Originally Broadcast Saturday, September 30, 2006

Arlington, VA

Mr. Morales: Good morning and welcome to The Business of Government Hour. I'm Albert Morales, your host, and managing partner of The IBM Center for The Business of Government. We created this center in 1998, to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the center by visiting us on the web at www.businessofgovernment.org.

Dr. Wells: Good morning, Al.

Mr. Morales: And also joining us in our conversation from IBM is Tony Hess. Good morning, Tony.

Dr. Wells: I would be happy to, Al. The Social Security Administration came into being after President Franklin Delano Roosevelt signed into law the Social Security Act, back in August of 1935, and it began as a board but then evolved into an independent agency, and over the years it has really been like most federal agencies. As our government tends to enact laws in very incremental ways with lots of amendments and changes, it has morphed into something much larger, serving many more people. The original mission was to serve and basically provide income security for individuals who retired from gainful work.

Over the years, it's evolved, continuing that basic mission, but also evolving into serving or supporting people with disabilities, so it's essentially a social insurance program aimed at making sure that people have the subsistence they need to live in our society. And we do a tremendous job, in my opinion, on carrying out that mission. Essentially, we provide, for example, some 48 million folks in our nation with benefits that, I believe, are worth somewhere in the neighborhood of $521 billion, so it's really evolved into quite a substantial program. A very successful domestic program, obviously.

The Agency has actually once again returned to independent status. It had been part of the AGW; then HHS; Health, Education and Welfare; and Health and Human Services, but in 1995, once again it became an independent agency.

Mr. Morales: You have teased us a little bit with the size of the organization, can you give us a better sense of the scale, in terms of budget, number of employees, and geographic footprint of the organization?

Dr. Wells: Right, the total budget in '06, was $595 billion and the workforce is 65,000. As I think most of our listeners probably know, social security, we estimate, affects at least 95 percent or more of the public, and that range goes all the way from getting a social security card to receiving disability benefits. The mission is carried out through a network of field offices, hearing offices, teleservice centers, and program service centers that essentially allow us to be in communities around the country. And the commissioner often says that social security for many people is the face of the government, because most folks know where their social security office is.

Mr. Morales: Great. Can you give us now, a sense of the role and mission of your office, specifically, the Office of Human Resources? How big is your team and how are you organized?

Dr. Wells: I am responsible for the Office of Human Resources, and that is a cadre in headquarters of about 400 people. Because we are so decentralized as an organization and because we have 65,000 employees scattered over the entire country and beyond, actually we have some international involvement, the Social Security Administration has to administer that HR or human capital role through those regional offices that we have out there. And we have another 300 employees who work technically for the operations part of our organization, but because of our responsibility to oversee the policy for human capital and human resources, we oversee them technically.

One of the things we do in order to ensure that we have consistency across the agency is to be responsible for going out and monitoring the hiring, retention, and support of employees in the field. And of course, we do a similar thing for headquarters under the supervision, in a sense, of the Office of Personnel Management. In addition, my budget is roughly $100 million that includes obviously a lot of the service that we render to the employees for things like training. I have the Office of Training under my responsibility, the Office of Personnel, the Office of Civil Rights and Equal Opportunity, and the Office of Labor-Management and Employee Relations. Then I have a very small, actually new, component, a very small unit we call the Human Capital Planning Staff.

That allows us to do a lot of the coordination between my components and also it tends to oversee the national recruitment for the Agency. The gentleman that heads that component is responsible for our national recruitment campaign and he works through the regional offices and with local managers. It's a relatively small group, given the demands on it, but it allows us to do some of the tracking that is necessary under the President's management agenda. That's one of the important initiatives that all federal agencies are engaged in right now. They are being tracked by the Office of Management Budget and the Office of Personnel Management on how they go about certain lines of business, human capital being one of those.

Mr. Morales: Perhaps you could tell us a little bit more about your specific role. Although, your title is much longer, many of our guests will understand your role as being the Chief Human Capital Officer at SSA?

Dr. Wells: I wear those two hats. My social security formal title is Deputy Commissioner for Human Resources, but the government has the role, similar to the Chief Information Officer and the Chief Financial Officer, a Chief Human Capital Officer for many agencies. In some agencies the HR lead is not necessarily the Chief Human Capital Officer. At social security, the Commissioner's thinking was that those responsibilities should be contained under a single individual who can then coordinate and make sure that what we are doing internally is certainly consistent with what we are being expected to do externally. I will explain that a little bit.

As Deputy Commissioner for Human Resources, obviously, I have the responsibility for managing those areas that I have described a moment ago, personnel training, civil rights and labor management. In addition though, there is an expectation I think with this administration to look across government to make sure that we are achieving some consistency in the way we administer our strategic management of human capital, and so the Chief Human Capital Officers Council, and the Chief Human Capital Officer role was established in 2002 to make sure that we are achieving some continuity and that we have Chief Human Capital Officers coming together in a central place and sharing issues and working on planning for things that will further our interest as a government.

Mr. Morales: And that's very interesting. We also understand that you come from a family of public servants. Perhaps you could tell us about growing up with a family culture of federal government work?

Dr. Wells: Yeah, I do. I come by this work, pretty honestly, through my mother who worked for the Internal Revenue Service for 44 years. And growing up, of course, I heard a lot about the importance of public service, and I was fortunate to have both parents. My father worked in a factory in the private sector, but my mother worked in government and so I heard a lot about what that was like, and I never envisioned necessarily going into a government work, but I guess that acorn doesn't fall too far from the tree.

I also have a brother who works for the Veterans Hospital System. He was a Vietnam vet, came home, and, wanting to counter balance what he had experienced over there, he went to medical school and is now working in the VA System.

Mr. Morales: That's a great history. You obviously have a very distinguished career, including running the District of Columbia's Department of Human Services as well as Associate Commissioner of the Administration of Developmental Disabilities, how have these roles shaped your current management style?

Dr. Wells: Well, it obviously impacted it a great deal. I grew up, if you will, a little bit every time I had a new management experience, a new leadership challenge, and all the way from my early days working in New Jersey in what they called citizen services, the equivalent of what Health and Human Services does at the federal level, and also in their Health and Rehabilitation area, I got a lot of opportunity to see how things work at the local level; how local issues and concerns from direct service to the public sort of challenge you and force you to do your very best and to deliver that service. And working through people to get it done, is what you learn obviously, when you have a team.

And I got a lot of experience with those challenges in New Jersey. And then when I came into the District of Columbia it was probably a good time for me to experience that. I started out managing one of their institutions located in Laurel, Maryland, and was later asked to come into the city proper, and manage some of the programs; initially, the disability programs, but later I was asked to serve as the Deputy Commissioner for social services, and it really was that everything that was in public health and mental health fell under social services, so it really was a challenge and a lot of crisis management. You learn very quickly how to adapt to situations.

And I guess what really impacted me and influenced me was operating without all the tools and all the resources one would ideally like to have. And I think that is one of the challenges that public servants, no matter where they are, whether at the federal, state, or local level are sort of challenged with. There is never enough money to meet the needs of the public, particularly when you are talking about the kinds of programs that we are responsible for and the types of populations that rely on our support, so my management style has evolved into one that's pretty participative. I really believe that we get things done through teamwork, through collaboration, through effective communication, and those have been hallmarks of how I have tried to conduct myself as a leader and as an executive.

