Making Performance Count

Cash bonuses for top performers, new hiring rules and flexible budgeting are only some of the innovations being adopted by the Defense Commissary Agency as it becomes one of the first federal agencies to reorganize as a performance based organization (PBO) under the National Performance Review's strategy to improve government efficiency.

The agency, which operates 309 military grocery stores worldwide with annual sales of over $5 billion, officially became a PBO Oct. 1 and will adopt private-sector business practices to operate more like a commercial supermarket chain.

Retired Maj. Gen. Richard E. Beale has been appointed the first civilian director in the 130-year history of the commissaries. Beale retired from active duty Sept. 30 after leading the Defense Commissary Agency (DeCA) since 1991, when the commissary systems of each service were combined into one agency.

DeCA is one of eight federal agencies slated to become PBOs. As PBOs, the agencies will be granted waivers from some federal laws and regulations to give them more flexibility to manage their budgets and test new policies.

"DeCA was nominated as a PBO because it has a solid track record in customer service and operating efficiency," says Steve Rossetti, executive director for morale, welfare and recreation (MWR) and resale activities for DoD. "PBO status gives employees and managers the opportunity to approach the 21st century as a front-runner in government reinvention."

Since the military's commissaries were consolidated under DeCA in 1991, the agency has cut costs by nearly $300 million. But agency officials said they are at a reform standstill.

"We've already saved as much money as we possibly can since the commissaries were consolidated," says John McGowan, director of operations. "In order to preserve the benefit we need to move to the next level and become a PBO."

Employee Motivation

Several proposed changes would affect DeCA employees directly, including cash bonuses to reward employees for increased sales. The incentives will be tested in the agency's southern region. Quarterly awards of $250 and annual awards of $1,000 will go to department managers with the highest percentages of increased sales. Winners will have the option of splitting the awards with their employees.

"We're instituting a program paralleling what the grocery industry does as far as giving managers and employees more incentive to sell products," says Chet Boutelle, the southern region director. Pay for performance will also be written into Beale's employment contract as the agency's new chief executive. In addition, new hiring practices, now being tested in the Midwest, would simplify procedures and reduce paperwork.

"We'd like to be able to explore more concepts and technology from the retail world," says Wynn Hasty, director of personnel and training. "I think we've done extremely well so far."

Budgetary Freedom

Managers throughout government are frustrated because money they save in one account cannot be shifted to another account, where the money could be used to improve service. A major change under consideration at DeCA is creating a single budget fund for the agency. According to Director of Resource Management Gary Lutz, DeCA must maintain three separate accounts for managing operations, stock, and surcharge. Not only is it inefficient and expensive to keep track of three different accounts, but DeCA currently is prohibited by law from moving money between them.

"We've reduced resale inventory investment over $100 million since DeCA was established, but we cannot use these savings anywhere else," says Lutz. "The backlog of facility maintenance and repair, such as leaking roofs or deteriorated floors, could have been eliminated if DeCA had been authorized to use these one-time savings. In the private sector, you could move this cash to where it is needed and provide the best return on investment to the business."

DeCA plans to submit a legislative proposal for its 1998 budget asking for the combined fund.

Competitive Contracting

DeCA also is seeking authorization to use private contractors instead of government providers whenever contractors offer the same or better service at a lower price. For example, an in-house study by DeCA showed the agency could save $25 million per year if it used a civilian contractor to transport groceries instead of the Defense Transportation System. Under federal law, DeCA is required to use the Defense Transportation System for the approximately 21,000 tractor trailer-size containers of groceries the agency ships to commissaries overseas every year.

"We're a big part of DTS's business," said Arlene Ripp, manager of DeCA's transportation business unit. "The problem is, DeCA is a peacetime shipper but is asked to support war readiness. All DeCA customers have to pay higher rates to compensate for increased transportation expenses."

DeCA is also required to use wide area network services from the Defense Information Systems Agency (DISA). Service has been expensive and DeCA has been low on the customer "priority" list, resulting in frequent disruptions of service during data transmissions. A commercial carrier might have been able to provide the same or better service at a lower cost.

Since DeCA raised its concerns to DISA, however, the situation is improving, says Rosita Parkes, DeCA's director of information resource management.

"DeCA represents 11 percent of DISA's fiscal 1997 revenue base for use of the non-secure network and is its largest customer in terms of number of sites," Parkes said. "They've given us great cooperation and we now expect to have a 20 percent reduction in our bill next year." DeCA has also been moved up higher on the priority list. Nonetheless, the relationship with DISA will be revisited next year.

Moving Forward

DeCA also wants waivers and legislation that would ease restrictions on contracting and allow more flexibility in buying practices.

"We are uniquely qualified to be a test agency for a change in [procurement] rules," said Acquisition Management Director Crosby H. Johnson. "There are a lot of hoops you have to jump through in contracting to buy commodities. That makes sense for some DOD agencies. But we don't buy tanks and guns. We buy and sell groceries."

As one of the first PBOs in the federal government, DeCA has many trails to blaze. It needs to obtain DoD waivers and seek Congressional approval to make the changes necessary to achieve greater control over its budget, gain more flexibility in contracting and procurement, and adopt private-sector personnel management practices. The agency will have to confront employees' concerns about losing benefits and job security in a PBO. And, of course, DeCA will have to produce results that justify less agency and legislative oversight.

Defense Department Comptroller John Hamre is confident DeCA will rise to the occasion. "It's been a lot of fun representing the vice president in handing out awards to DeCA for the path-breaking achievements they've had and they've done it with a lot of shackles," says Hamre. "Hopefully, with standing up as a PBO, we're going to start taking off some of the shackles and let some of the power inside this organization flourish."

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