Government Executive - Authors - Francis P. Pandolfi

To Market, to Market

Francis P. Pandolfi — Wed, 01 Dec 1999 00:00:00 -0500

This column is third in a series comparing federal and private-sector management in business planning, human resources and customer service.

nder the leadership of Vice President Al Gore, government agencies have increased their focus on how they serve customers. After all, that is what government is all about. In October 1995, Gore's National Performance Review published the useful Putting Customers First '95: Standards for Serving the American People.

The great irony of this situation lies in the disrespect that so many government employees have for "marketing." It's one of the most important business management tools in the private sector and the one that has the greatest impact on customer service. Unfortunately, many government employees who are not familiar with the profit motive believe that marketing is akin to hucksterism. Perhaps that is why the word "marketing" is not mentioned one single time in Gore's book. In fact, marketing is a business tool reliant on a good bit of science.

Marketing has several definitions, but one of the most concise is "the process of determining what people want and delivering it to them." That is exactly what government is all about. Government really is the ultimate marketing organization, taking taxes from its customers and in return providing products and services.

The private sector, by contrast, takes in revenues, and payment is a matter of personal discretion. In government, customers are often given less opportunity to choose what they want from their government because so many decisions in a democracy are by consensus. If you're not part of the majority, you may not like the outcome but you'll still pay for it.

The definition of marketing says one must "determine what people want" before we deliver our products or services. That process involves research-actually going out and asking people how they feel about certain issues-and then using that research to design our offering. That's what is called being "marketing driven." A lot of so-called research in government is, unfortunately, anecdotal.

Selling a Service

The Forest Service created a prototype for marketing-driven government that is quite successful. This marketing effort is designed to improve the Forest Service's recreational development on the 192 million acres it manages. Many more people visit Forest Service land for recreation than they do National Park Service land. However, the Forest Service does not have an adequate budget for recreation facilities, and the backlog of needed infrastructure repairs has risen into the billions of dollars.

The Forest Service is one of several agencies responsible for the experimental Recreation Fee Demonstration Program created by Congress. Under the program, people who visit certain recreation areas are charged a fee of several dollars. Normally such fees are sent to the Treasury, but under the demonstration program they are retained to be reinvested in the area where they are collected.

The Forest Service had 50 demonstration sites, which were managed with different degrees of expertise, despite an attempt at central support. The program had a very uneven quality around the country and suffered from local criticism in many places because the public was uncertain how it served their needs. Furthermore, many people felt that, as taxpayers already, they were being subjected to an additional tax burden. So the agency hired Robert Shulman, a marketing consultant who has worked for many major corporations, to show employees how to research user reactions to the program and use that input to design a better approach to dealing with the public.

The marketing plan Shulman designed for the Forest Service included these approaches:

Use research to conduct a market climate assessment: How do people feel about Forest Service activities?
Based on the research, divide the market into distinctly different groups of people pursuing recreation who need to be treated uniquely.
Define the product line (hiking, fishing, boating, swimming).
Determine pricing acceptable to both the public and the Forest Service.
Create a day-to-day communications plan to explain what the Forest Service is doing.
Design customer service training and standards based on what the research indicated is important to people.
Measure performance, again using research to see if people are satisfied with what the Forest Service is doing.

Mixed Reviews

The Recreation Fee Demonstration Program enables Forest Service managers to balance responsible land stewardship with recreation management, making it consistent with the agency's natural resource conservation goals. But opponents of the program fear the Forest Service is promoting "industrial recreation," which would ruin the forests with overcrowding for the sake of bringing in income to offset declining budgets. These critics neglect to consider the strong public support for recreation in environmentally sound forests and that citizens would judge the experiment a failure if environmental decline becomes a problem. That result would be clearly indicated in marketing research designed to measure how people feel about the quality of the forests after the project has taken hold. Thus, a marketing-driven project safeguards the public's long-term satisfaction.