Mr. Morales: Excellent. How is the Social Security Administration managing the government retirement wave? We will ask Chief Human Capital Officer, Dr. Reginald Wells, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour, I'm your host, Albert Morales, and this morning's conversation is with Chief Human Capital Officer, Dr. Reginald Wells of the Social Security Administration. Also joining us in our conversation is Tony Hess.

Dr. Wells: Well, and I'm glad you asked me that question, Al, because that is something we have been tracking as an organization at least for the last decade or so, maybe even a little longer than that. It was the foresight, I think, of the leadership at the time to pay attention to the baby boomers moving through employment and getting to a point in the not too distant future where they would be retiring in larger numbers. I think the leadership felt they needed to take stock of that and social security, maybe because of the role we play, tends to be an organization that is very data driven.

We have, just to give you a sense of the actuaries on staff who project well into the future, the solvency of the program and the service delivery trends and that kind of thing. So we started looking at how many folks are we likely to lose and at what points in time are we likely to lose them over a decade ago. So we do what we call a Retirement Wave Analysis. We update it every year. Right now, approximately 23 percent of our workforce is eligible to retire. Fortunately, most folks work a little beyond their eligibility and that's something that we have experienced at social security.

I think a lot of federal agencies have that. I think our rate beyond eligibility is something like 3.7 years. In five more years that number of people eligible will go up to 40 percent of the current workforce and in 15 years it goes up to about 54 percent, so obviously we had best be in a position to replenish that workforce and to have some sense of when they would be likely to retire. We do projections and we use a model for determining what those numbers are likely to be. And what we are projecting right now is that over the next five years we are going to lose about 21 percent of our workforce.

So it moves us to really pay attention to that and to have some strategies for keeping it from being such a spike. I think the way the model projects are right now, we are looking at the peak of losses between 2008 and 2010. We have been using some strategies however to try to flatten that curve so that we don't have a tremendous spike at any particular point in time over the next few years.

Mr. Morales: So you just referenced this wave of baby boomers retiring across the country, and told us a little bit about how this puts additional pressures on services that supported the SSA. How are you preparing for this perfect storm of resource challenges?

Dr. Wells: Well, it isn't easy, as you might imagine, and I knock on wood every time I talk about this, because we really have not had the difficulty yet. That's why I knock on wood, because I don't take that for granted, recruiting and hiring people. But to address your question about the baby boomers moving into those disability-prone years and moving into retirement causing a greater obvious demand for our programs, we are doing things like a lot of agencies. We are trying to automate as much as we can.

The Commissioner recently announced that we have new regulations for our disability program. We were making some disability service improvements, which should allow us to move them through the process more quickly in general, but where there are appeals, we should be moving people through that process a lot quicker as well so that they have an answer much quicker about whether they are going to be eligible and entitled to benefits. On automation, there has been some reform of some of our systems to try to make it less cumbersome, less labor intensive obviously for us. Technology is not going to be a panacea, but I think it is going to help.

More and more people are applying for benefits over the internet. We are pushing that and promoting that a lot. In my area, people will be able to apply and that's been something that the Office of Personnel Management has been working on as well so that the opportunity to apply for federal jobs is streamlined from what it has traditionally been. So we are using various techniques, technology, systemic reforms, and I guess speaking regarding the human capital issues. We are really emphasizing training within the organization.

We want our employees to be the best they can possibly be. Part of that are the concerns about the loss of institutional memory when these very seasoned employees we have now move onto retirement, well-deserved retirement. We want a group of younger employees coming behind them to get up to speed very quickly. And I think, the retirement wave is a challenge for all federal agencies, and actually, is a challenge for all organizations, because it's not just a public sector phenomenon. But I think you really do have to invest on the front end to make sure you bring people into the organizations who really want to be there and want to do that kind of work.

Our training programs or entry-level training programs are pretty extensive. People can come in and end up in 16 weeks of training before they are even are allowed to attempt to serve the public and that's a substantial investment. So you don't want a serious retention problem early on. If people come into the organization and work five or ten years, and you get a really good service out of them and they choose to move on to other things, so be it, but to have someone new come into the organization, you give them 16 weeks of training and they punch out almost immediately would be a tremendous waste. And fortunately, particularly with new recruits, we have a pretty good retention situation.

Mr. Morales: Perhaps you could tell us a little more specifically about some of the activities your office is doing to develop and manage this kind of challenge? For example, what is the workforce transition plan?

Dr. Wells: The workforce transition plan, actually, was the precursor to the human capital plan. Truth to tell, it actually attempted to do a lot of the same kinds of things. It sort of, describes what the workforce is, what kind of succession planning we should be engaged in, where our greatest needs are from the human capital perspective. We have since adapted it to become really more like a tracking document for us, so we updated quarterly to see in specific detail what kind of activities we are engaged in, in our human capital work. And it just helps us stay on top of what we are doing and allows us to self evaluate whether we are doing all the right things and working on all of the important things.

Mr. Morales: You alluded to succession planning, and certainly this sounds like one of the keys to success in managing this whole retirement wave. Can you provide some lessons or advice to other government leaders who are facing this challenge of succession planning?

Dr. Wells: I think I can offer a little bit of advice. I think that it's very important, first of all, to know what your needs are as an organization. If you have a core mission that requires a certain competency or a certain classification of employee, then obviously you have a little bit of a sense of what kind of skills and abilities the people need and if there are logical pathways to hire or to work, obviously, you want to wait to try to identify the people who are most likely to do the best job there. Obviously, we always have to be engaged in merit principles and you want to never have instances where you regress into prohibitive personnel practices, but it is important to try to identify employees who are interested in moving up into other types of work that are important to the organization.

One of the mechanisms we used to do that, which certainly withstands the scrutiny of meeting merit principles is we have a number of career development programs which allow us to compete within the organization for identification into one or more of these groups where you would be on developmental assignments, getting training, doing this developmental work that allows you then to be a prime candidate for promotional opportunity down the road. We have four mechanisms that we use dealing with the various levels of our organization. For example, we administer our own senior executive service career development program, which is geared toward our GS-15 employees who aspire to be senior executives and they go through a year, or 18-month developmental process where they receive a lot of training.

Some of it is formalized training provided by the Office of Personnel Management at FEI, Federal Executive Institute. Some of it is actually working in areas outside of where they may have come from. So if you were a GS-15 working in operations, you might work in systems, or you might work in human resources and get a better appreciation for the organization as a whole. The next level down for our developmental programs is our advanced leadership program, and it's geared to our 13 and 14 graded employees.

A very similar program, it demands having a mentor, someone that can work with you around your development, developing an individual development plan so that you have some very specific skills you are expected to live up to and meet, and you identify through this collaborative process, what goals you are trying to achieve in terms of self development and professional development. We have a leadership development program, which is the next step down for 9 through 12 graded employees and it's very similar to the others. It is just the level of complexity for the work that you do and the exposures that you get. And then the Presidential Management Fellows is a mechanism we use to bring some pretty talented people into the organization. They may not have grown up in social security, but they have advanced degrees and are willing to come in and get on that track toward leadership.

