Tree Enterprise

By Anne Laurent

November 1, 1999

T o get a glimpse of the government to come, pull on your flannel shirt and hiking boots and head for the national forests in California. As you tromp through the woods, you may run across Merl Sturgeon and Bill Hay sizing up how much lumber a singed Sugar Pine will yield. Or you might see Jeni Bradley negotiating with a landowner to allow the California Back Country Discovery Trail to pass through his property. Kelly Fike might be out helping a team of people figure out the environmental impact of a land improvement project. At first glance, they all look like regular Forest Service employees. But don't be fooled-although these folks work for the agency, they're also small-business owners contracting with national forests.

Staff cuts and flat budgets have left the forests increasingly short of skills needed for safeguarding and harvesting trees, granting grazing rights and providing recreation facilities for visitors. But instead of trying to make ends meet by putting longtime, highly skilled employees out of their jobs, or simply by doing less, or hiring private firms to fill in, forests in California are turning loose their own employees to become itinerant businesspeople. Employees in the Forest Service's Pacific Southwest Region (Region 5) are becoming internal entrepreneurs plying their services for a fee across the 18 national forests in California-and sometimes beyond.

These new enterprises are similar to the mostly administrative reimbursable services offered by agencies for years and the franchises created by six departments to sell everything from employee health and human resources assistance to data centers and acquisition help across government. What's different about these enterprises is that the Forest Service allows individual employees to form them and that they expand the internal entrepreneuring concept from back-office and support services to the core work of the agency. As federal agencies follow industry's lead by shedding all but their core or inherently governmental functions, enterprises offer a new way of accomplishing that work. The enterprise experiment is bringing to fruition government theorists' predictions of the demise of "full-time forever" employment and the rise of floating, flexible freelancers.

The internal enterprises allow Region 5 forests to complete vital projects without further burdening already overtaxed regular employees and without adding expensive full-time staff. The existence of enterprises also has helped improve cost accounting across the region, as well as saved jobs and boosted morale and business skills among new business owners.

Cascading Cost-Consciousness

The advent of enterprising has kicked off a cascade of cost-consciousness, an important achievement in an agency whose poor financial management won it a place on the General Accounting Office's 1999 high-risk list. Responsible for covering all salary and overhead costs of their businesses, enterprisers are deeply aware of costs and often negotiate hard with other agency organizations for price cuts or service improvements. That bargaining prods other operations to cut their prices or improve the quality of the services the enterprises get from them.

Forest managers seeking to hire enterprises gulp hard upon hearing their fees, often their first encounter with the true hourly cost of labor in government. But once the shock wears off, they become conscious of the high cost of full-time employees and begin considering better ways to use staff. "Using enterprises, [forest supervisors get] projects completed instead of maintaining a workforce they don't need or that is outdated," says Kathleen Wolcott, who runs the internal bank that helps finance all 18 Region 5 enterprises.

Most enterprises went into business in the summer of 1998, and the majority of them more than covered costs in their first year of operation. The enterprise experiment's success has caught the attention of agency executives, and Forest Service Chief Operating Officer Phil Janik says it will be expanded. "We're definitely looking at the possibility of expanding to Region 6 [the Pacific Northwest]" next year, says Janik.

Janik's predecessor, former Forest Service COO Francis Pandolfi, was an early advocate and remains an enthusiastic supporter of enterprises. "Enterprising goes a long way toward the goal of doing more with less," he says. "It should become a model throughout government. It emulates some of the best and most effective things in the private sector."

The Mother of Enterprise

Necessity was the mother of innovation at the Forest Service. Established in 1905, the agency manages 192 million acres in 155 national forests and 20 grasslands in 44 states, the Virgin Islands and Puerto Rico. Its holdings are 9 percent of the nation's total surface area and 29 percent of all federal lands. Since the 1950s, the Forest Service's chief function has been to oversee the harvesting of timber on national forests. But environmental laws enacted in the 1960s and 1970s have shifted the agency toward a new emphasis on protecting and managing ecosystems. The change has altered the way forests are managed, the makeup of the workforce, and the size and content of the workload. For example, timber sales, once the source of 90 percent of forest receipts outside appropriations, fell 55 percent from fiscal 1992 to 1997. At the same time, recreational visits to the forests rose nearly 36 percent. On Sept. 30, the Clinton administration proposed new forest management rules formally recognizing the shift toward ecosystem management and away from timber production.

Against that background came staff reductions of 25 percent since 1992 and budgets that have remained flat or fallen when inflation is taken into account. "I've been here for four years and each year we've gotten $1 million less than the year before," says Margaret Boland, deputy forest supervisor of the 1.8 million-acre Los Padres National Forest, which is 50 miles north of Los Angeles. "In 1995, the forest's appropriation was $16 million, now it's $13 million. Staffing was reduced probably by about 20 percent from 1995 to 1999; we now have about 200 people."

