanted to do and couldn't wherever it was they were.
And I think if you have a project that is big and new and different and it's getting visibility, you don't have to hunt for them to dome. The jobs that you have to hunt people for are the ones that aren't so exciting.
MR. LAWRENCE: You described taking a pay cut a couple segments ago, several times, I think, in your career as you did this for challenging work, and I'm guessing, from interviews say, a year and a half ago, that all we heard was technology workers were drawn for stock options and very exciting Internet things, I think dot-coms. And I'm curious, what's the relationship between the pay differential, which I think exists in and around government, and this exciting work? Is that really enough?
MR. CIPRIANO: It turns out that having done it both ways, that when you work in industry and you get paid more, I've found that people; the more you get paid, the more you have to work. Or as Pete Pinoffsky (phonetic spelling) who is a Nobel Laureate, once told me; he said, your compensation is equal to the fun plus the one. So if you're having fun, you probably aren't making as much money as somebody that isn't having fun. I know there are some exceptions to that, but generally, the combination of fun and financial compensation should be what you look at in that total package.
And sure enough, there are some great opportunities for fun and very interesting work in the government, even though it may not pay as well as the other opportunities. At different times of your life, that is a great thing to do. When you have kids you're trying to put through school, it's a little bit challenging sometimes.
MR. LAWRENCE: What's your vision for the Navy over the next ten years?
MR. CIPRIANO: I think the Navy is truly on a path to be one of the best-run organizations of any kind. They're really looking at getting information to decision makers faster, restructuring themselves from top to bottom -- from budget to planning; to how we buy things; to how we think about things; to buying capability instead of stuff; to organizing to take advantage of technology to expand the boundaries of system. You know, we optimize systems based on what we're capable of comprehending and dealing with. And the ship used to be the biggest thing that the Navy built, and now we're building battle forces, you know, and joint taskforces. And technology is making those physical and time boundaries between what's in the system and what isn't go away.
And so to the extent we=re able to understand that and manage that, we can extend the system to include assets anywhere on the globe to be part of the problem solution or the mission accomplishment. And the Navy understands that very well. And I believe it is preparing itself and its people to take advantage of that technology and move in that direction as quickly as they can.
MR. LAWRENCE: How about the future in terms of its management capabilities? I mean, you described sort of the past, where a leader or a manager ran a ship or a battleship or a fleet, and now, NMCI is a window into a future that has a great deal of civilians working with the Navy. Will the management skills and capabilities need to change, too?
MR. CIPRIANO: I think they will and I think they are. How do you train people to manage big, big things? Because you can't do it in the old hierarchical well, where you have one guy that's the boss and he runs everything, because it's too big for anybody to understand. So you need to have contracts with employees and members of the organization. Okay, my contract to you is I'm going to provide you this, and your contract with me is you're going to go do this. And you go do that and operate as independently as you possibly can to do that. If you can't establish those contracts, if you can't break up the problem into pieces that you can allocate and contract with individuals to do, then there's a limit to how big the system is that you can manage and you can make-work for you.
And I think the managers that are successful at figuring out how to do that, figuring out how to structure their organizations, how to structure these relationships with the people that support them, will be the ones that are able to handle these very, very big systems and make them work to generate great benefit to the organization.
MR. LAWRENCE: Well, Joe, I hate to bring this interesting conversation to an end, but we are out of time. And Bill and I want to thank you very much for being with us here today.
MR. CIPRIANO: It's been a pleasure to be here. It's a pleasure talking to both you, Paul, and, Bill, and I enjoyed it very much.
MR. LAWRENCE: This has been The Business of Government Hour, featuring a conversation with Joe Cipriano, program executive officer for information technology at the U.S. Department of the Navy.
Be sure and visit us on the web at endowment.pwcglobal.com. There, you can learn more about our programs and research into new approaches to improving government effectiveness.
You can also get a transcript of today's interesting conversation.
Once again, that's endowment.pwcglobal.com.
This is Paul Lawrence. See you next week.
Wednesday, August 22, 2001
MR. 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. To find out more about the Endowment, visit 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 Amy Comstock, Director of the Office of Government Ethics.
Good morning, Amy.
MS. COMSTOCK: Good morning.
MR. LAWRENCE: Well, let's start by finding out something about the Office of Government Ethics. Could you tell us about its history and its activities?
