[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
 MAXIMIZING ORGANIZATION AND LEADERSHIP IN A FEDERAL AGENCY TO FULFILL 
      ITS STATUTORY MISSION: RESTRUCTURING OF THE SMALL BUSINESS 
                             ADMINISTRATION
=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT,
                        AND GOVERNMENT PROGRAMS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, JULY 16, 2002
                               __________

                           Serial No. 107-65
                               __________

         Printed for the use of the Committee on Small Business




                       U. S. GOVERNMENT PRINTING OFFICE
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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE. CHABOT, Ohio                  DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MICHAEL PENCE, Indiana               STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
GELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director
                                 ------                                

    SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT PROGRAMS

                  JIM DeMINT, South Carolina, Chairman
FRANK A. LoBIONDO, New Jersey        JUANITA MILLENDER-McDONALD, 
MICHAEL FERGUSON, New Jersey             California
FELIX J. GRUCCI, Jr, New York        DANNY K. DAVIS, Illinois
DARRELL E. ISSA, California          STEPHANIE TUBBS JONES, Ohio
EDWARD L. SCHROCK, Virginia          CHARLES A. GONZALEZ, Texas
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
                                     DONNA M. CHRISTENSEN, Virgin 
                                         Islands
                  Nelson Crowther, Professional Staff







                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 16, 2002....................................     1

                               Witnesses

D'Agostino, Davi M., Director, Financial Markets and Community 
  Investment, U.S. General Accounting Office.....................     4
Blanchard, Lloyd A., Chief Operating Officer, U.S. Small Business 
  Administration.................................................     7
Jasper, Herbert, Fellow, National Academy of Public 
  Administration.................................................    10
Anderson, Frank, President, Defense Acquisition University.......    12

                                Appendix

Opening statements:
    DeMint, Hon. Jim.............................................    25
    Jones, Hon. Stephanie........................................    28
Prepared statements:
    D'Agostino, Davi M...........................................    30
    Blanchard, Lloyd A...........................................    44
    Jasper, Herbert..............................................    68
    Anderson, Frank..............................................    75










 MAXIMIZING ORGANIZATION AND LEADERSHIP IN A FEDERAL AGENCY TO 
   FULFILL ITS STATUTORY MISSION: RESTRUCTURING OF THE SMALL 
                    BUSINESS ADMINISTRATION