Mr. Morales: This is a very extensive program. How is the Social Security Administration recruiting new talent? We will ask Chief Human Capital Officer, Dr. Reginald Wells to explain this to us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Chief Human Capital Officer, Dr. Reginald Wells of the Social Security Administration. Also joining us here on our conversation is Tony Hess.

Dr. Wells: We recognize, because of the retirement wave and the importance of maintaining our workforce both the numbers that the public, and the Congress, and the President expect, and also the competency, and the commitment to service. And so we, a few years ago, decided we needed to revitalize our recruitment program, our recruitment efforts, and we came up with a tagline: "Making a Difference in People's Lives and Your Own," as a way of branding social security, the service agency that it is.

It was very important for us to do that because, within our mission, the Commissioner, with our strategic plan, has identified four areas: service, stewardship, solvency, and staff, and it's extremely important to bring employees into the organization who bring a skill set that and an interest in service that allows them to really apply themselves to what we expect them to do and what the public expects in the way of service. So we developed this integrated marketing campaign, and we have really updated our materials so that they can be specific to individuals interested in particular career paths.

Social security is a huge organization, and if you have a systems background there is a place for you in one of the largest computer systems in the world. Collecting all of that payroll data, the information on payroll taxes, social security numbers, and the new disability system which is paperless, so there is obviously a lot of work going on in that area.

We have an agency that's large with a tight budget. We have a pretty large budget staff. And well…it's not large. When I say large, that's relative.

Mr. Morales: Be careful what you say.

Dr. Wells: Yeah, exactly. It's not large in the sense of large numbers of people, but they manage a large budget, and they have to be really good at that. So we obviously recruit and hire people who are very good at that. So if you have a financial management background, you are the type of person we would want to bring in to the organization. In that area, our largest operation obviously is our Deputy Commissioner of Operations component. And we need people there who obviously bring a very strong service ethic and who are very good in dealing with the public across the counter and across the desk and who bring an empathy for the types of people who rely on us for economic support.

And in the Office of Human Resources, where it's, as I said, relatively speaking, a small staff, we want people who understand and have a commitment to that type of work. My point is that it's a very diversified organization. And if a young person or even a mid-career person had an interest in this kind of work, we are trying to reach them, so we developed this integrated marketing campaign. We put an emphasis on communicating with people using technology, so we do as much work as we can over the internet.

And we try to get ads and magazines that cater to various populations, because we have to be a diverse organization. Diversity for us is a business imperative, because we serve the entire population. And in order to do that, you obviously have to be able to relate to them. We need that sort of diversity of thinking within our organization to be effective, and so that's very important. We've attempted as have the government as a whole to streamline the hiring process so that people don't have quite the cumbersome role they have coming in.

In fact, the Partnership for Public Service just put out some information from a study that they've done that is focused on college graduates. And what they reported was that people were basically very interested in doing public service, but they very often found it cumbersome or they didn't know where to go to pursue that interest. And so we do go out to colleges and universities and we do job fairs that try to let people know just what kinds of career opportunities there are at the Social Security Administration.

It really requires a lot of outreach, a lot of coordination, and we, because we are so decentralized, while we have recruitment lead and headquarters, we actually work through lead recruiters in all of the regions so that we can have a local presence. And they can cultivate relationships with local colleges and universities, and people who can refer the best and brightest to us.

Mr. Morales: You touched upon, in the last segment, some of the leadership programs that you have at SSA as well as potentially up to a six week training program for some of the new hires. Many of our guests across government share that a great deal of their focus is on ensuring that staff have these appropriate skills. With such a large organization distributed across the entire country and in some foreign territories, how do you manage this at SSA?

Dr. Wells: It's not easy, as you probably appreciate. It requires a lot of focus and attention. We have an office of training, as I mentioned at the outset of this discussion that is solely focused on trying to make sure that our workforce is receiving the best training they can possibly receive. And we've put a lot of emphasis, as you would probably hope we would, on our entry level folks coming into the organization. Our programs in one sense are very basic in terms of providing income security for people.

But in other ways, they're very complex, because there are a lot of rules around eligibility and assets that people bring to us when they come in requesting support. And so it's vital that we do that entry-level training and that we get our new employees up to snuff. But the employees who stay with us, and work with us over the years, and do an entire career with us, of course, have to be nurtured as well. They have to be kept as interested and committed in work. And so you have to replenish them, you have to give them support.

We have a significant e-learning mechanism that employees have access to. It allows them to go online and take over 2000 courses that are available in a variety of areas. Some of it is technical, but it can also be self development; it can be courses that allow them to perhaps make a career or transition to another part of our organization. It's really a tremendous resource, and folks can access it either from their PC at work, or from home. So that part of it is good.

We are really focusing on honing in this year and last year on our leadership training, because we like a lot of organizations when resources are tight, tend to not do as much of that as is really warranted by the needs of your management cadre. And so we have dedicated ourselves. And I'm really pleased that the commissioner in her foresight felt that in order for us to really be effective into the future, we have to cultivate that talent, and build a leadership cadre that will take us obviously into the next 30-40 years of this program.

Mr. Morales: Can you tell us about the role the Office of Human Resources plays in promoting diversity at the SSA, and do you have any advice you'd like to share with other government leaders?

Dr. Wells: Well, my Office of Human Resources plays a major role with the support and the commitment of all of the senior executives. As I said earlier, diversity is a business imperative for us in a lot of ways, and I'm defining diversity in the broader sense, not simply the EEO compliance focus that I think a lot of organizations focus on very appropriately. But we broaden it, because we feel that in order to be inclusive, we have to have a diversity strategy that encompasses all employees, not simply certain groups of employees. So we basically pay attention to the data. Once again, SSA has always been a data-driven organization.

We track, very closely our hiring, and promotions, and training and on a lot of dimensions. I am proud to say that as of today, because it's constantly changing, we are at parity with all of the numbers for all of our protected groups. And our workforce is comparable to a civilian labor force across the board. And that's something we're very proud of. In addition, we really do well hiring employees with disabilities. And it's not something we rest on our laurels about, because it is a very underemployed group of folks in this country.

But we feel, given that it is part of our mission to serve people with disabilities, that we really should have a workforce that also reflects and has empathy for that population. So we do real well there. Some noted magazines: Careers & the Disabled, have recognized us as one of the better agencies in this regard. And we put a lot of emphasis into things like reasonable accommodations for employees with disabilities.

We are bullish about hiring veterans, and we're working as a matter of fact, with Veterans Affairs to basically step up some of the things we are doing in that regard.

One of the things we're talking with them about, because we do serve people with disabilities as a core part of our mission. We're really interested in some of those vets coming back from the war, who may choose to get employed with another federal agency. And we're hoping it can be us, because of the insights they'll bring, and the commitment that they have to service. But I think the important thing really is to pay attention to your workforce, understand the ways in which it's diverse, and the ways in which it is not and be deliberate in going about addressing that.

