Great Expectations

uring his first stint in the Clinton administration, Greg Woods assessed federal leaders' management prowess as a leader of Vice President Al Gore's National Performance Review. Now Woods is an agency head himself, and observers have begun assessing his management skills.

When Education Secretary Richard Riley hired Woods in December 1998 as chief operating officer of the Office of Student Financial Assistance (SFA), Riley gave Woods a tough assignment: Revamp an agency widely viewed as a technological basket case into a model of superior management and performance. To help Woods turn around SFA, Congress two months earlier transformed the office into the government's first performance-based organization (PBO). The PBO designation gave Woods some freedom from federal procurement and personnel restrictions in return for a performance contract demanding improvements in the agency.

And history handed Woods an agency in desperate need of change.

In 1965, the federal government entered the business of providing financial aid to college students. In the 35 years since, Uncle Sam has become the largest financial aid provider in the country, accounting for two-thirds of higher education loans and grants in the 1998-99 academic year. In 1999, SFA awarded more than $50 billion in aid to 8.2 million students through a variety of programs, including direct loans, subsidized loans through private lenders, grants, and work-study aid.

As Congress added aid programs over the years, SFA created new layers of information technology to handle each one, eventually creating a mess of systems and contractors administering them.

"The management of student aid programs by the federal government is extraordinarily complex and confusing," a broad coalition of colleges and universities told Congress in a March 1997 letter recommending administrative reforms. "The problem is that no federal agency has the state-of-the-art private-sector practices that would enable them to manage the effective delivery of a $50 billion financial services program."

Administrative problems have haunted SFA for years. In 1990, the default rate on student loans was 22.4 percent. That meant taxpayers shouldered the responsibility of paying off the college debt of nearly one in four borrowers. In 1996, system glitches, government shutdowns and winter storms combined to create a backlog of 900,000 student aid applications in the heat of springtime college admissions. In 1997, a computer system broke down because it couldn't handle loan consolidation applications from thousands of borrowers, leaving about 84,000 people in limbo for months while SFA caught up with the ensuing backlog. Throughout the 1990s, political leaders at the Education Department promised systems improvements but never delivered.

"Since the start, this has been a thinly staffed, underfunded department with suspect administrative capabilities," says Terry Hartle, senior vice president at the American Council on Education. Shortly after President Jimmy Carter created the Education Department in 1979, a new President opposed to the department, Ronald Reagan, took over. "When you systematically strip-mine an agency of its capacity to monitor the programs it's responsible for, as we did in the 1980s, you lose a generation or two of capability," says Hartle. "Then you're always trying to catch up."

Frustrated by failed attempts to get the Education Department to reduce administrative headaches, in 1998, colleges and universities convinced Congress to transform SFA into a PBO. In addition to personnel and procurement flexibilities, the legislation creating the PBO called on the Education Department to hire a chief operating officer with "demonstrated ability in management and experience in information technology or financial services." College financial aid administrators hoped the changes would allow SFA to bring in private-sector executives and adopt business practices common in the private financial services industry. That's where Woods comes in.

Simple Scorecard

Observers generally agree that Woods is the right man for the job of modernizing SFA.

Before coming to government, he headed up a start-up software company for eight years and served as an executive at Science Applications International Corp.

SFA is governed by complex legislation, operating within the confines of myriad rules and regulations and with complicated contractor relationships and computer systems. Woods walked into the agency and asked managers and employees to simplify its operations.

He started with a new mission statement for SFA: "We help put America through school."

"That touched a chord with employees here," Woods says. "That's why they signed up."

Woods compares SFA's mission statement with that of The Walt Disney Company. Disney does not view itself as a theme park operator or a movie studio, but as being in the business of happiness, he says.

"If the folks who work at SFA think their job is to make loans and grants, they take almost a mechanical approach to it, of moving paper from point A to point B," Woods says. "But if they're in touch with what it is they're really doing, they see they're helping people reach their dreams. Then they do a different job."

After establishing a simple mission statement, Woods began work on a strategic plan. What emerged were three simple goals: increase customer satisfaction, improve employee satisfaction and reduce the unit cost of processing student aid. The agency's goals are easy to understand, particularly in comparison to the voluminous performance plans other agencies have developed under the 1993 Government Performance and Results Act.

"Most of those plans are of minimal value because they're so complicated and so involved that only a handful of people have the slightest idea of what's in there," Woods says. "To make a substantial change in direction, you need a handful of simple measures that everyone in the organization can relate to."

