Investing in People

nderstanding change has been of interest to all types of analysts, from historians postulating the causes of revolution, to management gurus seeking formulas for business or government reinvention. Although they see communications, technology and organizational structure as important factors in the process of change, one overarching catalyst dwarfs the rest: people.

Acquisition reforms of the past decade are a result of voices articulating the need for change. These came from sources as varied as the procurement policy office and the Pentagon, as well as key congressional members and staff. But they all drew on a strong sense of dissatisfaction with the way agencies worked. Policy-makers used these complaints to create a results-oriented reform agenda. Today's challenge is to ensure that the workforce possesses the knowledge, skills and enthusiasm to make this new performance-based agenda work.

The bottom-line focus is by no means confined to the field of acquisition. All of government's processes and procedures are affected, from the delivery of health-care benefits to Social Security services. Every one of these improvements relies on competent federal staff and contractor support. Comptroller General David Walker, more than anyone, has sought to impress this point upon Congress and the executive branch.

The General Accounting Office may seem a somewhat unusual pulpit for transmitting this reform message. But given GAO's path over the decades, from auditor to critic to best-practices guide, the agency's new oversight agenda is right on track. Moreover, as an arm of Congress with significant influence on executive branch policies and operations, it carries a weight and a reach that is unmatched.

What is the comptroller general's "human capital" message, and how does it affect the federal acquisition community? According to Walker: "Human capital, simply stated, is people. A new way of looking at people." This new vision entails seeing people not as resources to be consumed and then replaced by others, but rather as assets worthy of investment. The return on this investment goes to the individual, who feels valued, and to the organization, which reaps increased competence and greater productivity from its workforce.

Studies have shown that investment in education pays off for individuals, in significantly higher lifetime earnings for those with more years of education and higher degrees. Those earnings reflect a return on investment as well as a measure of that individual's economic value to society.

My research of human capital returns for individuals in the military has shown that officers with master's degrees have a better likelihood of being promoted to lieutenant colonel than officers without such degrees. Not only do officers who are sent to school by their services have better promotion prospects, but results are even stronger for those getting degrees on their own. My conclusion: Investment in education makes as much sense for a military officer as it does for those in other sectors of society.

Agencies must treat human capital as fundamental to the strategic management and success of their operation. They must identify the knowledge, skills, abilities and behaviors needed to accomplish their mission and then hire, develop and retain employees according to these competencies.

A January 2000 GAO report, "Human Capital: Key Principles From Nine Private Sector Organizations," examines the human capital practices of such firms as FedEx, IBM and Marriott International, among others. From these activities, the report drew up 10 principles of sound human capital management. The first one is, "treat human capital management as being fundamental to strategic business management." Others include communicating a shared vision that all employees can work toward as a team, holding individuals and teams accountable, and rewarding them for achievement of missions and goals.

Agency acquisition officials use virtually all of these concepts and approaches. Sharing missions among contracting and program personnel, using integrated project teams to focus on outcomes, adopting balanced-scorecard tech-
niques to identify gaps and successes, and finding better metrics to demonstrate progress all fit the comptroller general's paradigm. However, if the bottom line is people and competencies, as he suggests, then hiring the right kinds of people and giving staff the education and training needed to accomplish tomorrow's missions has become the sine qua non of effective performance.

The traditional agency approach to budget constraints-freezing hiring and eliminating training-runs counter to this vision. And if the GAO is right in predicting that by 2004 40 percent of all U.S. capital investment will be in information technology, failure to hire and train competent employees will lead to ineffective acquisition staffs that purchase inadequate equipment.

For an agency, building employee competence through training and other means is essential. Equally important, however, are the individual rewards that accrue to those doing the work. As Walker notes, "If people were compensated based on their skills and performance, Congress would understand and taxpayers would support it as well." In other words, everybody wins.