And obviously in doing so, you have to be sensitive, as I said earlier, to avoid prohibited personnel practices and maintain merit principles. Those are always a given. But I think within that, there's still a lot of opportunity to reach out and communicate to populations that you may not have traditionally talked to or approached about coming into your organization and being a part of it. The other thing we do, which is a little unique, although I think there are a few other agencies that do it, is we have a number of advisory groups that we charter and work with very closely.

Most of them represent those protected categories. But we have found that has been a really good resource, because at the Social Security Administration, those people not only advise us on how to recruit and hire members of their group, but they also do a lot of volunteer work in the community, building relationships with the community, and of course, that then accrues back. People who they may have helped, or people who may have observed them helping others will want to come and work for an organization that's willing to do that.

Mr. Morales: What does the future hold for the SSA? We will ask Chief Human Capital Officer, Dr. Reginald Wells to explain this to us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour, I'm your host Albert Morales, and this morning's conversation is with Chief Human Capital Officer, Dr. Reginald Wells of the Social Security Administration. Also joining us in our conversation is Tony Hess.

Dr. Wells: Well, Tony, we get a lot of feedback. Fortunately for me, most of it is very positive. There are no shrinking violets among the executive team at Social Security, and so I get a lot of weekly feedback. The Commissioner holds an executive staff meeting once a week, every Monday. We gather as a team and we share important things, we discuss things. Very often, before and after, and sometimes during those meetings, people are commenting on the level of support we offer from HR, and I'm fortunate, because as an executive, most of that feedback is very important.

And when there are issues, I think what they understand is that we are there to serve them. We are there to facilitate their ability to serve the American public, and so it's very important for us to meet the needs of our workforce. And that's not always easy, because we do have legitimate limitations in things that we can do. Certainly as a public sector organization, you're protecting stewardship which is one of the things I mentioned. It is very important to our Commissioner and our strategic plan, and you really do have to utilize the public dollar in a very responsible way.

So there aren't opportunities to do Cadillac things sometimes for employees. But I think the fact that we focus on their needs and we try to meet them where they are, and support them when meeting the needs of the public, I think goes a long way. We have a number of programs that we do under the group of work which we call "All Ages All Stages." And that is really a way of trying to address the needs of the workforce as an intergenerational group, particularly now, with a lot of new employees coming in, and a lot of senior folks, you know, moving to retirement.

So we do surveys of employees. We often get feedback unsolicited, good and not so good, when people feel that way. And we just remain very receptive to any and all feedback. I think that having me at the table as a partner goes a long way. And there are some organizations that don't have that opportunity. In fact, the Chief Human Capital Officer role was intended particularly for those agencies where the HR human capital interests were not always sitting at the corporate table. At Social Security, that has been true for a long time. They've had a Deputy Commissioner for human resources for a while, well before the CHCO was established. So it really has worked very well for us.

Mr. Hess: We understand that the Social Security Administration was involved in providing relief to the hurricane victims. Can you tell us about SSA's involvement, and what lessons did you learn that can provide insights into possible future emergency responses?

Dr. Wells: Well, I've been with the agency for over four years, it was four years in April. And I don't think I've ever seen a better example of public service than I saw with that particular crisis. Last year when hurricane Katrina, and then Wilma and Rita hit, I think everyone became painfully aware of the devastation in that part of the country. We have countless examples of where our employees, even though their houses were washed away, were, within a day or two, mobilized in meeting with hordes of people who obviously were reeling from the devastation of the hurricanes.

And it doesn't get any better than that as far as public service is concerned. They worked, 12, 14, 16-hour days, 18-hour days, or more. They were reeling back and forth between Baton Rouge and the New Orleans area in shifts, keeping around-the-clock service to the people, and we got checks out within a matter of days. It really was one of the success stories. I didn't get the sense it got a lot of publicity in terms of the main media, but within government, I think, we were recognized as having really hit the ground running.

And it really was not a surprise to us within the agency. I mean, obviously there was no storm as devastating as that one. It was a once in a lifetime kind of catastrophe. But that's what we do. Every year, there are hurricanes some place. Every year, there are earthquakes of some sort. Every year there are brush fires that may destroy the peoples' homes and displace people. And our agency always adjusts to it. It always has been on a smaller scale obviously, but we apply the same approaches in terms of this large scale catastrophe.

And really the lessons that we can offer are things like the importance of communication, making sure that people know what they're supposed to do and being prepared, having done that planning, or having that experience, even if it's on a smaller scale, addressing those kinds of needs is really, really important. And being visible, I think, one of the things we took away from it was that leadership really does matter, and our people stepped up when the need was there, to become the leaders for distribution of checks or whatever was necessary to keep people going.

Mr. Hess: Many in government encouraged folks who are starting their career to think of government as a stop in a long career. Do you encourage this philosophy and can you tell us what advice would you give a person who's interested in starting a career in public service?

Dr. Wells: There is a lot of discussion about that today. I know that Director Springer is trying to address that issue. Director Springer, the Director of Office of Personnel Management, she's doing a lot of very fine work, and she is looking at the fact that some people are not necessarily looking at government as their final stop in terms of their career path. At Social Security, we've had a little bit different experience, and again, I knock on wood, because it could change. But we've had a lot of young people coming into the organization.

And I think because we are so big, relatively speaking, and because we do direct service, which gives that sort of tremendous intrinsic reward feedback to people, we've had a lot of our young people coming, and saying, "You know, we think we do want to spend a career with you." Of course the caveat is, "as long as we're able to continue to progress in the organization and advance and move into areas that we really want to move into as we get older and more established in our careers." So we're really sort of shaving it that way. As I said earlier, we do a lot of training on the front end.

And we ideally don't want to lose any of those people even after 30-40 years. But where people are looking at us as maybe the first stop, obviously you've got to be prepared to address that too, and if you only want to serve for 10 years we're still interested. And, you know, it's not servitude. We happen to think if you come and work for us, you'll probably want to stay for a career, because I think there are a lot of opportunities working in the Social Security Administration.

Mr. Morales: That's great. So what advice would you give a young individual who's getting ready to launch their career?

Dr. Wells: Come work for us.

Mr. Morales: Excellent, excellent. This has been a wonderful conversation, and unfortunately, we've reached the end of our time. I want to thank you for fitting us into your busy schedule. But more importantly, Tony and I would like to thank you for your dedicated service to the public and our country in the various roles you've held at the SSA and in the federal government.

Dr. Wells: Well, as a follow-up to your last question, I just want to offer to anyone listening, our website: it's www.socialsecurity.gov/careers. And if you go into that site, you will get a really good sense of all that we offer, and as I said earlier, I think there are a lot of opportunities not only in terms of direct service delivery to the public, but also all of those support roles behind the scenes, that infrastructure that allows our frontline workers to be so effective.

Mr. Morales: This has been The Business of Government Hour, featuring a conversation with Social Security Administration, Chief Human Capital Officer, Dr. Reginald Wells. Be sure to visit us on the web at businessofgovernment.org. There you can learn more about our programs and get a transcript of today's fascinating conversation. Once again, that's businessofgovernment.org.

Arlington, Virginia

Tuesday, January 30, 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 www.endowment.pwcglobal.com.

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

Our conversation today is with John Nolan, Deputy Postmaster General, and Chief Marketing Officer of the U.S. Postal Service. Welcome, John.

Mr. Nolan: Glad to be here.