The mission shift, downsizing and budget constraints have brought forest employees new roles and more work. Managers accustomed to having one or more experts in every field in every forest now are asking employees to wear several hats, reducing the time and expertise they can devote to any one task.

To catch the work and skills falling through the cracks, managers need a flexible workforce of highly skilled people who don't have to be fully employed by just one cash-strapped forest. "The shift in Forest Service emphasis and program mix promotes the enterprising idea," says David Radloff, chief of reinventing government efforts at the Forest Service. "It gets you out of thinking, 'person A works for person X,' to thinking, 'A has skills needed in three different places, so let's get him out from under X and let the market match them up and move them and let the people who need A pay for him.'"

Reinvention Accelerator

The idea to create enterprises arose simultaneously, but independently, in 1994 at Forest Service headquarters and in Region 5. It was part of the agencywide reinvention plan and a Region 5 effort to improve administrative services that was spearheaded by then-regional financial management director Mike Duffy. Radloff, then beginning his job as reinvention chief, started an enterprising skunkworks team, which included Pacific Southwest Regional Forester Lynn Sprague and John Phipps, forest supervisor in Region 5's El Dorado National Forest. Both also were key players in Duffy's search for excellence in administrative organizations. Duffy and Radloff knew each other, and in 1996, Duffy met with the skunkworkers about Region 5's enterprising idea.

"Two months [after the meeting] I was in Washington briefing Radloff and Doug Farbrother [then a member of Vice President Al Gore's National Performance Review staff] and a month later we became a reinvention laboratory," Duffy recalls. Duffy became the lab's chief scientist, catalyzing useful connections throughout the agency and brewing up the business approach. He put together a laboratory staff and an enterprise steering committee, figured out financing, won the union's cooperation and began explaining the idea to regional managers and campaigning for their cooperation.

"The regional leadership met quite a few times to discuss it, with a lukewarm to cool response," Radloff says. "At one point, Lynn Sprague said, 'I've decided we're going to give this a try. We're going to go slow and put systems in place to support it. Managers don't have to support it, but you can't sabotage it.' That was the leadership support needed to give it a try." Since then, the lab has held two open seasons during which it announced it would accept business proposals from individuals or groups of employees. The steering committee makes sure proposals are within the agency's mission and aren't in direct competition with the private sector. In the last round, 15 of 18 were approved to go on for Reinvention Accelerator Training. Of those 15, eight dropped out during training and seven went on to present business plans.

So far, three training sessions for prospective enterprisers have been conducted by business consultant Gifford Pinchot, grandson of the first Forest Service chief by the same name and originator of the theory of "intrapreneuring," a form of private sector enterprising. Training takes 45 days, nine of them in the classroom and the rest completing homework assignments.

"We got 45 days' boot camp, learning to figure our daily rate, do spreadsheets, etc.," remembers Jeni Bradley, owner of Recreation Solutions, a trail planning and consulting enterprise. "They took our brains out and did something to them and put them back in and we never can go back [to our old ways of thinking] again." At the end of training, enterprisers produce full-fledged business plans, which they present orally and in writing to the steering committee. The committee rejected one proposal from the most recent group because neither the business offering nor its prospective market was adequately addressed.

To prevent supervisors from altering enterprisers' work priorities and to guard the businesses from downsizing efforts at individual forests, Duffy arranged for them all to report to him. The reporting arrangement also means the enterprise bank doesn't have to rummage through the books of all 18 regional forests to find enterprise records. The enterprise bank's bookkeeping system tracks how much funding belongs to each enterprise and how much money is available for use at any time. The funds pass in and out of the Forest Service working capital fund, so balances remain available without regard to fiscal-year limitations.

The lab charges each enterprise a $5,000 licensing fee plus 1 percent of its revenues to pay for the banking, advisory and other services it provides. The lab currently is creating a form of workers compensation insurance for enterprisers, who could lose their businesses if they were injured or ill and unable to work. Each will be assessed an insurance fee in the future. In addition, the lab provides a safety net for enterprises. If they temporarily run short of cash, the bank provides loans at 10 percent interest. Should a business falter, the lab also steps in. "If the businesses can't cover costs, we'll work with them to restructure their offering," Duffy says. "If that doesn't work, we'll place them with another enterprise. If that doesn't work, we'll place them back with their old organization."

Freed to Buy Furniture

Forest Service employees go into enterprising for different reasons. Some, like Bradley, already were working for more than just their home forests, so they knew there was a market for their services. "I was on the Modoc National Forest [staff] as a recreation officer and I was going on details to other forests constantly," she says. Others, like Merl Sturgeon, owner of Timber Expert and Measurement Services (TEAMS), were facing losing their jobs. Sturgeon had been told that Modoc no longer could afford him. "This meant Merl had to move out of his traditional job, and there was a market for a highly skilled person to move beyond the boundaries of the forest," Radloff says.