MS. COMSTOCK: The Office of Government Ethics was created in 1978 as part of the Ethics in Government Act, under the leadership of President Carter, actually. It was created in the wake of the declining trust in government, following Watergate. There was, obviously, a lot of responses to that scandal and one of the concerns was that the public had lost its trust in government and also, needed a little more ability to assess for itself the integrity and impartiality of government officials.
So the Office of Government Ethics was created, as I said, in 1978. At that time it was part of the Office of Personnel Management, OPM. In 1989, the Office of Government Ethics, which I will refer to as OGE, was made a separate agency and it has been a separate agency since.
We are a nonpartisan agency. I am a presidential appointee, but I have a term appointment, so that my position doesn't change as a result of the recent election, for example.
Our mission is to oversee ethics programs for the entire Executive Branch. We establish the policies and regulations governing conflicts of interest and other ethics matters for all Executive Branch employees. We, as we'll discuss in more detail later, we work directly with each of the departments and agencies in the Executive Branch to ensure that their ethics programs are functioning properly.
So, that's a quick thumbnail sketch of what we do.
MR. LAWRENCE: Well, one of the questions I have is does OGE have enforcement responsibility?
MS. COMSTOCK: Well, we're responsible for overseeing the ethics programs, but if we determine that they're -- or an agency ethics official determines that there is a problem or a question with one of the employees in their agencies, we generally rely on the Inspector Generals for investigation. And, then, if there's still determined to be a problem, the matter would be referred to the Department of Justice for prosecution.
So we do not consider ourselves an enforcement agency, although we are responsible for ensuring the integrity of the programs and if we need to, we will then refer and rely on other agencies for the enforcement actions.
MR. LAWRENCE: How big is OGE and what type of employees work there?
MS. COMSTOCK: OGE is 82 full-time employees. So we're actually, as government goes, pretty small. And we have a very specialized skill. We have a very strong staff of, oh, maybe 20 lawyers and a strong number of maybe 50 government ethics experts. Because what our field, our function is fairly unique to the federal government, we have people who are trained on the job and come and learn about government ethics.
We have -- I'm happy to say, we have a lot of long-time employees who really enjoy the work they do and feel strongly about our mission. And that's really good, given the fact that the skills that we need for our job are really unique to OGE and people learn it on the job.
MR. LAWRENCE: And then what's the relationship between OGE and the other organizations that are also working with ethics? How do you all work with the departments?
MS. COMSTOCK: Well, we're the only agency that does government ethics, as defined by the federal government. But ethics officials in agencies often are also responsible for giving advice on matters such as political activities, discrimination issues. Those are handled by other agencies. Political activities, the Hatch Act, are covered by the Office of Special Counsel; EEOC, Equal Employment Opportunity Commission, deals with discrimination matters. Obviously, as I indicated, the Department of Justice prosecutes; Inspectors General investigate matters.
So, our jurisdiction relates, if you will, but our jurisdiction is only on what are considered absolutely ethics conflict-of-interest matters.
MR. LAWRENCE: Well, let's spend some time talking about your career. Could you tell us about your career and how you got here?
MS. COMSTOCK: After graduating from law school, I went to a private law firm in Washington and, to be quite frank with you, I just decided that that was not going to be for me. It did �
MR. LAWRENCE: How long did that take?
MS. COMSTOCK: About two years. Actually, I decided right away, but I didn't leave for two years. I just decided that the private law-firm mission was not going to be mine. And started looking into the government and, actually, had always been interested in teaching. And saw an attorney position open up at the Department of Education and thought, well, that might be a good compromise; kind of combine my interests. And I applied there and started working there in 1988. I worked in the field of special education as a staff attorney for a couple of years and that was a fascinating job.
But then moved on from there and started -- became the executive assistant to the general counsel, which is where I was first exposed to government ethics issues. And I think that was in 1990. And I moved on from there and became the assistant -- at the Department of Education, assistant general counsel for ethics, I think in 1993. And I oversaw the ethics program at the Department of Education until 1998.
At which time, I went on detail, which I can explain in a minute, to the White House to oversee the ethics program there for about 15 months. On detail meant, I went as a career employee; I didn't become a political in the Clinton Administration, although I was working in the White House.
It was during that 15-month period that I was nominated to be the head of the Office of Government Ethics. And my -- I was confirmed in 2000.
MR. LAWRENCE: Which of the positions that you described gave you the best preparation for your work now? I mean it seemed as though each one of those was a function where you didn't have a lot of management responsibility and now, you have a great deal. How did -- or did I not hear the descriptions correctly?