Mr. Lawrence: And joining me in our conversation is another PwC partner, Nancy Staisey. Welcome, Nancy.

Ms. Staisey: Thank you, Paul.

Mr. Lawrence: John, in this first segment let's talk about your career. You began with the Postal Service in 1970. Could you tell us about the various positions you've held?

Mr. Nolan: Well, I actually started in the Postal Service as a management intern right out of college, and I did that for a short period of time and then moved into a program management position in Washington. And got involved in the start-up of our new bulk mail centers back then in the late-'70s, or mid-'70s, starting up these 33 centers.

I came back to Washington from New York where I had been starting up the first of those centers and worked in Washington for a while, and then moved back out to the region from our regional office in New York City and held a couple of positions before I became postmaster in New York City.

After 19 years I left the Postal Service and then went to work for Merrill Lynch for 11 years, and like a bad penny I'm back.

Ms. Staisey: John, you served as general manager and postmaster for the New York division, as you mentioned, which is the largest division not only in the Postal Service but also worldwide. What did you learn from that experience?

Mr. Nolan: Well, it was a great job. As postmaster in New York, you're the 800-pound gorilla, and so pretty much you had the opportunity to do what you wanted and people were just happy that you wanted to do it. If you were successful, they wanted you to keep being successful.

But I think the biggest thing in that job, you're really running a business. You really are. You have customers, you have a mission that you have to carry out every day. Constantly talking to your customers and communicating their needs aggressively within the organization I think was the most critical thing because if not for the customers, we don't have a reason for being in existence. So I think in an organization that large, 25,000 employees, and as many customers as we have, you can't overcommunicate. You've just got to constantly communicate.

Mr. Lawrence: You also mentioned that you worked for Merrill Lynch for 10 years after a long tenure with the Postal Service. How do you contrast your experience in the private sector with that in the public sector?

Mr. Nolan: Well, there's a much greater focus on money in the private sector, I'd say. We had one figure really that drove a lot of our behavior at Merrill Lynch, and that was turn on equity. We can't do that in the Postal Service. It's just a little bit more complex so in a sense it's easier in that sector, although Merrill Lynch is a very complex company.

I think our set of problems is very challenging because you not only worry about what a normal businessperson would do in such a situation like this, but what are the political implications because we're not just a regular business. But I think it's very similar in many ways. The business I was running was actually a related business for Merrill Lynch and so they had a lot of similarities. But I found the focus on profits, the overriding focus on money, to be a very all-encompassing one, and a very healthy one in many respects because it forced people to really think about the consequences of what they did in very clear monetary terms very day.

Ms. Staisey: How did your experience at Merrill Lynch prepare you for your present position?

Mr. Nolan: I think that there was a greater breadth at the way we looked at problems that I've got now. I had the postal experience, now I've got the Merrill Lynch experience. I've seen things from both sides. I think I understand better all sides of issues that typically come in front of us.

I was a customer, so I knew what it's like to be a customer at the Postal Service and the satisfactions and sometimes the frustrations in that regard dealing with a very large organization. I had an advantage because I knew about the inside of the Postal Service so that gave me some advantages. But I saw the way our people had to deal with the Postal Service, and I think it's enabled me as we get into discussions of key policies, programs, futures, et cetera, to stop and say, "well, wait a minute, what would I be thinking if I were sitting on the other side of the fence again," and I think that's certainly an advantage.

Mr. Lawrence: What is it about public service that attracts you?

Mr. Nolan: It's just a very challenging period. I was very fortunate in the years I was at Merrill Lynch financially, so I'm able to consider this again because the big drawback for me of course is financially doing this. But I've known Bill Henderson for 25 years, the prospect of working alongside of him and the rest of the management team is one that I thought would be interesting.

It certainly is a very challenging time in the history of the Postal Service. I think finally the one thing that got to me is that 20 years from now Bill said someone is going to write a book about the Postal Service, you need to be in that book, again, referencing the fact this is a particularly critical time. As soon as my wife heard me make that statement, she says, "oh no, you're taking the job."

So I think the challenge, the tremendous challenge, the sheer size and the importance of what we do is something that's pretty, especially, for someone like me, hard to overlook.

Ms. Staisey: Which positions or management challenges provided you the best opportunity to develop as a leader?

Mr. Nolan: I think that being postmaster of New York with 25,000 employees trying to change directions in what we were trying to do, dealing with the unions, the customers, the management groups, really helped me grow as a leader. I think that some of the -- or just before then my position as the regional director of customer services in the Northeast region of the Postal Service and had to deal with the entire regional area and, again, communication being key was one.

Frankly, at Merrill Lynch trying to build a company within a company that's not a mail business to try and figure out how do you get people whose main mission in life isn't what you're to accomplish, but for whom it's very important that we do well, how do you get them moving in that direction and getting people excited about this new company you want to form. I think all three of those things would be things I'd point to.

Mr. Lawrence: You mentioned communication, and I'm wondering about some other key characteristics of leadership.

Mr. Nolan: Well, I think leaders challenge limits. They challenge processes that exist to make sure that we are on the right track. I think leaders have to inspire a shared vision. I think that's a very important thing that just managers sometimes don't do, but that shared vision is very critical.

I think leaders find a way to enable others to do their best and to really serve as a role model to encourage the heart. It's not just the things that you do, but why you do them and to get enthusiastic about those.

I think leaders have a tremendous performance bias. It's not "let's sit down and think about it," it's "let's go, let's go, let's make something happen." So I think those are critical things for a leader.

Mr. Lawrence: How do you do that in such large organizations?

Mr. Nolan: In some ways, I don't know that the size is part of the problem I guess, but it's the bias within the organization. It's the way you structure things. It's the way you challenge people within an organization. Size can be a tremendous advantage because you've got tremendous resources to bring to bear on a given issue. So I think structure comes into play there and how people feel about what needs to be done.

I think the big thing is that you can't get into this mind-set that this is a big ocean liner and when you turn the wheel it takes all those analogies that you always hear. The fact is that you give an order and a whole lot of dust can start to move in one direction if you get people moving that way. So you can make some pretty big changes in a hurry if you're crystal clear about what you're doing and why you're doing it and you're able to communicate that.

Mr. Lawrence: Do you think the characteristics of leadership have changed over time?

Mr. Nolan: I don't know. I think that it may be that the need for increasing flexibility because of the speed at which change occurs is one that's risen to the top of the list of things that leaders have to be aware of and concerned about. So I think that flexibility, of all the things, I think that's probably one that leaders have to be conscious of.

Mr. Lawrence: We're talking with John Nolan of the U.S. Postal Service. This is the Business of Government Hour. We'll rejoin our conversation in just a few minutes.

(Intermission)

Mr. Lawrence: Welcome back to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and tonight's conversation is with John Nolan, Deputy Postmaster General, and chief marketing officer of the United States Postal Service. Joining me in our conversation is another PWC partner, Nancy Staisey.

Ms. Staisey: Thank you, Paul. John, as Deputy Postmaster General and as Chief Marketing Officer, what are your areas of responsibility?

Mr. Nolan: Well, there are several. First, I have the chief technology officer who reports to me, and obviously the marketing functions, everything from product development, to pricing. The sales organization is about to shift over to my area of responsibility.