SFA is measuring its customers' satisfaction using the American Customer Satisfaction Index (ACSI), a metric administered by the University of Michigan Business School, Arthur Andersen and the American Society for Quality. The index provides organizations with a numerical score from 0 to 100 based on customer expectations, perceived quality and perceived value. Since 1994, the ACSI has become a gauge of customer satisfaction for more than 200 private companies in 34 industries, ranging from the Adolph Coors Co. to Zenith Electronics Corp.

The private sector average on the ACSI is 72; the government agency average is 68.9. In its first year participating in the ACSI, SFA received a score of 63 based on surveys of students who applied for financial aid. Students primarily complained about the timeliness and fairness of the application process.

Woods has set a goal of boosting SFA's rating on the index to 74, the average for the private sector financial services industry, by 2002. Next year, Woods is going to measure 10 customer segments using the ACSI instead of just one.

In addition to having an outside party survey its customers, SFA polls students, colleges and private lending institutions for ideas on improving service. In June 1999, SFA released a report from a customer service task force that Woods convened. The panel compiled more than 8,000 comments and suggestions from customers and developed 200 recommendations for making SFA better.

The task force also sought ideas from SFA's own employees. In a 1998 survey conducted by the National Performance Review, only 60 percent of SFA employees said they were satisfied with their jobs. Likewise, only 60 percent said they felt empowered, one in four could not identify any of the organization's goals related to satisfying customers, and half said they needed more training. Of the 49 agencies participating in NPR's survey, SFA placed 33rd in terms of how it was viewed by its employees.

"Morale is pretty low," says Marvin C. Farmer, president of American Federation of Government Employees Local 252, which represents SFA employees in Washington. "There's a lot of anxiety and uncertainty here."

Within three years, Woods aims to raise SFA employees' satisfaction level to within the top five of all government agencies.

The third of Woods' primary measures, unit cost, didn't even exist at SFA before 1999. Through some laborious manual number crunching, SFA determined that the administrative cost per aid recipient was $18.77 in fiscal 1998. That number is likely to rise to $22.30 by 2004, in part because more and more borrowers in the direct loan program, which was created in 1993, will begin repayment. The repayment phase is about twice as expensive to administer as the loan phase.

Woods' goal is to keep the unit cost at its current level, requiring SFA to cut costs to avoid the 19 percent rise in unit cost predicted by the agency's accountants. One way Woods plans to do that is by encouraging students to apply for aid online, since electronic filing can be performed at a fraction of the cost of paper filing. In 1999, 3 million of 9 million applicants filed online.

Hard-Nosed Business

SFA's parent department is not known as a financial management maven. In fact, the Education Department's financial house has been in such disarray that it took auditors until November 1999 to issue an opinion on the department's finances for fiscal 1998-which ended 13 months earlier.

SFA financial managers say there's been tension between themselves and the department in the past. But the new PBO designation gives SFA its own chief financial officer and more autonomy from the department. SFA prepared its own financial statement for the first time in fiscal 1999 and is beginning to modernize its finance shop.

SFA's financial management systems do not provide managers with timely and accurate information, are not interoperable and have difficult-to-use reporting functions. An agencywide computer systems modernization plan includes financial systems upgrades. An automated activity-based costing system is part of the plan. The system will give managers up-to-date information on the costs of all of the agency's programs, providing data that can help managers identify cost-cutting opportunities.

One of the most obvious opportunities for cost savings is reducing student loan defaults. Because the federal aid program is targeted at students who might not otherwise be eligible for loans, SFA has an inherently risky pool of borrowers. In 1991, defaults cost the government $3.6 billion. But thanks to management reforms and a strong economy, the annual default level fell to $1 billion by the end of the decade.

"One of the great unsung government success stories has been the elimination of student loan defaults," Hartle says. "It's about the hard-nosed business of making government work so that dollars are well-spent."

Part of SFA's solution has been performance-based debt collection contracts. The 17 firms SFA contracts with to collect delinquent payments must compete for the government's business. The set of measures upon which SFA rates their performance includes not only dollars collected, but measurements of how debtors say they were treated. Firms that score highly in both areas get more business than those with lower scores. Remarkably, the firms with the most dollars collected also tend to be rated as kindest by debtors, Woods says.

SFA is trying to better tie other contractors' business to performance measures. In 1999, SFA hired Andersen Consulting to oversee its computer systems modernization under a performance-based contracting arrangement. SFA will pay Andersen some design costs up-front, but after that, all of Andersen's fees will be paid out of operational savings the modernization effort generates for SFA.

Invisible Integration

Andersen has its work cut out for it. By SFA's own account in its modernization blueprint, the agency's operations are "hampered by out-of-date technology and processes that waste time and money." Eight separate contractors manage a host of computer systems developed over the past 30 years. Information has to be duplicated on various systems. Redundancies abound.