                              ----------                              


                         TUESDAY, JULY 16, 2002

              House of Representatives,    
               Committee on Small Business,
             Subcommittee on Workforce, Empowerment
                                   and Government Programs,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:05 p.m. in Room 
2360, Rayburn House Office Building, Hon. Jim DeMint (chairman 
of the Committee) presiding.
    Chairman DeMint. Let us get started. First, I want to thank 
everyone for coming today, particularly our witnesses. We are 
looking forward very much to hearing from you.
    This is an important hearing. It is important to get what 
we have to say on record. It is important to follow up. This 
Committee is all about strengthening the small business fabric 
of this nation. Small businesses create opportunities for 
millions of entrepreneurs. It is the economic engine of our 
whole economy. Small businesses have been the way that 
minorities and women have broken into ownership of businesses 
themselves.
    And the Small Business Administration was created to make 
sure that that happens, and I want to make sure, as the little 
Committee that has oversight over SBA, that we do everything we 
can to make sure that the agency addresses the needs of start-
up companies and of helping small companies succeed.
    And to do that, we have to be focused, as a Committee on 
the needs, the obstacles, everything that could prevent the 
success of these businesses. We need to make sure that the 
Small Business Administration is a part of that.
    And over the last several months we have had GAO take a 
close look at SBA, and they have submitted an excellent report 
for us to analyze what the agency is doing. SBA has responded 
to that with a restructuring plan. I think to reshape its 
mission, its organization structure to make that happen, and we 
are looking forward today to seeing how that falls together.
    My hope is that the outcome of this hearing will be that 
both sides of the aisle on this side of the desk can be 
supportive of this restructuring plan, and that we can get the 
support we need to make sure that it happens.
    Let me just quickly introduce our witnesses and then I 
would like Ms. Millender-McDonald to make a few opening 
statements as well.
    We have Ms. Davi D'Agostino, did I do that right, Davi? She 
has again been instrumental in making sure that we had a 
complete analysis of SBA. She has been gracious enough to come 
by my office to brief me and my staff on what she thought of 
the agency and the restructuring plan, so I really very much 
appreciate your cooperation.
    And Dr. Lloyd Blanchard, who is the Chief Operating Officer 
of SBA, has also been very cooperative and responsive to our 
questions and putting this whole hearing today, so I very much 
appreciate you being here to present your restructuring plan.
    We have Mr. Herbert Jasper here to comment on management 
and leadership, and how that relates to what we will be seeing, 
and you are with the National Academy of Public Administration.
    We also have General Anderson, the president of Defense 
Acquisition University, to make his comments on the needs of 
SBA and the restructuring plan and whatever observations you 
have on leadership and how that applies to what we are trying 
to do today.
    So let me yield a moment to Ms. Millender-McDonald, our 
ranking member.
    Ms. Millender-McDonald. Thank you so much, Mr. Chairman, 
and I would like to also echo the thanks to all of our 
panelists for being here today, and I do know that we will 
gleam a lot of important information from your presentation.
    Mr. Chairman, as the Ranking Member of the Subcommittee on 
Workforce, Empowerment and Government Programs, I am pleased to 
bring today's hearing to the forefront as we explore proposed 
plans by the Small Business Administration to undergo 
management restructuring.
    Those of us who serve on this Committee often communicate a 
widely-held impression that small businesses are the driving 
force of our economy. Based on this reality, the various 
program administered by the Small Business Administration 
constitute the engine for that driving force. And as with any 
machine from time to time, you need to perform a tune up. 
Today, we will be embarking on an agency tune up.
    It is important to provide legislative input to the SBA 
because, as we start the twenty-first century, the agency and 
our nation's small businesses are at a critical juncture. We 
are witnesses a constantly evolving technological revolution. 
The revolution has created dynamic changes during the past 
decade, and has delivered such tools as the internet, hand-held 
computers and wireless phones, with technology that was 
previously only available to expensive equipment.
    As profound changes have occurred in the marketplace, so 