The other area, which is new to the Postal Service, is an area called corporate and business development. We're really looking at more Internet/e-commerce related products and services and alliances and partnerships that we're going to see more and more of.

Mr. Lawrence: Throughout your tenure at the Postal Service you have stressed positive labor/management relationships, particularly in your work in New York City. How have you been able to improve labor/management relationships, and what lessons learned would you advise other managers?

Mr. Nolan: Again, I go in with a certain bias that people do want to do a good job. I mean, you always have the ÄÄÄÄ but you don't structure a whole approach to business for a few people, you do it for the large group.

I think honesty is very important. I mean, if you're going to do something, if you need to do something, you ought to be honest about it and get it on the table and discuss it. I think I try and work hard to understand the other's viewpoint to be direct about what my viewpoint is and to encourage them to see things from my side as well.

And don't give up on important goals. I mean, if the first time you get a "no" that you go off and pout, it doesn't accomplish very much. If people know what's important and you can get a way for people to work cooperatively to achieve a compatible end, I think that's important.

Ms. Staisey: As New York City postmaster, you also improved service and productivity. At the same time, you exceeded safety, performance, and budget goals. How did you do it? What were some of the keys to this success?

Mr. Nolan: Well, following a good management team didn't hurt. George Schuman who was postmaster in front of me, and Bill Dowling who was head of operations really did a great job. The team that I first inherited and then built were very good people.

I think one of the things we did is, we focused very heavily. I think we tried to focus on the customer to make sure that what we were doing made sense for the customer. We paid a lot of attention to that, as well as paying a lot of attention to detail. In our kind of business it's "what have you done for me lately," and it's sticking to the knitting every day and making sure you're doing the fundamentals right.

Then the other big thing as I mentioned before is communication. You just cannot overcommunicate to an organization as large as that.

Mr. Lawrence: What do you mean when you say you focus on the customer?

Mr. Nolan: A lot of times what we do is we say if we do our job right, then the customer benefits because obviously what we're doing is in the customer's best interest. That's an operations- centric look at this, and basically what we're doing may not be the right things for the customer, and what we've got to understand is what does the customer want.

It may be that they're using our products, but they're using our products in spite of the fact that the product is the way it is and they wish that something could be done slightly differently. What we've got to do is constantly look at what are our customers telling us, what do they want? Certainly if you make your budget goals and you make your service goals, in general that's got to be good for customers, but it may not be enough. So I think that's the big think that we tried to focus on.

Mr. Lawrence: How would you describe the challenges today from your current position in terms of improving service and productivity?

Mr. Nolan: Well, in our structure, the chief operating officer really handles the day-to-day operations of the company, but I think that working as part of the management team in a leadership role, we've got to make sure that we're challenging ourselves enough. If you set easy targets, you achieve easy things. If you set very tough targets, you sometimes find a way to achieve those tough targets.

So I think the challenge from our standpoint is to make sure that we understand what is it going to take to be competitive, to meet the needs of the marketplace, and then to try and exceed those and set tough targets. In some cases things that would seem impossible you've got to lay out there as a challenge, just like a number of years ago the Postal Service decided it was going to hit mid-nineties on service, and at the time they were in the seventies and everyone figured that's crazy, that will never happen, and it happened. Why? Because they set tough targets and they didn't take no for an answer.

Ms. Staisey: The Postal Service recently launched a number of new online service such as secure electronic documents and net post certified. Can you tell us more about these and the directions the Postal Service is going in terms of online services and products?

Mr. Nolan: Well, there's been a lot of questions about what in the world are you all doing. This doesn't look like mail. What are you doing going into this business. Our answer is, look, we've been dealing in money, messages, and merchandise for over 200 years. It's what we do. And if you follow that line of reasoning, why in the world did we ever leave the Pony Express?

We helped develop commercial aviation. Mail was the first big user of planes. Our customers are continuing to see incredible value and importance in mail, but they're also trying to communicate in other ways, to move money in other ways, to receive merchandise in other ways over the Internet. We need to be there to make sure we're providing a full range of services.

Just as any other company would seek to diversify if part of its product line was in jeopardy from diversion, we're diversifying. But the big thing is that we think that it's what our customers want us to do. We bring a tradition of trust. The secure messaging, again, the old game, who do you trust. When people ask that question we come up very high on the list so we think we can bring a greater element of trust to the Internet.

We think that our NetPost Certified for example is going to enable government and individuals to take a lot of the difficulty out of transactions, costs out of transactions back and forth by offering the ability to authenticate the sender of information whether it's birth certificate information or medical information and be able to authenticate it. Encrypt the document that's being sent to Social Security or to the Health Care Finance Administration or whoever so that they're able to get it in a mode that eliminates their work to get it in a machine readable format. It will speed everything significantly, reduce costs, enable government to work better, and enable citizens to be satisfied.

Part of what makes it possible is our ubiquity. We're everything, and people have an easy time dealing with us. We've partnered with some very, very good people in AT&T and IBM. The other of course big one that we've mentioned is eBill Pay. Some people want to pay bills online. I mean, we love it in the mail. We like to keep bills in the mail and payments in the mail, but some customers want to do things differently.

We believe that nobody in America or in the world offers a better bill payment service than we do. We've partnered with a very good company there as well, Check Free, and so we bring strengths, they bring strengths, and we think this is helping us be of a complete answer for your customers.

Mr. Lawrence: What are the management challenges of introducing online services?

Mr. Nolan: Well, it's being sure you're very crystal clear about what you know and what you don't know, what you should do and what you shouldn't do and leave to partners on the outside who do this for a living. But that's no different for any company or any issue, whether it's transportation issues or whatever.

But again, things more very quickly. Things that seem really interesting and exciting and a lot of companies want to jump at them right way without thinking. You've heard that dot-coms caused everyone to lose their judgment about what makes sense in business, you've got to, again, go back and do what makes sense in business and not just get enamored with a new technology.

So I think you have to understand the technology, understand the customer and what they want and, again, stick with the things you do well, and partner with the best for those things that you don't.

Mr. Lawrence: Many are apprehensive about having partners so deeply involved in the operation of the organization. They're actually worried about the management challenge. How have you addressed that?

Mr. Nolan: I think first of all what you do is to make sure you're careful about who you partner with. Second of all, you've got to sit down very carefully and make sure that you understand along with your partners what is it that each member of the team wants out of this relationship; what is it that each person on the team brings to the relationship; and how can we make sure that those things are being delivered. Then to constantly reevaluate that to make sure that you're asking the question is the equation changing or are we still in good shape here.

Mr. Lawrence: We'll be back in a few minutes with more of the Business of Government Hour and our conversation with John Nolan of the United States Postal Service.

(Intermission)

Mr. Lawrence: Welcome back to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with John Nolan, Deputy Postmaster General and Chief Marketing Officer of the United States Postal Service. Joining me in our conversation is another PWC partner, Nancy Staisey.

Ms. Staisey: John, we've heard a great deal in the news lately about the $6.3 billion alliance between the Postal Service and FedEx. Can you tell me more about this?