Expanding the Model

Using the Forest Service model, the federal government could conduct a test to introduce marketing. Marketing departments could be established in up to five agencies, based on proposals submitted by agency heads describing how they can benefit from such an effort. Selection officials would be recruited from the National Partnership for Reinventing Government and the Office of Management and Budget. Following a three-year test period, if the experiment is successful, an unlimited number of agencies could be selected.

The goal of the test programs would be to use marketing research to improve the design and delivery of specific agency products. They would measure customer satisfaction, before and after implementing the changes, and any improvements in economic efficiency. The projects would focus on:

Defining the business (product, market and so on).
Defining and conducting marketing research to determine how customers feel about current offerings.
Creating a mission statement.
Defining accountability for results.
Preparing marketing plans with complete financial projections.
Measurably improving customer satisfaction.

To be marketing-driven is to listen to the customers and to heed what they say. However, the many roadblocks to conducting consumer research in the federal government must be removed by OMB, the guardian of the rules in this area.

Next, contractor-hiring guidelines must be changed to allow marketing consultants to work with government managers. Consultant spending for the three-year test could be limited to $250,000 a year per agency. But buying such "soft" or intangible benefits is difficult in government. Government likes hard "deliverables," and there would be few in this situation. However, marketing has shown its worth, and trained professionals should therefore be enlisted to ensure the test is conducted properly.

Each marketing department would recruit a marketing director from the Senior Executive Service. The Office of Personnel Management would also create three other SES positions-assistant directors-without reducing other SES allotments. Total staffing for each marketing department would be limited to 50 people-again without interfering with other agency head-count allotments.

The government would do well to remember the observation of Wayne Green, an entrepreneur instrumental in developing the personal computer: "Doing business without marketing is like winking at a girl in the dark."

Francis P. Pandolfi, who has spent 25 years as chief
executive officer of a number of private firms, was the first chief operating officer of the U.S. Forest Service. After three years in government he returned to the private sector this year.

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VIEWPOINT Put the Right People in the Right Jobs

Francis P. Pandolfi — Mon, 01 Nov 1999 00:00:00 -0500

This column is second in a series comparing federal and private-sector management in business planning, human resources and customer service.

ny manager would agree that the single most important route to business success is putting the right people in the right jobs. That means being able to hire, offer incentives, promote and fire in a flexible and fair fashion. But that's simply not an option in the federal government, where common sense is often superseded by mindless attention to the civil service rules.

By the time I became chief operating officer at the Forest Service in 1998, agency chief Michael Dombeck had spent almost 18 months making my position official. Sen. Larry Craig, R-Idaho, a staunch opponent of Forest Service land management policy, believed Dombeck violated pre-selection rules by choosing me for the job without first throwing it open, in a several-month process, to general recruiting across government.

With Craig threatening to hold hearings, Dombeck's only avenue was to have me join the Senior Executive Service, making Craig's objections moot. But in the meantime, Craig could continue to delay the hiring process for several more months and simultaneously batter the agency on its woefully inadequate financial controls. The Office of Personnel Management said I'd have to attend the Federal Executive Institute in Charlottesville, Va., and fulfill an internship in private industry to qualify for an SES position.

I felt it was senseless to attend a several-week program administered by government managers who developed their skills in the milieu of problems I was hoping to correct. My 25-plus years in private industry, mostly spent as a chief executive officer, constituted an adequate internship. The only alternative OPM offered was to write five essays on my approaches to management. A mid-level government manager, who probably had little or no management experience, would judge the essays and decide whether I was qualified.

I wrote the essays, but Forest Service human resources managers said they were too short. "OPM looks a lot more favorably on long essays," I was told. The essays were lengthened with the liberal use of adjectives-no facts were added-and I passed the grade to become chief operating officer. But note that without the civil service rules, my appointment might have become official a full year sooner. What was the cost of that delay? Assuming that good business leadership techniques could shave at least 10 percent off the Forest Service's $3.2 billion in annual expenses, avoiding the evil of pre-selection might eventually have cost the agency up to $320 million in forgone savings and maybe a lot more.