No matter how employees came to enterprising, their reasons for sticking with it usually include more independence, a clearer yardstick for measuring success, and more control of the work than they ever had as regular employees. "We essentially are our own unit and can coordinate and create our own jobs," says Peggy Scott, an accounting technician with Incident Financial Services, a six-person billing and legal liaison business. "We really have ownership in how we succeed or fail," adds Debbie Klippenstein, coordinator of the business. Christopher O'Brien, managing partner of Diamond Mountain Heritage Services, a forest archeology consulting group, relishes controlling his own destiny. "We're doing it for the freedom to make it or break it based on what we do," he says. For Bradley, enterprising offers a chance to make a difference. "For the first time in my 24-year career, I now believe I can change the way government does business," she says.

Changing ways of doing business on a less grand scale also is attractive. For Incident Financial Services employees, desks and chairs became the emblems of independence. "When we moved in, we could buy our own furniture," says Lisa Halop, who helps forests build cases against private companies and individuals responsible for starting fires and other acts of vandalism. "We could set it up any way we wanted to and we didn't have to go get it from the storeroom like everybody else. It may sound like diddly squat, but that's real business," Halop continues.

Breathtaking Fees

Enterprisers' newfound freedom is meaningless, however, if no one will buy their services. The fees enterprises must charge to cover their costs "take the breath away from a manager," Radloff says. "Enterprisers are calculating prices based on true costs: salary and fringes (retirement, future use of annual leave, insurance)." Managers aren't used to hearing the true cost of an hour of work, Radloff explains. "The enterpriser has to sit down and talk the manager through it."

"When I do marketing, I ask them what total percentage of time they think the typical employee puts in in effective project hours. Some say 80 percent," says Kelly Fike, owner of Streamline, an environmental analysis training business. "Billable hours are more like 45 percent. I'm dealing with career government bureaucrats and nothing ever brings them face to face with full costs."

Radloff expects that enterprising eventually will give managers throughout the agency a much better handle on the true costs of doing the Forest Service's business. "It's difficult for managers to compare costs because they don't have sufficient records," he says. "They can add up the salaries but there are all kinds of other costs they don't have a good handle on. When a manager considers using an enterprise, he is doing so largely based on instinct, intuition and a little bit of analysis-Is that price within what I really think I should pay? Anywhere someone is buying an enterpriser's time, he's asking [cost] questions elsewhere."

After using enterprisers, managers more carefully weigh the cost of full-time employees. "We look at the cost differences between maintaining a full-time employee and paying an enterprise," says Los Padres deputy supervisor Boland. "We're in a high-cost area, so adding people is [expensive] for us. Enterprises are much more cost-effective for a one-time kind of thing you can have somebody come in and do." Shilling's rule of thumb is: "My average cost is about $100,000 per person per year with fringes. I can pick up an enterprise team for $5,000 to $10,000 and it comes out very high quality." Bill Kay, Sturgeon's partner in TEAMS, points out that forests can save money by hiring highly skilled enterprisers instead of detailing full-time employees to do unfamiliar tasks. "Those people may not know timber sales and they may not know the country so there's a lot of training involved," he says. "We can compete because they don't have to pay for our training. They just turn us loose. We provide a turnkey package."

Managers sometimes struggle to find the money to pay enterprisers. It isn't always easy to shake loose funds not already tied up in salaries for existing staff or earmarked for a specific project. One source of unspoken-for money is unfilled jobs. "Many of us, with retirements and turnover, always have some vacancies," Shilling says. "If we have a vacancy, and we still have it budgeted, we can accrue some savings. I have 54 staff slots but only 39 or 40 people right now. Of course the money has to be in the right appropriation. If the money was appropriated to build a dam, I can't use it to pay an enterpriser."

The agency grants forest managers considerable discretion, so they always seem to be able to free up some money. "If you're talking tens of thousands of dollars, [a manager] can probably hire an enterprise team," Radloff says. Bradley concurs. "We have found there are more dollars out there than anyone thought," she says. "They can come up with pots of money to get a project. What they can't come up with is unending money to cover an employee during the winter when there is no work."

No Displaced Employees

That enterprisers could be hired to do work already being performed by regular full-time employees hasn't escaped the notice of California forest employees or their union. Lonnie Lewis, National Federation of Federal Employees Region 5 vice president, voiced objections when enterprising first began. "We have employees doing particular work and an enterprise could come along and say it will do that work, leaving the employees nothing to do," he says. To allay non-enterprisers' fears of job loss, Lewis negotiated a deal with Region 5 that no employees would be displaced because of enterprises. But Lewis is quick to observe that enterprises create opportunities for the Forest Service to keep skills it otherwise would lose to downsizing. "We've got to consider the efficiency of the organization as well as the welfare of the employees," he says. Lewis encouraged Bradley and Sturgeon to become enterprisers.