MS. COMSTOCK: No, in the education, as the assistant general counsel, I was head of the ethics division, so there was a fair amount of management and responsibility there. And in both agencies, Education and the White House, I oversaw the ethics programs, so there certainly was a lot of management responsibility in that perspective.
Both of them were excellent training for the work that we do from the perspective that the ethics program, and we'll talk about the details of what it encompasses in a bit. But the ethics program is actually something that has a huge impact on the lives -- can have a huge impact on the lives of Executive Branch employees.
The areas that we oversee are, in fact, the areas where someone's job and their personal life may overlap. And that's pretty serious business. You're talking about affecting someone very personally. The experience that I had in running the ethics programs at Education and the White House, the experience of having to train employees, having to counsel employees, having to sit with employees when you're telling them they simply can't do -- either in their jobs or in their personal lives -- that which they very strongly want to do -- that's a hard thing to do.
I think it was important for me to be able to bring that kind of experience to OGE. I am, actually, the first director of OGE to come from the ethics community as someone who has run programs working directly with the employees we work with. Again, OGE basically has an oversight function. So I think it was good for me to be -- I know -- it's important for me to be able to bring to that job the perspective of the person who has to deal directly with the unhappy employee or the frustrated employee. And that kind of customer orientation is something I've been able to instill in OGE, since I've been there.
MR. LAWRENCE: Well, I'm curious. What was the most effective tool in those conversations, because without enforcement ability, I guess, you're left with education to explain why they can't do these things? But at some point, obstinate people probably didn't listen.
MS. COMSTOCK: Well, I have to say; I've been pretty lucky. I mean, each of our -- we should always try and run a prevention program and so we do try, and it's very important, to educate people why the answer is either no that you can't do that or, if you're going to do it, you know, you must do it the following ways.
But I've been very lucky that I haven't run into too many obstinate people. I mean the fact is that the rules and regulations and the laws that we implement are all designed to ensure impartiality and integrity in decision-making by government officials. But behind all those rules, obviously, there are regulations that you cannot violate and criminal statutes. So, while I may never have been able to personally have the enforcement, I mean, the fact is if you're sitting across from someone and you say, you cannot do that; that is criminal. It generally works.
MR. LAWRENCE: Well, you've had a chance to be around some leaders in, I guess, a unique perspective. What qualities have you observed are crucial to be a good leader?
MS. COMSTOCK: There are a number of qualities that are important for leadership. One is, obviously, honesty and to try and actually be the kind of person you would want to have as your most trusted adviser, someone who's honest, someone who's up-front, someone who will always be open-minded and fair. And I think those qualities are infectious in terms of the people you work with directly, either on my own staff or on the clients that I serve.
I also think, as a leader of an agency, that has such a broad impact on the entire Executive Branch, it's extremely important for me to be able to instill a sense of mission in my own staff and in ethics officials across the agency.
MR. LAWRENCE: It's a good breaking point, so it's times for a break. Stick with us through the break, because when we come back, we'll ask Amy Comstock, Director of the Office of Government Ethics, about the financial disclosure processes for political appointees. Did you ever wonder what you'd have to reveal if you were asked to join the Administration? We'll find out when The Business of Government Hour returns.
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and today's conversation is with Amy Comstock, Director of the Office of Government Ethics.
Well, Amy, in the first segment, you mentioned a couple of things that I probably want to make sure I have a complete understanding of. And that's conflict of interest and disclosure. Could you spend a minute telling me -- making sure I got the right definitions of those?
MS. COMSTOCK: Absolutely. A conflict of interest, in the government sense, means that a government official may have worked -- or a conflict would be where a government official works on a matter or participates in an issue, if you will, where they also have a personal financial interest.
And so the criminal statute at issue and then the regulations are actually written in a prophylactic way. They prohibit federal officials from working on any matter in which they have a financial interest.
An easy example of this would be if I have $50,000 worth of stock in a particular company that would be affected by a decision I make as a government official because the decision would affect that segment of an industry. For an example, the easiest one is companies that make tires and I'm working on a regulation that might affect the tire industry. And I, in fact, own $50,000 of stock in a company that makes tires. I, under these rules, cannot participate in any decisions that would affect the finances of the tire companies.
What's interesting about these statutes is, as I said, they prophylactic, they keep people from having to decide am I doing the right thing -- am I sure I'm not making a decision just because I own stock in the company or, in fact, what they do is prohibit the employee from participating at all. They keep the federal employee from having to do the right thing or struggle to do the right thing.