too have major changes been realized in the legislative arena, 
especially in the arena of financial systems. The elimination 
of legislation that builds firewalls between banking, insurance 
and investments has drastically altered the ability of 
entrepreneurs to access capital. Given changes in the laws to 
reflect time realities in the marketplace, it makes sense that 
SBA's policies must also evolve.
    Events over the past decade have created and enhanced 
several SBA programs, including some that relate to new 
markets' initiatives, micro loan programs, and the creation of 
women's business centers. Therefore, a logical extension of 
these recent revelations should be the re-tool of SBA's 
management processes.
    It is therefore imperative that changes to SBA practices be 
undertaken, particularly in light of a GAO study that the 
Chairman just alluded to that sighed a cumbersome 
organizational structure and a failure to adequately 
communicate with the public and other organizations.
    In response to that report the administration outlined a 
plan to revise and re-tool SBA in its F.Y. 2003 budget, with 
the goal of providing better service to our nation's 
entrepreneurs. However, I want to emphasize that as we consider 
the cost to implement--restructuring for the agency, we must 
not lose sight of the fact that the dollars being allocated for 
administrative functions could be applied to support 
problematic initiatives that would yield substantial benefits 
for small business.
    As we engage in this Committee's role of ensuring that the 
restructuring is achieved systematically and comprehensively, I 
believe it is important to allow the agency to evolve and 
fulfill its mission without sacrificing its institutional 
programs. The programs have become and are as fundamental 
aspects that support America's business.
    A recent GAO report clearly stated that SBA has lost its 
focus. Therefore, it is critical that anyrestructuring plans 
first and foremost create a clear definition of the agency's mission. 
To proceed without an understanding of what needs to be accomplished 
will be an unwise and inefficient use of resources.
    Once the mission statement is developed, the agency must 
reconcile the skills base of its SBA workforce to accommodate 
its mission. This is an issue that is particularly important to 
me because I have concerns about the readiness of federal 
agencies to respond to the inevitable loss of skilled employees 
who are nearing the age of retirement.
    As a matter of fact, I introduced H.R. 2403, the Employment 
Readiness Act, that requires federal agencies to conduct an 
assessment of their future needs as skilled managers prepare to 
retire over the course of the next 15 years.
    It is against this backdrop that we must look closely at 
the efficacy of proposed plans by the SBA to restructure. It is 
vital that an assessment is conducted of the skill level of the 
current workforce in order to assist the SBA to develop agency 
policy that will result in smooth and seamless organizational 
transition.
    I want to emphasize that restructuring can only occur to 
the degree that there is adequate funding to support stated 
administrative and problematic goals and objectives. The fact 
that the SBA services 25 million small businesses that include 
minorities, women, and disabled veterans highlights the need 
for making sure that management programs can indeed respond to 
the growing needs of a diverse constituency.
    One program that truly needs organization and financial 
support is women business centers. I offered an amendment in 
Committee to increase authorization--appropriations for these 
centers. Unfortunately, the bill reported out of Committee. 
H.R. 3230 has not been considered yet by the House. I hope we 
can do something about that.
    In closing, Mr. Chairman, we are clearly at the beginning 
of a very complicated process that involves the restructuring 
of SBA, and I look forward to working with you and other 
members of this Committee to make sure that we are vigilant in 
our duty as Committee members to support the SBA and the 
constituents that it serves.
    Thank you, Mr. Chairman.
    Chairman DeMint. Thank you, Ms. Millender-McDonald.
    We are going to go a little out of the ordinary today on 
our testimony. I have asked Ms. D'Agostino to take the time she 
needs to present the analysis of SBA. I have also asked Dr. 
Lloyd Blanchard to take more time than our normal five minutes 
to present the restructuring plan. But then we will try to hold 
Mr. Jasper and General Anderson to about five minutes, if that 
is possible.
    So we will begin--excuse me--to dim the lights. I have been 
told that this is being broadcast over the internet, at least 
the audio part, so make sure your microphones are as close as 
possible in making your presentation.
    Davi.