"Merl was going to be gone this year or next if he hadn't founded an enterprise," Radloff says. He came in with no private industry experience, 30 years in the Forest Service, and he has become re-energized, and his world has grown from the forest to all the region. He's a perfect example of how enterprise benefits employees and the union."

Making Enemies

Their benefits notwithstanding, as enterprises shake up old systems and break traditions they are winning some enmity in the bargain. "That's the idea of a market mechanism, to shine a light on inefficiency and move people to better customer service and the best product for the money," Radloff says. "It's an enemy-maker, but over time, shining a light on inefficiency is a benefit to everyone and eventually people will come to see that."

In their first year, enterprises already have shone a spotlight on inadequate job classifications. Stuck in jobs whose outmoded classifications only permit promotion to a certain level, enterprisers are running into problems getting into pay grades that reflect all the skills they've gained and work they do as business owners. "There's no pay grade for CEO of a government business; you're just paid as a wildlife biologist, or whatever," says Steve Dunsky, a Region 5 videographer who sells his services across the Forest Service but has opted not to become an enterpriser. "You can plow money back into equipment, but there aren't grade level increases even though the enterprisers are working 50 percent harder than they were [as regular employees]."

Geralyn Bolong, an associate with Compensation Resolution Brokers, which resolves workers' compensation cases for forests, was a GS-11 before joining the enterprise, but her new classification comes out as a GS-9. Of the four-person staff, two were downgraded, one received a promotion and one remained in the same grade. Bolong says she would accept the downgrade if she could keep her GS-11 pay level, despite the fact that the lower grade could reduce her retirement benefits. "What's more important is enjoying what I do and the people I work with," she says.

To challenge human resources staffers to become more responsive and creative in working with the enterprises, the reinvention lab chose to buy HR services from another office rather than to hire its own personnel specialists. Enterprisers already are pushing the office to become more businesslike. Bradley has asked for a price schedule for special services. "If they say it's going to cost an extra $500 to get a job classification within 30 days, we'll say fine," she says. "If I can hire quickly to win a $100,000 project, $500 is not going to mean anything to me."

The internal businesses also are challenging the long-standing Forest Service tradition of relying on employees across the agency to leave their regular assignments to fight fires during the summer. "Our team won't go on fire duty because the Washington office told us we aren't going to to recover our full costs while we're gone," Bradley says. "Quite a few of us have good fire qualifications, but we could go bankrupt if we went out on fires and no one paid our overhead costs." It's clear the decision to flout tradition and duty wasn't easy. "I was just in San Bernardino [site of raging fires in early September]," Bradley says. "On CNN I heard [a Forest Service official] say, 'We're totally out of resources,' and I thought, 'No you aren't, you're just not willing to pay for them.'"

Careful Competition

Enterprises risk running afoul of the growing sentiment in Congress that government agencies should not duplicate work done in the private sector. So far, no companies have complained, but enterprises are careful about appearing to compete. "I am aware of the [1998] Federal Activities Inventory Reform Act [which requires agencies to list all federal activities that could be commercialized]," says Jody Sutton, owner of the Content Analysis Enterprise Team, which analyzes public comment on Forest Service projects and coordinates public involvement. "If a client wants to go with a third party, I pull out. I can't compete with them. It's against the law."

Forest managers, on the other hand, see advantages in using enterprises over contractors. "We get a customized deal from people knowledgeable about what the Forest Service needs," says Los Padres' Boland. "We don't have to go through the mating dance of working with a company-telling them the language, what the hot buttons are, etc. That doesn't mean [we won't] use outside companies."

Sutton and several other enterprisers often hire private contractors for large projects. "I would hope that Congress would see there is plenty of work for everybody and that we try to employ third parties as much as we can," she says. "I see enterprising as just another way of getting work done internally."

Radloff and Duffy predict enterprises will multiply and eventually compete for business. In fact, Radloff foresees a day when enterprises do most Forest Service work. Duffy is more cautious. "Initially, we looked at about 80 percent of the organization being enterprises and the other 20 percent in the leadership," Duffy says. "I've come to realize that while that's doable, a lot of employees who do valuable work won't fit in enterprises. They want to break at 10 a.m. and 3 p.m. and go home at 4 p.m., and they still are providing a valuable service."

It's too early to say how enterprises and the old Forest Service structure will co-exist. "One worst-case scenario would be that due to the cultural structure of the organization, the interest in enterprises would be lost," says NFFE's Lewis. "On the other side of the coin, we could lose our identity as the Forest Service. We'd become enterprisers, not Forest Service employees. I've worked for the Forest Service for 43 years. I'd hate to see us lose our identity."


By Anne Laurent

November 1, 1999

http://www.govexec.com/magazine/1999/11/tree-enterprise/6200/