That is the easiest example. There are a couple possible resolutions. Because, in fact, if we step back and look at all the different kinds of people who come in to the federal government, either as career servants who will be there long term or during the change of administration, as we've just seen. People have all different kinds of investments and they come in with all sorts of assets that they own.
What we do is, through a process of financial disclosure, we review someone's holdings and assets to determine if we think they will have a conflict of interest. We have something called a public financial disclosure form, which is filled out by all presidential nominees. And then, once a year, by the 20,000 top government executives, federal government executives, that form discloses all assets someone owns, financial transactions they've had in the last year, any outside positions they may hold, gifts they've received for -- not for nominees, but beyond that, gifts someone's received.
We review those forms to determine if there are any conflicts or, potentially, will be any conflicts. If a conflict, again, the tire industry, for example, if a conflict is found to have -- to be at issue, the possible resolutions are that someone divest themselves of the holding. In that case, I would sell my tire company stock or I agree to recuse, meaning I agree to not participate in the tire company decision or another common resolution is a waiver. Ethics officials throughout the federal government have the authority, if they review a number of factors that have to be taken very seriously, they have the authority to determine that, given all the factors, and looking at exactly how much stock this person owns and what the government question at issue is they waive the conflict and they've determined the person can participate in it.
The example I gave that might not be a good candidate for a waiver because that seems to be a pretty clean conflict -- pretty clear conflict. And it's a liquid holding, something I really couldn't divest.
When I referred to public financial disclosure forms, this is an important aspect of our program. The mission behind the Office of Government Ethics is not just for us to assess conflicts of interest or for ethics officials throughout the Executive Branch to assess conflicts of interest. It's also to ensure that the public has the ability to assess the integrity of government decision-making on its own.
So for those 20,000 Executive Branch employees who file financial disclosure forms every year, they are available to the public for the public to view themselves. They -- and they are viewed. They're requested quite regularly by the media and are used to determine whether there might be questions behind a public official's decision-making.
MR. LAWRENCE: What are some of the management challenges that OGE faced in the most-recent presidential election?
MS. COMSTOCK: Well, in terms of the most-recent presidential election, we did -- because we review for every presidential nominee -- Senate-confirmed nominee -- the financial disclosure to determine if there will be any conflicts of interest -- quite frankly, the extended election did mean that we began that process a little bit later than we expected to, but I have to say that the staff at OGE and the agencies and the White House have worked very hard so we feel that we are caught up in that. So that was just a -- that was just some late nights in the spring when we expected to have the late nights in late winter.
But in terms of the management challenges that I think I've seen at OGE since I started in November -- and actually in the years that I've been working at ethics -- one issue that I struggle with is, honestly, the name of our agency. We are, of course, the Office of Government Ethics and I have had many conversations with people who feel that we have, therefore, usurped what you and I might consider to be ethical decision-making.
Our office does issue a code of conduct that all federal employees are expected to abide by. We have conflict-of-interest regulations, we have post-employment regulations that everyone, based on statutes, that everyone is expected to abide by. But it was never intended that the codes-of-conduct that we have would usurp individual employees' and executives' personal decision-making.
I am a strong proponent of ethical decision-making and values-based decision-making by all executives. And I would always challenge everyone that the code-of-conduct is not the last place to -- is not the last stop for your own decision-making as a government executive. We establish minimal standards for behavior, but if something -- one must always bring their own values, their own judgment to any decision that they make.
If something feels wrong, you need to pursue it. If one of our rules tells you that something is wrong and you firmly disagree with it, you need to call me. I -- government executives, I firmly believe and will always will encourage, still need to bring their own years of experience and judgment to any issue they consider to be ethical -- now if it's -- an ethical question, if it's clearly covered by our rules, we need to talk about that and have that conversation with someone in my office or with an ethics official. But never think that our office has usurped individual ethics decision-making values, if you will.
MR. LAWRENCE: Are there any challenges around the disclosure form? The example you gave of the tire company and the stock and that kind of decision, seem clear. But I'm wondering about the sort of blurring of companies and services and the Internet and how even to unravel that in a possible �
MS. COMSTOCK: It's getting harder. I think you've hit on a real point that we struggle with. Investments are getting more complicated. Companies are getting more complicated, in terms of parent companies and subs. We will discuss in a little bit some legislation that we've sent up to the Congress just this summer to try and streamline the financial disclosure process. But one of the components of that legislation is a new provision to help us deal with limited partnerships, for example.