Unfortunately, pre-selection is just one of many policies designed decades ago to prevent personnel abuses but which now tie the hands of government. The rules actually inhibit recruitment of the best possible talent. For example, hiring requirements for senior-level positions often result in job interviews conducted by panels of individuals unfamiliar with the required duties. The panels are required to ask exactly the same questions of each candidate regardless of his or her professional background-all this to assure objectivity. Also, a military veteran who appears on paper to have the necessary qualifications is bound to be given hiring preference over more highly qualified nonveteran candidates. These are intolerable situations if government is ever to put the right people in the right jobs.

Changing the civil service laws and their protector-OPM-is like teaching a dog to be a vegetarian. It's not going to happen anytime soon. In the meantime, we are left with a leadership corps that is not always up to the task of managing complex entities. Leadership in government is unique and complicated in comparison with the private sector for the following reasons:

Dedication to mission has absolutely no correlation with the ability to lead or manage. If it did, the federal government would be overloaded with management talent. Unfortunately that's not the case, and leaders incapable of managing are ineffective.
The challenge of leadership is complicated by the need to balance decision-making with government's cultural needs for consensus, collaboration, ownership and buy-in. Leaders must develop missions with their organizations and then see that they are carried out. In an environment where consensus is critical, government leaders often design missions that offend no one-and accomplish little.
Leadership and power go hand in hand. But power in Washington is based on access to information, not on profits. Without a quantitative measure of its impact, power is a lot easier to maintain and unfortunately in the nation's capital is often misdirected. When officials whose power is based principally on access to information are put in charge of a few billion dollars, their management ability is assumed to increase exponentially-with no training.
Because of mindless civil service rules, federal managers cannot rapidly and easily hire, offer incentives, promote or even fire employees. This culture creates a major roadblock to change, despite the dynamism of well-intentioned leaders.

The solution to these vexing problems lies with the Senior Executive Service-the elite corps of top government managers. Like any other selection process in the public or private sectors, recruiting for the SES has its political aspects. Despite rules that make candidate selection difficult and less effective, the SES brings forth some of the best potential leaders in government. However, it is impossible to train these people in the techniques needed to solve the knotty problems of government inefficiency in one brief course. We can't expect to put an SES candidate through training and come out on the other end with Jack Welch, General Electric's brilliant chief executive. It's worth noting too that it took Welch a decade to mold GE to its current model of efficiency and effectiveness.

So why reinvent the wheel by trying to create people who can emulate the private-sector manager? Let's use common sense and simply hire professional managers from the private sector who already know how to operate administrative machinery.

We need to create an SES category called the "professional business manager." Prerequisites would include 20 years of senior-level management experience in the private sector. The position, chief operating officer, would focus on administration, not policy-making. COOs would be designated No. 2 at agencies, emphasizing the fact that implementation is as important as policy creation.

The COO would oversee key staff operations such as accounting, financial analysis, human resources and information services, using private-sector management techniques where appropriate. The Federal Executive Institute would hold a several-week class for all entering COOs on the basics of the federal government.

The recruiting process must be accelerated to hire private-sector COOs who are unlikely to tolerate the government's lengthy process. And we must streamline the following rules to make their jobs feasible:

COOs must have an ability to hire three direct reports. They must have the flexibility to hire from the private sector if the necessary talent is not available internally.
Pay scales for COOs must be competitive with those of the private sector. The government will pay a fortune to outside consultants, but will not consider adequate pay for managers based on performance and experience.
The Office of Management and Budget must approve such additional staff without cutting existing positions at agencies.

This recommendation parallels the requirements in the successful 1996 Chief Financial Officers Act, which created CFOs to improve financial management. This proposal extends that concept to general business management and goes a step further by tapping into the private sector. CFOs should report to COOs. Financial improvements alone cannot fix the dire problems cited in the Treasury Department's "1997 Consolidated Financial Statements of the United States Federal Government."

