Next Steps Toward Better Results

S ome innovations have a lengthy gestation period. In 1989, the British created a new type of agency called "Next Steps" agencies because they were the next step in the British government's reform process. In 1996, Vice President Al Gore created performance-based organizations based on the Next Steps model. And in 2001, President Bush announced his first results-based organization-the State Department's Foreign Buildings Operation office.

While the name seems to morph, the concept remains fairly stable:

  • Break out agency functions into separate units with strong incentives to manage for results.
  • Appoint a chief operating officer on a term contract with a good chunk of his or her pay based on meeting targets in an annual performance agreement. This position is neither a political appointment nor a career position; it is the equivalent of a term contract.
  • In exchange for tight accountability, give the organization lots of flexibility in personnel, procurement and resources. I discovered this powerful notion during a 1991 visit to London while working with the General Accounting Office. When I became deputy director of Vice President Al Gore's reinventing government team in 1993, this notion was seen as too radical. But then in 1996, Gore said he wanted to try it. He invited members of the Next Steps team to the United States to share their advice with us. That was helpful. Still, the U.S. government has learned some lessons the hard way in its efforts to transform agencies and give them strong incentives to foster a culture focused on performance and results.
Some Lessons Learned
  • Don't skip the "prior options" step. The Brits started their process with a "prior options" study of which functions (not necessarily entire agencies) should be candidates for conversion to Next Steps agencies. This study assessed whether a candidate governmental function should be terminated, privatized, left alone, or converted to a Next Step agency. Here in the United States, government officials were so eager to get the ball rolling that they skipped this step. By not having to face fundamental questions about whether some functions should continue, many agencies saw an opportunity to do an end-run around federal regulations to get some flexibilities, rather than an opportunity to clarify their missions and results. The National Technical Information Service was an early candidate for becoming a performance-based organization (PBO) in 1996 but discussion of its suitability evolved into a question about whether it should continue to exist. That should have been addressed at the outset.
The lesson: Take the time to do it right from the start. It will save grief later.
  • Don't let agencies eat dessert first. Candidate agencies for the most part wanted lots of flexibilities so they could be freed from existing law, as promised by performance-based status. However, they were averse to a PBO's accountability and performance components. In one case, an agency declared itself a "provisional PBO" but never got around to developing a performance agreement for its chief operating officer.
The lesson: Get agencies to make some specific performance commitments up front, along with their requests for flexibilities.
  • When playing musical chairs, make sure the top one is empty. It is difficult to get agencies to volunteer for PBO status when the key jobs at risk are those of agency heads. It's easier if the top job is empty or if the top person has no interest in taking the job when the agency is restructured. An unforeseen stumbling block in the Clinton administration was the Office of Presidential Personnel's reluctance to allow political slots to be converted to nonpolitical contract positions. In several cases, the supportive agency head left during the conversion process, and the new agency head saw PBO status as a threat and opted out.
The lesson: Focus conversions on agency functions that don't have a political head, or make sure the White House personnel office agrees in advance to converting the top job from a political to a term contract position. This is generally easier if the position is vacant.
  • Watch out for the shell game. The biggest hurdle is not the lack of congressional support, it's the lack of executive branch support, especially among the central management agencies-the Office of Management and Budget, the Office of Personnel Management, the General Services Administration, the Justice Department and parent departments of the agencies being considered for PBO status. Flexibility and independence from traditional operating systems run against the culture of those whose job it is to ensure conformity. The interagency clearance process allowed many of these stakeholders to delay conversion to PBO status.
The lesson: Push for maximum flexibilities, such as those awarded to the Federal Aviation Administration, but also get strong performance commitments upfront to counter the voices of the central management conformists.
  • Congress can be a schizophrenic uncle. Members of Congress love the idea of better accountability and performance-unless it affects their committee's jurisdiction. Government management committees generally are not supportive of the PBO approach because they lose jurisdiction when an agency is exempted from governmentwide rules.
    The biggest Hill supporters tend to be authorizing committees for candidate agencies. Those committees want the agencies to work better. The House Education Committee pushed through the first PBO, the Office of Student Financial Assistance, in 1998 because it thought this approach would dramatically improve performance. The committee was the agency's biggest advocate.
The lesson: Work with government oversight committees on a strategy that addresses their concerns before sending legislation to the authorizing committees. And work with authorizing committees in the drafting stage, not after the tortuous interagency review process.
  • Make sure everyone signs on the dotted line. Assuming everything goes right and a bill is passed, that's just the beginning for the restructured agency. The department must hire a new chief operating officer, who must sign a performance agreement with the Secretary. And the new agency must negotiate a framework agreement with the parent department. A framework agreement defines which administrative services would continue to be provided by the parent department, and at what cost, or if the PBO would purchase the services elsewhere. Moving quickly helps this process. Both the student aid office and the Patent and Trademark Office hired chief operating officers right away. Settling on a performance agreement, however, took months. Even more challenging was freeing the agency from the clutches of its parent department. PTO, for example, was pressured to continue paying a share of the cost for the Commerce Department's beautiful library. Having leadership in place helped the new performance-based agency resist pressures that lower-level staff might have caved into.
The lesson: Moving quickly, especially in developing a performance agreement with measurable targets, lets people know that performance-based management really is a different ballgame.

Is It Worth It?

The United Kingdom was able to convert about 150 agencies or functions into Next Steps agencies. And in the past dozen years, dramatic improvements have been made in performance and accountability. In the early years, cost savings were claimed, but the real difference has been in achieving better results.

Results-based organizations aren't for everyone. The British found the best candidates were those with clear missions and measurable results-and not necessarily entire agencies. In our government, examples with British parallels include the U.S. Mint, the National Park Service and the Passport Office. If the Bush administration pursues the results-based organization concept, it probably will easily find 100 to 150 likely candidates.

John Kamensky is a senior fellow with the PricewaterhouseCoopers Endowment for the Business of Government. He also is director of the managing for results practice for PricewaterhouseCoopers LLP. He formerly served as deputy director of the National Partnership for Reinventing Government. He can be reached at
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