Ten years ago, most often, even for very wealthy individuals, assets tended to be just straight equity stock holdings. Many, many people now have limited partnerships where they hold something that then holds another partnership, it's much more complicated to even figure out, believe it or not, what someone actually owns. And if you buy some share of a limited partnership, you don't even always know exactly what you own. You may know what industry it is. So that is becoming more of a struggle.
We're trying to achieve that perfect balance between not putting so much burden on an employee that it's hundreds of hours work to fill out the financial disclosure form. But, quite frankly, the public still absolutely, under our system and I believe it, has a right to know what this person owns and where their interests are.
Remember -- and this is an important concept we always have to keep in mind in our office -- our government is basically designed to turn over at the highest levels every four-to-eight years. So we do have a constant churning of new people coming into the government. And we're trying to ensure that our system of disclosure is not so burdensome that, without need, without unnecessarily, that it deters people -- that it's such a struggle, in and of itself, to do these forms that it deters people from wanting to come into government.
I don't think we've ever reached that point, but there -- in the last two years, there have been some complaints that we're close.
MR. LAWRENCE: That's a good place for us to stop for a break. We'll come back. We'll ask Amy Comstock of the Office of Government Ethics more about how the ethics programs work.
This is The Business of Government Hour.
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and today's conversation is with Amy Comstock, Director of the Office of Government Ethics.
Well, Amy, in our last segment, you talked about new legislation that you're developing and you described some of the characteristics, could you give us a little more insight into the legislation?
MS. COMSTOCK: One of the things that I mentioned is that there has been sense, and I agree with it, that the nominations process and the financial disclosure or public financial disclosure process has become too burdensome. I'm focusing, primarily, on the financial disclosure aspect of that.
The information that we've required for the last 20 years for public financial disclosure is actually quite detailed. And as a result of the Presidential Transition Act, legislation that was enacted last fall, OGE was asked to do a study to see if that process could be streamlined.
Quite basically, what we did was go in with the mandate that we were not going to lessen our or ethics officials' ability to assess conflicts at all. But we went in with the mission that after 20 years of experience is there information that we receive from that form, that is either never used, useless, redundant? So we just went through with those questions in mind and, as a result were able to propose legislation that really eliminates a lot of the, I would call, unnecessary information that we accept on the form.
For example, currently, if someone comes from a private corporation and they're coming into the government, they have to list on the form the exact dollar figure of their salary from their prior corporation. Quite frankly, it doesn't matter what that dollar figure is, it will not change the fact that they should have a one-year cooling off period from their corporation and any official decision-making they make unless they receive a waiver. And if they own stock in the corporation it will be a conflict. It doesn't -- they -- but someone has to actually go through the -- take the time to get the exact dollar figure written down on the form. We've proposed to eliminate that requirement.
In addition, the current form has 11-different categories for the range, the value of an asset you hold. And this is -- this is the most significant change that we're proposing. Currently, if you have to -- if you own stock in that tire corporation, again, you have to check in a range if it's worth between I think it's $15,000 and $50,000, between $100,000 and $250,000; but, with certain limits, if that asset is worth maybe $50,000 or $250,000, there is a conflict. It actually doesn't matter to assess a conflict the exact value of that asset but, especially for people who have any significant assets at all, the amount of the hours it takes to go through and determine the exact value of all their assets is phenomenal.
We've been able to eliminate the 11 categories or propose eliminating the 11 categories of value and reduce it to three. I could go through all these and I don't think our listeners want to hear all the details of all of them. But the fact is that if these proposals are enacted, we will be able to reduce hours and hours the amount of time it takes to fill out this form. But we firmly believe not impede at all an ethics officials' or the public's ability to determine whether someone has a conflict and assess integrity in decision-making.
MR. LAWRENCE: Well, earlier you mentioned that you were, in fact, a political appointee, yourself. Do you have any suggestions or lessons-learned for those nominees who are currently involved in the process?
MS. COMSTOCK: Well, be patient, I think would be the most important guidance. Answer all questions you're asked fully, but most important hang in there because it's worth the wait. From my own experience, as well as from surveys that I've read, a position as a presidential appointee, a Senate-confirmed position, according to a presidential appointee initiative survey, the vast majority of people who have held those jobs would recommend it to a friend. It's just a wonderful opportunity for public service and to really work on issues and matters that are important to the country. And I think it is definitely worth the wait.
MR. LAWRENCE: Well, let's shift a little bit in terms of talking now about manage OGE. What are the strategic priorities for OGE for the year?
