The keys to better business

The issue isn't so much one of bowing to industry's wishes as it is of giving federal organizations more flexibility in providing businesslike services. One way to gain this freedom is to become a performance-based organization (PBO). The Education Department's Office of Student Financial Assistance (SFA) was the first agency to be designated a PBO by Congress in October 1998. SFA's $50 billion mission is to provide some 8 million students with grants, loans and work-study opportunities to help them get through school.

As reinventing government teams reviewed agency operations, they encountered a number of organizations performing businesslike functions for public purposes. "While not suitable for privatization, these functions have the potential to be managed much more effectively," John Koskinen, then-deputy director for management at the Office of Management and Budget, told the House Government Reform Subcommittee on Government Management, Information and Technology in July 1997.

The reinvention wizards came up with a list of agencies that fit this definition. The list included Commerce's National Technical Information Service and Patent and Trademark Office, the Saint Lawrence Seaway Development Corp. and Housing and Urban Development's Federal Housing Administration, among others.

As might be expected, PBOs have challenged the way Washington does business. One such problem involves accountability. While the career civil service is the foundation of effective government, its freedom to act is proscribed by people who are ultimately linked to the President. For PBOs, the goal is to divorce their directors from politics and tie their success to business outcomes. The heads of PBOs even have different job titles than in other organizations-they're called chief operating officers-to distance them from typical bureaucratic relationships with appointees. Can these executives then set policy outside the boundaries dictated by the administration? The politically correct answer is, "Not a problem. We'll leave policy formulation and control with the head of the department; the COO just runs the business." But having once agonized as Office of Federal Procurement Policy administrator over creating a "bright-line test" to distinguish inherently governmental functions from other ones, I suspect that distinction is equally difficult to devise for PBOs. The other key element in establishing PBOs is coming up with effective measurement schemes for demonstrating progress and success. SFA has used measures such as customer satisfaction surveys, unit cost analyses and employee satisfaction data.

The agency uses the American Customer Satisfaction Index, a national survey. It's the same index used by many businesses including FedEx, banks and other financial institutions. SFA's most recent score was 72.9 on a scale of 100, some 4.2 points above the government average and only a point below the private financial services sector. Moreover, SFA has established a complete baseline of its business processes to facilitate even more accurate comparisons in the future.

SFA's unit costs reflect the overall funds for agency operations divided by the number of financial aid recipients. The costs dropped significantly from 1998 to 1999 and then rose again in 2000 with a sizable investment in new technology. The dollar values per recipient were $19.52, $18.72 and $19.08 respectively, for the three years.

Employee satisfaction data showed the percentages of workers reporting they were satisfied or very satisfied with their jobs rose from 61 percent in 1998 to 68 percent in 2000.

While these numbers don't show a huge leap in performance, they demonstrate progress in a short time. Moreover, in trying to improve technology and shift to an e-commerce, Web-based business approach, SFA hasn't had the luxury of being exempt from most of the government's procurement rules. Rather, the agency has taken advantage of the flexibility inherent in the existing system. For example, SFA was the first to develop an effective information technology procurement approach that relied on paying contractors only when they achieve results. In addition, the agency applies the same performance measures it uses to its business partners. In return, SFA cuts back significantly on contractors' reporting burdens.

Perhaps the message here is that agencies don't have to be official performance-based organizations to push the envelope of success. Focusing on the customer, an innovative business approach and effective leadership go a long way in making good things happen. As Greg Woods, SFA's chief operating officer, says, "It's all about attitude."