Mr. Nolan: No. It's top secret. Actually, what this is, it's a two-part agreement really, and it's a business alliance or business partnership that we've created here. The first is a transportation contract where they're transporting express mail, priority mail, and some first class mail for us on both the night and day network just as we have contracted with other airlines in the past, except they just happen to be one of the largest airlines in the world and have a network that's very beneficial for us and for our customers.

The other is a retail agreement where we are agreeing to enable them to put their collection boxes in front of our post offices so that areas that we can't hit with the services that our customers want, FedEx might be an answer to their shipping needs. So it becomes more convenient for customers, and it's something that FedEx wanted because it's a whole lot easier to explain to people where your boxes are if you say go to the post office.

So we're enthusiastic about the partnership. We think it's good for our customers, for the industry as a whole. I think it's a win-win.

Ms. Staisey: Seems like it's one of the biggest strategic moves ever for the Postal Service.

Mr. Nolan: Yes, and no. Yes, in the -- well, no in the sense that we've done transportation contracts all over the place and other kinds of deals. I mean, you can mail things through Mail Box, Etc. now. So we've done a business partnership with them. You can buy stamps in grocery stores. So that's the "no" part.

But the "yes" part is who would have thought about it. I mean, who would have thought that the Postal Service would actually be partnering with one of its competitors. I think what's that, competition or something like that is used so we're going to compete like crazy in certain spaces where we do compete. Some areas we just don't overlap at all. But I think it does signal for people in this country that this is a Postal Service that's going to do whatever it takes to make sure that we are effective for our customers and are there for them with solid services that are very affordable.

Ms. Staisey: Is it a sign that there will be more new and different ways of doing things in the future?

Mr. Nolan: I would certainly think so.

Mr. Lawrence: What's been the reaction of the various stakeholders?

Mr. Nolan: By and large, positive. I mean, some of the initial questions dealt with antitrust issues, gee, is there a problem here, and we feel strongly that there isn't, and some initial indications are that there seems to be no problems. But some people are concerned about that.

Obviously some of our competitors are curious and concerned about it. You had some of the airlines that were hauling or are hauling our mail that will phase out certainly aren't thrilled to death with it. But by and large, from our customers, from the analysts in the industry, I think it's by and large seen as a very shrewd maneuver.

Mr. Lawrence: How about with the postal employees?

Mr. Nolan: Well, it doesn't negatively impact the postal employees at all. It makes us more competitive we feel. No postal employees are losing jobs because it's a transportation agreement and putting retail boxes in front of our facilities for which we're being paid. So we think it makes us more competitive which should help us sell more product and help pay for the retail structure that we have out there with some additional revenue.

So our employees have been very positive about it. Surprised because we haven't done this with a competitor in the past but again, our people are very sophisticated when it comes to these kinds of things, and I think that they just like any analysts analyzed the thing and saw that it was a good deal.

Ms. Staisey: Besides alliances, does USPS plan to use any other new mechanisms for doing business? I'm thinking of things like joint ventures, teaming approaches.

Mr. Nolan: Yes. Well, we actually already are, interestingly enough. Again, with our e-bill pay service we partnered with Check Free, which is a top company in the bill payment area. On net post certified we've set up a partnership with -- business arrangement partnership with AT&T and IBM. There's a company called Imagitas, which handles our moving guides that we have in post offices for which we were recognized by former Vice President Gore in efficiency in government.

So we've begun to do some partnering. Do I think that the phrase "you ain't seen nothing yet" may apply? I think so. I think that there will be more things we're going to do, more interesting relationships, whether it's with ISPs, Internet providers, whether it's with other companies that can bring something to the table and we can add something. I think we'll look to do a lot more innovative things to make sure that our products and services are everything they can be.

Ms. Staisey: What about taking an equity position with some of your teammates?

Mr. Nolan: Well, it's something that we're looking at certainly. It's not without controversy as they say to some. We think it's -- any business would reasonably look at that and look to determine whether that would be a beneficial way of ensuring financial viability in the future. So I think we acting as a business as we're supposed to do by our law that formed us in 1970 look at all opportunities and try and determine what's appropriate given our statutes.

I think that there are some things that clear that we can do, some things that we can't do, and some things in the middle that we have to sit down and evaluate. But certainly looking to make sure that our investments in services and products give us the best possible return would make you want to look at the financial alternatives that exist.

Mr. Lawrence: There's been talk of postal reform by the Postal Service board of governors and the postmaster general. What do they hope to accomplish with postal reform, and what do they mean?

Mr. Nolan: Well, our hands are tied. I mean, one of our competitors complains that they don't have a level playing field. Every time I talk I say anytime you want to trade playing fields, I'm happy to do it, believe me. The rub is we don't pay parking tickets, we don't park illegally, and we don't pay taxes. We don't make money. You want me to pay taxes? Fine. Give me a chance to make some money.

The big thing for us, frankly, is that you've got a company here that doesn't control 76 percent of its costs, its wages. It's set by an outside arbitrator. We don't control our pricing, we're limited as to what products we can offer, and we can't make investments. If someone said, "Paul, I've got this great opportunity for you. You're going to be CEO of this company and there's only a few things that we're not going to let you do." Would you jump at a chance to run this company? I think the answer to that would be "no."

We need these freedoms to be able to operate in the future we believe. Business is challenging. It has nothing to do with whether mail is relevant or irrelevant because mail is relevant. But the Postal Service sparked a whole explosion in the mailing industry in the '70s and '80s because we freed up the industry to do things.

In some ways we're beginning to be a roadblock. We think with the value of mail that still exists that the industry can explode more, but we need to be freer to offer our customers greater opportunities.

Mr. Lawrence: And yet a tremendous amount of creativity has already been demonstrated through the alliances that you just described. So I'm wondering ...

Mr. Nolan: It's not enough. It starts to go a little way, but it's not enough. Again, when you don't control your prices it's very difficult, or your costs to a large extent.

Ms. Staisey: What are the most critical freedoms that you need?

Mr. Nolan: Well, again, for example, we have a tremendous customer in the priority mail area and our prices are set and are fixed we can't negotiate those. So it enables a competitor to go in there and undercut is anytime they want to. If they happen to have space on a plane and want to fill it up, let's see which customers the Postal Service has and we'll just go with marginal costing and, bingo, we're toast. So I think pricing is a big thing.

I think that offering new products. Again, there's a lot of people that have questioned why are you into these things, the Internet, et cetera. And yet when other companies do it -- boy, that makes a lot of sense. Well, there's no difference there.

From an investment standpoint, again, when you're going to work very closely with a company, the opportunity to make investments so that you grow two ways certainly makes a lot of sense.

Mr. Lawrence: We'll be right back with the Business of Government Hour and our conversation with John Nolan of the United States Postal Service.

(Intermission)

Mr. Lawrence: Welcome back to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and tonight's conversation is with John Nolan Deputy Postmaster General and Chief Marketing Officer of the United States Postal Service. Joining me in our conversation is another PWC partner, Nancy Staisey.

John, we hear a lot about the forthcoming retirement wave and the difficulty of attracting young people or new people to government. Can you tell us whether these issues are problems for the U.S. Postal Service, and if so how they're being dealt with?