MS. COMSTOCK: Paul, obviously, the number-one priority will be to do anything we need to do to ensure the passage of the legislation that we've just talked about. I'm hopeful that it will go through. We sent it up in July and it should be introduced in the fall. It is nonpartisan, good-government legislation, and I'm hoping it will go through.
But keeping my fingers crossed and assuming that that task is done because it's up on the Hill and we'll be successful, I am now committed to starting a review of the criminal conflict-of-interest statutes. We haven't really talked about that, but the criminal statutes that underlie the need for financial disclosure cover the areas of conflict-of-interest, post-employment, and issues of, for example, representations a federal employee can make to other agencies on behalf of outside organizations, volunteer activities, that kind of thing.
These statutes are very broad; they need a lot of modernization. Some of the activities that are actually criminal under these statutes, in my mind, should not be criminal and are not even intuitively wrong. This is an area that I'm very committed to working with the Department of Justice to see what proposals we can come up with to revise these statutes.
The criminal conflict-of-interest is, obviously, the main topic today. And there are some areas, I think, where that statute is very broad and the most educated person, in terms of government ethics training still can be surprised sometimes when I say not that would be considered a conflict and you need to be careful and stay out of that.
MR. LAWRENCE: What process does OGE go through to choose those strategic priorities?
MS. COMSTOCK: Obviously, I'm a firm believer in team management. And we work as a -- I have some excellent, excellent deputy directors. And we work, as a team to focus on the issues that we think are priorities for the next year or two.
I have a five-year term and, so, I have four more years within that term. The -- I also look very closely and take very seriously the issues that are raised with me by the ethics officials in the agencies, in terms of the problems that they're seeing or the issues that arise when they deal directly with their clients.
We haven't talked about that in great detail, but every department in the federal government and agency, has a designated agency ethics official. They're the people who bring to life, if you will, the programs and regulations and policies that are set by our office. They are each tasked with the responsibility of overseeing the ethics program within that agency. It's really a -- at least, in hindsight -- brilliant structure because it allows each department and agency to have someone who can tailor the ethics problem within that agency to the needs of that agency.
For example, the ethics issues that might arise at the SEC, the Securities and Exchange Commission, could be very different than the ethics issues that would arise at the Department of Education. And so, it's very important for those DEOs, that we call them, to be able to tailor the ethics rules to the needs of their clients.
MR. LAWRENCE: What role does OGE have in terms of evaluating the successes of those different ethics programs?
MS. COMSTOCK: It's our responsibility to oversee those programs. Under the statute, we're called the supervising ethics office, so that if particular issues arise, it is our responsibility to follow-up and ensure that that agency is responding to that issue to ensuring that that issue is dealt with properly. And, unfortunately, issues do arise occasionally.
And we keep in fairly close contact with the DEOs in the sense of we have regular written guidance, obviously, a number of the DEOs at the larger departments we speak with personally on a fairly regular basis. We have other communication tools that we use. Once a year we have an annual conference of between 400 and 500 ethics officials who come together to talk about the hot ethics topics of the year.
But, in addition, we every four years, audit the ethics program of every agency and department. We send out a team of staff from our office who will go and look at various aspects of the ethics program at each agency and, always, they walk away with some recommendations because, obviously, everything always could use a little improvement or tweaking.
But that's the process we use to ensure that the fundamental components of a program are in place.
MR. LAWRENCE: What is or does a successful ethics program look like? How do you measure it?
MS. COMSTOCK: A successful ethics program, in terms of the components that the law requires, would include a financial disclosure system, obviously, that is being monitored; the forms are being reviewed carefully in a timely manner. It also includes a training component, which we haven't really discussed, but at the highest levels, federal employees, all those who file these public financial disclosure forms, are required to be -- to receive ethics training once a year and a strong ethics program includes a training component. And these are all things that we can measure.
The fact is, though, that the best ethics program is one that is used by employees, where the employees will reach out to ethics officials and ask their questions. They receive answers that are workable for that agency. It's very important to me, as a leader and in terms of the mission of OGE to ensure that our program is not just a stand-alone, bureaucratic program. We need to be able to give guidance that is integrated well with the mission and the programs of an agency.
And that's much harder to measure. But counseling in a really strong program -- whenever we've seen a really strong program, it has a very strong counseling component.
Now, when you step back -- the bigger picture -- how do we know if the ethics program for the whole Executive Branch is successful? I don't really know. And that's what I meant if someone knew the answer.