Some will say this idea just adds layers of bureaucracy to already intolerable overhead staffing levels. But without proper professional management, the bureaucracy is ineffective. This recommendation would improve the professionalism of the so-called overhead staff, which ultimately will reduce the number of people needed.

Francis P. Pandolfi, who has spent 25 years as chief executive officer of a number of private firms, was the first chief operating officer of the U.S. Forest Service. After three years in government he returned to the private sector this year.

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Doing Business in the Logic-Free Zone

Francis P. Pandolfi — Fri, 01 Oct 1999 00:00:00 -0400

This column is first in a series comparing federal and private-sector management in business planning, human resources and customer service.

n late 1998, I was testifying at a hearing on the Forest Service's serious financial management problems when Montana's Republican senator, Conrad Burns, made a caustic observation. "Why," he said, referring to the nation's capital, "should we expect better performance in this 17-square-mile logic-free zone?"

As the first chief operating officer of the $3.2 billion, 35,000-employee Forest Service, I walked into a situation where financial and business management were virtually nonexistent and seemed to verify Burns' contention. The agency was saddled with:

Almost 2 million management codes defining the agency's expenditures
Seventy-five million financial transactions each month
Data being entered from 800 points around the country, mostly by untrained personnel
An outdated, 20-year-old general ledger running on a limited-capacity mainframe
A lack of audit trails
Little employee concern for the issues.

It was no wonder the agency had no financial statements whatsoever and the inspector general was reducing the Forest Service to sawdust in report after report. "Cooking the books" is how he publicly described Forest Service financial management practices.

From my first day at the agency, I spent a great deal of my time in the field working side by side with employees. My experiences made it clear that two major problems plague government in its effort to become more efficient. The first is philosophical and involves the creation of policy without simultaneous attention to its implementation; and the second is the burden of rules, specifically those governing the civil service process.

When government makes policy with little or no regard for its implementation, the effects often include very complex bureaucracies, a lack of priorities and inferior customer service, as conflicting tasks compete for scarce resources.

For example, more than 200 Forest Service laws dating back to the 1800s still have provisions governing agency activities today. Were the implementation of these laws as important as their content, legislators would realize there is no humanly possible way they could all be accurately carried out.

The federal government is good at many things. But business management is not its strong suit. In the private sector, managers are held accountable for the bottom line and have the flexibility to use an unspent budget for one item to cover a shortfall in another. But because of congressional micromanaging, federal managers must spend untold hours creating logic that allows money from one line item to be used elsewhere when conditions have changed since the budget was created. Thus financial management absorbs valuable resources badly needed in the field.

The issue in Washington is not that government can't accomplish things, but that it does so inefficiently. There is little incentive to be efficient, beyond professionalism, self-satisfaction or a concern about being embarrassed in public. But these motivations alone are inadequate to counteract a basic lack of knowledge of how to operate efficiently.

In an enlightened society, certain functions are best performed by the central government; but unfortunately they are usually performed with great waste caused by inefficiency. On the other hand, could you imagine the private sector running the Gulf War during a period when profits were slipping? "No air cover for the troops this week!"

Government's inefficiency is enough to make any private-sector executive, who is used to performing against a budget and making a profit, wonder how things ever got this bad without taxpayer revolt. After all, stockholders would never stand still for such performance. So why have good systems broken down? Partly because government has become more complex and these systems were designed for simpler times.

For example, personnel administration systems in which the requirements for choosing new managers have grown dramatically as government tries to increase diversity, assure fairness and prevent abuses. In an attempt to assure the needed objectivity, screening panels at the Forest Service are frequently composed of people who may know little or nothing about the requirements for a management position with which they have only peripheral involvement. While this procedure improves the agency's insulation from lawsuits, it assumes all people have the same background and that there are no distinctions worth pursuing. The best managers cannot be chosen in this fashion, because the private sector's requirements are far less cumbersome.