A House Education and Workforce Committee staffer says SFA needs to eliminate some systems, reduce the number of contractors it relies on, and integrate its computer systems. Both the General Accounting Office and the Education Department's inspector general have called for better systems integration. Colleges and universities, meanwhile, are worried about errors. In 1999, millions of paper financial aid applications had to be recalled because they were printed with mistakes. In addition, all financial aid applications submitted online one day were lost. Not only could the data not be recovered, but SFA also could not identify the students whose data was lost.

"Post-secondary institutions often make the financial aid system work in spite of the Education Department and what's going on with its computer systems," says Brian Fitzgerald, staff director of the Advisory Committee on Student Financial Assistance, an independent oversight board. The committee, founded in 1986, reports directly to Congress.

To reduce errors and respond to outside criticism, SFA spent 1999 developing a three-year plan for fully modernizing and integrating its computer systems. SFA's modernization blueprint describes the steps the agency is taking to integrate.

"If I put five techno-weenies in a room, they would still be in there trying to figure out what integration means," Woods cautions.

For SFA, integration involves several initiatives, some of which are visible to outsiders and some that are not.

The invisible initiatives include consolidating all of the agency's computer systems operations in one place. Already, 10 of SFA's 11 primary systems have been moved to a data center in Meriden, Conn., without a glitch. That's an accomplishment the agency should be proud of, Woods says. The other invisible portion of integration is the elimination of some systems. Then the agency has to make sure remaining systems can communicate with each other easily.

The visible portion of integration is the creation of one-stop online points of access to SFA programs. SFA wants to create one for students, one for colleges and universities and one for financial institutions.

"When they see the portals, they'll say, 'That's integration,' " Woods says.

Observers credit Woods for aggressively attacking SFA's computer problems. The Advisory Committee on Student Financial Assistance, for example, gives Woods high marks.

"The committee commends Mr. Woods for the enthusiasm and energy he has shown, the progress made to date, and his willingness to communicate with the higher education community," wrote its chairperson, Juliet V. Garcia, in a Nov. 30 letter to Congress. However, Garcia raised concerns about the blueprint's integration methods.

Woods defends the blueprint, saying that SFA is following a "buy a little, test a little, fix a little" approach to modernization, rather than trying to scrap the current systems, flip the switch on one new giant system and hope it works. He says the blueprint strategy will help SFA cut its operating costs by 20 percent by 2004. "This is going to be an electronic commerce agency," Woods says.

The Human Factor

Becoming an electronic commerce agency means SFA's employees will have to be provided with new, better equipment and trained in new technologies. AFGE's Farmer says the agency needs to develop a mindset of continuous training, lest employees become "dinosaurs."

To that end, the agency has plans to create an "SFA University," modeled after similar internal training centers at the Patent and Trademark Office and at private firms such as Disney and Motorola. SFA University will develop specialized training for employees, schools and financial institutions.

Before employees can be given new skills, SFA must first identify what skills are necessary for future operations. As a performance-based organization, the agency has the opportunity to experiment with job classifications, staffing levels and human resources policies. Agency managers and the union are working together to come up with new job descriptions that reflect an electronic future.

At the executive level, Woods spent much of 1999 assembling a team of skilled, experienced managers from within government, from the higher education community and from the private sector. "SFA has never had the quality of people that Greg Woods brought in," the advisory committee's Fitzgerald says. "These are folks who have good solid experience of getting comparable things done in the private sector."

To head up the agency's schools division, Woods hired G. Kay Jacks, formerly executive director of enrollment services at Colorado State University. The financial institutions section will be led by J. Barry Morrow, a former executive at Sallie Mae Servicing Corp. New Chief Information Officer Stephen C. Hawald was CIO at Dental Benefits Providers Inc., of UnitedHealthcare Corp. And Jeanne Van Vlandren, former executive director of the higher education planning commission for the state of Vermont, will head up the students division.

As a PBO, SFA can offer executives salaries and bonuses of up to 125 percent of the maximum Senior Executive Service pay rate in return for performance contracts with measurable goals. Similarly, Woods can qualify for as much as a 50 percent bonus for management excellence.

In 1999, Woods met the goals set out in his performance contract with Education Secretary Riley. Woods developed and implemented several customer service initiatives, revamped the agency's buying practices using performance-based contracting, and developed a modernization blueprint, a five-year performance plan and a human resources and organizational plan-not to mention beat the year 2000 computer bug.

"Greg Woods gets an A," beams Hartle. But as for the agency's efforts to modernize, "the best you can do is give them an incomplete," he says. Ivan Frishberg, director of the Public Interest Research Group's higher education project, is optimistic that SFA will dramatically improve in the coming years. "The next generation of students will live in a different reality than this generation of students," Frishberg says.

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