If you see -- if an ethics official is getting an increase in calls, does that mean people understand the issues more and are calling more? Or does that mean they didn't learn a thing in training, they're totally confused and they're calling with questions? If the calls stopped, does that mean they learned all the answers, or they don't care about the issues?
I don't know how to measure that.
MR. LAWRENCE: Okay, and that's a good breaking point. Come back with us after the break, and we'll find out what the future of government ethics might look like. Will all this technology be an advantage or a disadvantage?
This is The Business of Government Hour.
MR. LAWRENCE: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and today's conversation is with Amy Comstock, the Director of the Office of Government Ethics.
Well, Amy, what advice would you give to a young person who's interested in a career in public service?
MS. COMSTOCK: Well, I actually, Paul, have to say that the first thing I want to say because my husband is a high school teacher, is work hard, stay in school and go to college. Beyond that, I'm really proud of my career in government service. I'm proud of the fact -- I still consider myself a career public servant, in spite of the fact that I am a presidential appointee. And I have to say that in the, I guess, 13 years that I've been in the government now, I have seen so many instances where a person's personal interests, personal passion, hard work, has allowed them to get a policy through to effect a change in the government, to actually have an impact. So, when I hear people espouse that the government is so big, it's such a large ship it can never be turned around that, you know, what's the point of going there, you know, you get lost in bureaucracy -- I can't deny that that occurs, I mean, obviously, I've seen enough of that in government, too.
But the fact is that that's not always the case. I've seen just as many instances where a person does come in, they do make a difference, their passion shows through in the work they do and it has an effect. So I would encourage people to keep the government in mind as an option for your work, because it really can be an effective, exciting place to work.
MR. LAWRENCE: Is there any set of skills you recommend they acquire?
MS. COMSTOCK: Gosh, it really depends on what area they want to go in. I'm a big believer, personally, in a liberal arts education because someone who can write well and who can speak well, will always be able to argue most -- argue their case and position very effectively.
MR. LAWRENCE: Well, how about somebody who's very interested in ethics, perhaps now, as a result of this conversation? What skills should they be learning or acquiring?
MS. COMSTOCK: Certainly that would be one where you'd want to write well. Someone who's interested in ethics, that's still -- that's a really broad term. You can have, you know, you can go back and talk about the philosophers, you can talk about codes-of-conduct, which a lot of corporations have. There are a lot of private organizations out there, which are now looking -- working with private corporations are looking at ethics from the broader perspective and the impact on society. If anyone's interested in those, I would suggest they go on the Internet, there are a lot of organizations that are dealing with ethics in the workplace now or ethics and society.
MR. LAWRENCE: Let's think a little bit about the future. What will be the future demands for ethics programs?
MS. COMSTOCK: Well, I think that the demand should remain the same and I hope it does. The mission, in terms of, for government ethics, ensuring integrity and impartiality in government decision-making should always remain the same. I think how we achieve that may change over the years -- and I hope it does because there's a lot of benefit that we can achieve through technology.
Currently our system is very paper-based and, as I indicated earlier people, for example, file an annual form. I think that -- I hoped that in ten years, for example, that will not be the case anymore. I foresee the day where employees will be able to go onto their computer and put in the asset, hopefully, because we run a prevention program that they're thinking of buying, not that they've already bought -- and determine if it's a problem. That they'll be able to instantaneously receive advice on a question about an outside position they want to take or something related to that; post-employment question for our former employees.
I really see kind of more immediate response. I do, eventually, believe, for example, that the public will be able to receive financial disclosure forms over the Internet. I don't know if they'll -- excuse me, over email. Currently, it's a very paper-based system, but I think there's a lot we can do through technology.
MR. LAWRENCE: Will there be any other benefits from technology that you can imagine other than replacing paper?
MS. COMSTOCK: Well, certainly, the instantaneous guidance is what I enjoy about the Internet, it's, you know, you basically can receive your information immediately. And the ethics program does not necessarily guarantee that now in terms of conflict-of-interest guidance, review of financial disclosure forms, it's a much longer process right now because it goes -- it will travel from person to person. And I would like to see that -- or I foresee the day where that will be -- that that will simply already be in the computer in terms of what problems are and someone will receive instantaneous guidance. And that will prevent a lot of problems.
MR. LAWRENCE: If it became easier, could we imagine a world in the future where lots more government employees participated in this process of disclosure, that it was rolled out much wider?