However, the more important reason that good systems have failed is that policy-makers-totally enamored of their craft, the politics surrounding it and how the media reports their efforts-pay little attention to how their policies will be executed in the real world. After all, Medicare, Social Security and national defense fill the hearing rooms and get far more prominent headlines than business planning and bookkeeping. The news is the policy, not how services are delivered two or three years later when the country is focused on new priorities.

Policy-makers rarely respect the need to spend money efficiently. However, they love to criticize the agency line managers for this same inefficiency. That's the game they play in Washington.

A graphic description of these federal management shortcomings can be found in the General Accounting Office report, "1997 Consolidated Financial Statements of the United States Federal Government." Believe it or not, the document provides Tom Clancy-type excitement for financial managers. "For over 200 years, effective management of the U.S. Government has suffered from a lack of comprehensive financial information," the report says. Compounding the problem, the federal government has approximately 2,000 individual financial reporting components spending a total of $1.7 trillion per year. Talk about a challenging control problem.

So what can be done to improve financial responsibility in light of this lack of concern for implementation? Let's try something that is de rigueur in the private sector but largely unused in government. Let's create business plans before trying to implement any new major activity. No new private-sector business would ever be undertaken without a complete business plan. The same must be done in government. And it must be able to stand up to the scrutiny of informed questioners.

The heart of a business plan is in the numbers projecting income (if any) and costs, which articulate the assumptions on how a new activity will be run. Therefore, no law should be passed without a financial impact statement fully disclosing to the public the cost and benefits of implementing the law. Second, policy creators should be required to recommend a source of funding (e.g., eliminate existing programs or raise taxes or both). As it stands now, agency managers are forced to make the financial trade-off decisions and then take the heat. Having policy-makers indicate a source of funding would only be a recommendation, with the implementing agency making the final determination. But at least policy-makers would have to go public with a recommendation.

Financial impact statements should be produced by an independent Office of Financial Impact (OFI) headed by commissioners appointed by the President (with Senate confirmation) for staggered 10-year terms. The commissioners should be free to hire the best economic and financial analysts available at competitive free-market rates, not civil service pay scales.

On the three-year anniversary of each law, the OFI would issue a public statement comparing actual implementation costs to those projected. The agency in charge of implementing the law would then have 90 days to explain the variances.

The OFI and its related financial impact statements may sound like building more bureaucracy to control the bureaucracy, but it's my bet that the return on investment of this new activity would be quite high. The information it would generate would likely make folks think twice about the value of new legislation in relation to its cost. Perhaps some ideas for new laws would be abandoned by embarrassed legislators or modified if efficient implementation were an important objective.

It is true that the much-maligned overhead levels in government are high. But overhead is often justifiably created as complexity increases and new activities are added without business plans and without removing any old activities.

Overhead is almost universally assumed to be bad since it eats into a defined pot of available funds, thus reducing an agency's ability to fulfill its mandate. What government managers and policy-makers do not understand is that overhead itself is not bad. What is bad is too much overhead, specifically too many untrained or ineffective overhead employees. The purpose of overhead is to manage central processes and monitor results, without which the organization would fail. But good business plans would address this issue up front and prevent the agony later.

Thus the OFI and its financial impact statements would prevent the nonsense that creates policy after policy, law after law, with almost no consideration for cost and what programs would have to be forfeited if there are limited funds available. Congress and policy-makers throughout government exercise their creativity as if there were no funding constraints and later exercise their "duty" to criticize the resulting inefficiency as if they had nothing to do with creating it in the first place.

Business planning and financial management through the stimulation of an Office of Financial Impact could easily be started on a test basis covering just a few agencies. A single Cabinet department could provide such a test site. If successful, the program could be rolled out after several years.

This concept would promote priorities and reduce complexity in government, where agencies like the Forest Service labor in a swamp of conflicting laws.

Francis P. Pandolfi, who has spent 25 years as chief executive officer of a number of private firms, was the first chief operating officer of the U.S. Forest Service. After three years in government he returned to the private sector this year as a management consultant and private investor in Briarcliff Manor, New York.

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