Mr. Nolan: Well, they are. I think I saw a figure that 85 percent of executives in the Postal Service are within 10 years of retirement. That's a huge number because we have a couple of folks in the executive ranks in the Postal Service.

One way of looking at it is it's a tremendous opportunity. When I joined in 1970 there was a whole wave of retirements that occurred and I got positions of importance a lot faster than I ordinarily would have because they needed people. So I think if there are people listening out there that want a real challenge, the Postal Service is the place to be.

Nobody is as diverse as we are. Nobody values diversity as much as we do I think, and so there are tremendous opportunities. We're stressing very heavily development, redevelopment actually of a management intern program that we sort of had let slide for a while. We have leadership training programs. We've got our own management academy out at Potomac so we do value training.

And we send people to Harvard and Stanford and MIT because we need to have leaders that are savvy, that have rub shoulders with a lot of other leaders in industry. So you've got a great opportunity in the Postal Service to get a lot of responsibility, do a lot of interesting things, and be trained very well.

So I think these are the kinds of things we're trying to stress. We've got 800,000 employees. We're trying to move as aggressively as we can to get people within our own ranks interested in moving up and trying to get people from outside of our industry to move in because the things we do are pretty exciting.

Ms. Staisey: John, one of the demographic trends on the customer side has been an increasing number of new businesses and a great deal of residential development that's been going on. What's the impact of this in terms of the ever-increasing number of daily physical deliveries that USPS has to make?

Mr. Nolan: Well, the way we look at it, last year we added Chicago. We added 1.8 million new deliveries. We added the city of Chicago in terms of deliveries. Now, we don't get paid a penny for delivering to those residences unless there's an increase in revenue from people sending mail. Last year our revenue or the volume went up some, but not as much as it has in the past. So that's a tremendous cost on our operation; 1.8 million, the city of Chicago we added last year, and that's continuing. We don't see any signs of abatement there.

We had a huge influx of dot-coms and we had to build infrastructure to serve them, and then they collapse in some cases. So the breathing that we're doing in and out to grow and shrink from some of those businesses or something, but we haven't stopped growing when it comes to possible deliveries.

Ms. Staisey: Now, are there ways you can use technology to further your mission and also to help serve the ever-expanding number of deliveries you need to --

Mr. Nolan: Well, we're as big a user of technology as almost anybody in the world. That's why we have so many companies eager to do business with us. Unfortunately, there's not many ways that technology can help us walk up to the front door or to the curb to serve new deliveries. But when it comes to the use of mechanized equipment, automated equipment, bar code technology, scanning devices, electric vehicles. Technology is everywhere in what we do. Finding new ways for customers to reach us using the Internet at usps.com, finding ways of making call centers more efficient by using artificial intelligence. I mean, there's very little that we're not looking at or working on. So technology is critical for our future.

Mr. Lawrence: How is the Internet and use of e-mail and even the rise of e-commerce affected the way the Postal Service does business? Does it threaten the volumes?

Mr. Nolan: Well, the way we look at it, the Internet is both a disruptive and supportive technology. It's disruptive in the sense that some of our business could go away, and bill payment and bill presentment is certainly a very big part of our company, 25 percent of our revenues. And so the extent that that's threatened, that would be categorized as disruptive I would think.

On the other hand, it's very supportive. The most important thing that we're doing on the Internet now is using the Internet to reduce our internal costs. It's the biggest thing that we're doing. Second, it's enabling us to build an information platform more efficiently that enables us to manage better what we do every day.

The third thing, we're going to be adding a lot more value to our current core products and services. If you have a post office, for example, in the future we envision that you'll be able to look on the Internet to see whether you have mail in the post office box, whether you need to stop by the post office, and things like that; the status of your mailing. We'd be able to scan documents en route, and you'll know whether or not you're about to receive a package or that the package you sent was delivered.

Finally, the e-commerce initiatives that we've got to offer more products and services. So it really is changing the whole landscape of what we do. It's how we look at the future and how we're tackling the present and moving toward the future.

Mr. Lawrence: How is all this technology changing the way the Postal Service is managed?

Mr. Nolan: Well, we need to have technical savvy, first of all. That's sort of the ante to be in the game. So you need to understand the technology, either through people you have in house or consulting partners or vendors that you deal with so that's critical.

But the big thing is that still the fundamentals apply in managing an organization and it's a matter of understanding customers, and the big challenge here is that not only do you try and understand what the technologies can do for you and what you have to do internally but also how is it affecting your customers and be able to anticipate that impact and be able to be there as the customers change. Because when you've got a customer who very often doesn't know for sure how it's going to impact him, it's pretty hard for them to tell you.

So what you just got to be is more of a futurist I think to examine what's really going on here and to be there at the pass to cut them off and make sure they stick with you.

Ms. Staisey: John, if we could all be time travelers and travel ahead 10 years into the future, what would USPS look like in 2010?

Mr. Nolan: The U.S. Postal Service is the gateway to the household. Nobody in their right mind will go to their household directly. They drop at the Postal Service and let us do that, walk that last mile. No one is more efficient, no one is more effective at doing it. No one is trusted more. So whether it's packages, whether it's videos, you name it, people are going to use the Postal Service to move that last mile.

On the origin end, we've got all the tools necessary for our carriers to make it very easy to hand things to us so you won't necessarily have to go to a post office. You're going to see some post offices changing location. We need to move where the population is. With technology today, with kiosks and all sorts of things, there's a whole easier ways; the Internet. You don't have to come to the Postal Service to buy a stamp. You may not even need the stamp. You can do PC postage now and pay for your postage.

So I think what you're going to see is a Postal Service that has moved with technology and understood clearly what customers were trying to accomplish. You're going to see a lot of different models setting up in different areas. The post office today, there's a lot of sameness to it. It's the same everywhere. Well, in the future I don't see that always being the case. I think that there are certain areas where the post office ought to have a whole lot of services that it doesn't have today, and in other areas that just wouldn't be appropriate. So you won't see some of those services offered.

If you're in a town with no greeting card stores, why not be able to buy a greeting card at the post office. In other places that has greeting card stores, we can't add extra value there so don't do it.

So I think what you're going to see is a Postal Service that's much more tailored to the customer where the customer is, and a greater flexibility and range of service offerings.

Mr. Lawrence: What type of leaders will be in this organization in 10 years?

Mr. Nolan: Probably ones that don't include me, but I think to be effective in the Postal Service 10 years from now you're going to have to be someone that has a vision, and stick with that vision and move aggressively toward it. You're going to have to have sound business knowledge because you're going to be up against the biggest and the best and the littlest and the fastest.

So you're going to have to have a business acumen that's going to be critical for the future. Hopefully there will be a greater movement of executives from outside to inside and inside to outside, but it's going to be a lot of challenges and they're going to have to be innovative.

Mr. Lawrence: I'm afraid we're out of time, John. Nancy and I want to thank you very much for spending time with us. We've had an interesting conversation.

This has been the Business of Government Hour featuring a conversation with John Nolan, Deputy Postmaster General, and Chief Marketing Officer of the U.S. Postal Service. To learn more about the endowment's programs and research into new approaches to improving government effectiveness, visit us on the web at www.endowment.pwcglobal.com. See you next week.