MS. COMSTOCK: Well, currently, we have 20,000 who file the public financial disclosure form now. But beyond that, there's, I believe -- gosh, I believe it's 250,000, although I'd have to check that figure, Paul, who file a confidential financial disclosure form. These are public officials who are not at the level that it's been determined that the public, really, should be able to determine their own decision-making, but they're still officials who have a lot of discretion in decision and have potential for conflicts.
Of course, all these people, I believe, are honest good civil servants. But they file financial disclosure forms, as well, but those forms are only reviewed by the ethics officials to determine that there aren't conflicts.
I don't know that we'll ever get to the point where more people than that need to file, but we may. But I think we've tried to cut it off at the people who already have the discretion, have the ability to have a conflict.
MR. LAWRENCE: How do you think OGE will evolve in the next ten years?
MS. COMSTOCK: Well, one other area where I think we will evolve and that also will be impacted by technology is training. The Executive Branch, as you know, actually has employees all over the world because of the Department of State, certainly, people at all sorts of embassies; Agriculture has people in all sort of -- in many parts of this country where there aren't large offices for the federal government.
So, another area where I see technology benefiting us is training. It does allow us for immediate interaction through the Internet, conversations that are significantly improved over telephone conversations. But that are more, you know, face-to-face interactive, but where people do not have to fly, to a post that is, you know, to have a conversation with one or two people. So I do -- I'm very excited about the opportunities that technology will give us in terms of reaching out to people individually, but without having to travel there because training, again, training will always be a very strong mission.
MR. LAWRENCE: How important or what are the characteristics of a good ethics program in an agency? I've heard it said that having strong leadership support for ethics is really key in having a program. And having all the other things but without that leadership support, probably it'll be difficult for that message to be carried?
MS. COMSTOCK: I think that's right. We all look to our leaders to see how they act and, in terms of setting our own standard. But -- and there's no doubt -- there's many studies that show that the actions taken and the standards set by our leaders, by our CEOs establish the culture for the agency.
But I have to say that in the federal government, I think, as is often the case, it's more complicated than that. We certainly look to our leadership, we look to the President to establish the standards and the Cabinet for ethical behavior and that's an extremely important influential statement.
But, in addition, quite frankly, we also look to the culture of the agency and to individual supervisors. One of the areas that I'm trying to focus on is to reach out, clearly to reach out to the highest-level leaders but, also, to reach out to the supervisors in all the agencies and ensure that they understand the importance of ethics and their role in ethics.
Quite frankly, if an employee ever has a problem, a dilemma, and they walk into their boss's office and say here's my dilemma, you know, where should I go with this and the boss gives them an answer. For most of us that is the answer, that's where they'll stop. So, one of the things that I'm trying to do in terms of building on this leadership -- the impact of leadership, is to include in our concept of leadership all the supervisors and managers in an agency and instill in them the highly influential role they have in establishing the ethical culture in the workplace.
MR. LAWRENCE: What kind of conflicts or challenges result because of what you just said, that those are, in fact, the people that you would turn to with issues and if they're not, perhaps, enlightened?
MS. COMSTOCK: Well, I don't know if it results in a conflict, but it certainly results in a challenge for us because our system -- as I came to OGE, our system is to basically communicate through, as I said, the one person whose the designated agency ethics official. In a large department, like Treasury, you know, that one person, I then in the system as we're structured, I kind of expect that person to then filter down what I said into the incredible number of people who work at Treasury.
The challenges -- what I'm talking about is reaching out more directly to supervisors and instilling in them from us the sense of mission and ethical culture that we're talking about. We're working with HUD to establish a pilot project to reach out directly in terms of ethics training to the supervisors at HUD to address the issues that we're talking about. And I'm hoping that that pilot project will show that the kind of training we want to do for supervisors will be effective and become a part of the culture in the agency.
MR. LAWRENCE: Well, Amy, I'm afraid we're out of time. I want to thank you for joining us this morning.
MS. COMSTOCK: It was a pleasure to be here, thank you. Oh, and I do want to mention that if anyone is interested in more details about what the Office of Government Ethics does, they can go to our website which is www.usoge.gov. And, again, thank you for having me.
MR. LAWRENCE: Great, thanks a lot. This has been The Business of Government Hour, featuring a conversation with Amy Comstock, Director of the Office of Government Ethics.
Be sure to visit us at the website www.endowment.pwcglobal.com, there you can learn more about our programs and research into new approaches to improving government effectiveness. And you can also get a transcript of today's interesting conversation; once again, that's endowment.pwcglobal.com.
This is Paul Lawrence, see you next week.