 STATEMENT OF DAVI M. D'AGOSTINO, DIRECTOR, FINANCIAL MARKETS 
  AND COMMUNITY INVESTMENT, UNITED STATES GENERAL ACCOUNTING 
                             OFFICE

    Ms. D'Agostino. Mr. Chairman and members of the 
Subcommittee.
    Before I begin I would like to recognize the GAO team 
members who performed the work on the testimony.
    [Pause.]
    Ms. D'Agostino. I am sorry. I would like to recognize Susan 
Campbell, Katie Harris, Kay Kuhlman and Max Kalhammer who have 
worked on this testimony, and on our SBA work as a whole.
    I am pleased to be here today to discuss GAO's previous 
work on the Small Business Administration's organizational 
alignment and then how SBA's five-year transformation plan 
prompted by the president's management agenda proposes to 
respond to the management challenges GAO, the SBA's inspector 
general, and the Office of Management and Budget have 
identified.
    By organizational alignment, we mean the integration of an 
agency's organizational components, activities, core processes 
and resources to support efficient and effective achievement of 
its mission and outcomes.
    The SBA's mission is to maintain and strengthen the 
nation's economy by aiding, counseling, assisting, and 
protecting the interests of the nation's small businesses and 
by helping businesses and families recover from natural 
disasters.
    Previous GAO reports and testimony have highlighted 
organizational alignment and human capital challenges SBA faces 
in achieving its mission and in transforming from an agency 
that makes and services loans to one that primarily reaches out 
to and helps its clients--small businesses--and oversees its 
private sector partners.
    We reported that SBA's current organizational alignment is 
characterized by challenges in three key areas:
    First, SBA's structure has complicated, overlapping 
organizational relationships and ineffective lines of 
communication; second, there is confusion over the mission of 
the district offices; and third, SBA's field structure is not 
consistently matched with its mission requirements.
    These and other elements combine to impede the efforts of 
SBA's staff to effectively deliver services to small business.
    Let me focus for a moment on the first challenge, the 
complex overlapping organizational relationships and lines of 
communication, particularly among the field and headquarters 
units.
    This slide shows the complexity of the reporting and 
accountability lines in SBA, an agency with 70 district 
offices, 10 regional offices, six area offices, nine loan 
processing and servicing centers, and over 1,000 small business 
development centers and other partners.
    For example, district staff working on SBA loan programs 
report to their district management, while loan processing and 
servicing center staff report directly to the Office of Capital 
Access in headquarters. Yet district office program staff 
sometimes need to work with the centers to get information or 
expedite loans for their lenders in their districts.
    Districts sometimes must route their request to the centers 
through the Office of Capital Access, and they have difficulty 
expediting loans because they lack the authority to direct the 
centers to take action.
    Lenders also pointed out to us that lines of authority 
between headquarters and the field can be very confusing, and 
they highlighted that practices can vary widely from district 
to district.
    The second key area we highlighted was confusion within SBA 
about the primary customer of the district offices. While 
headquarters saw the new role for the district offices as 
working more with small businesses, district office managers 
saw their primary clients as lenders. These managers also told 
us that their performance ratings were weighted very heavily on 
aspects of loan activity. In addition, only the 8(a) Business 
Development Program called for district offices to work 
directly with small businesses, which then further reinforced 
their perception that lenders rather than small business were 
their primary clients.
    Finally, we reported that SBA's field structure is not 
consistently aligned with its mission requirements. For 
example, creation of loan processing and servicing centers 
moved some but not all loan-related workload out of the 
district offices. Similarly, regional offices were downsized 
but not eliminated, and a small headquarters office of field 
operations was created.
    This slide--also the graphic on page 8 of my statement--
shows all the locations of SBA's offices and those of its 
partners around the country.
    The SBA officials, during our work, pointed out that some 
offices and centers were not located to best accomplish the 
agency's mission. These officials also stressed the role of 
congressional direction in the current structure.
    We found 78 offices, programs or program changes created by 
law since 1961, with most being passed in the 1980s and 1990s, 
and 11 staff positions with specific reporting relationships 
required by law.
    In response to these and other challenges that have been 
raised, SBA drafted its five-year workforce transformation 
plan, and my comments are based on the version that we obtained 
from the SBA Chief Operating Officer, Dr. Blanchard.
    For example, in response to the first challenge we raised, 
SBA plans to eliminate the current complex relationships 
between field and headquarters organizations by consolidating 
functions and establishing specific lines of authority.
    Specifically, the plan is to further centralize loan 
processing, servicing, oversight, and liquidation functions, 
eliminate area offices for certain functions, and place them 
under either regional or district office lead, and move 
oversight for entrepreneurial development into the district 
offices.
    To deal with the second challenge we raised, the confusion 
over the district offices' primary client, SBA's plan proposes 
making fundamental changes at the district level that have been 
discussed for years, but never actually carried out. The plan 
is to test specific strategies for focusing district offices' 
goals and efforts on outreach and marketing of SBA services to 
small businesses and on lender oversight.
    The SBA's transformation plan also discusses consolidation 
and elimination or reduction of redundant offices to deal with 
the third challenge I mentioned, a field structure that is not 
consistently matched with mission requirements.
    For example, the loan-related functions I discussed earlier 
are to be consolidated into fewer centers but with expanded 
roles for handling loan-related functions currently handled by 
district offices.
    I would now like to emphasize that organizational alignment 
is crucial if an agency is to maximize its performance and 
ensure accountability. As SBA moves forward to execute its 
transformation plan, success will depend to a great extent on 
the following:
    One, how well it links changes, goals, resources, 
strategies and performance measures to the fundamental result 
SBA seeks to achieve through strategic planning;
    Two, whether it employs effective strategic human capital 
management, including strategic human capital planning, 
acquiring, developing and retaining talent and results-oriented 
organizational culture;
    Three, how well it sustains senior leadership and 
accountability with agency goals reflected in performance 
ratings of senior executives, and in the performance appraisal 
system for lower level employees, and sustained senior 
management attention to implementing the draft plan and support 
from key external and internal state holders;
    Four, sound alignment of activities, core processes and 
resources;
    And five, how effectively internal and external 
collaboration is employed.
    Mr. Chairman, that concludes my summary remarks.
    [Ms. D'Agostino's statement may be found in the appendix.]
    Chairman DeMint. Thank you very much. That was excellent. 
And now let us move to the SBA itself to see how we are 
responding to this.
    Dr. Blanchard.

STATEMENT OF LLOYD A. BLANCHARD, CHIEF OPERATING OFFICER, U.S. 
                 SMALL BUSINESS ADMINISTRATION

    Mr. Blanchard. Thank you, Mr. Chairman. Thank you very much 
for allowing us the opportunity to expound on our plan here 
today, and good afternoon, and thank you, Ranking Member, for 
your comments and for allowing us to present to you our plan.
    I am pleased to share with you all the Small Business 
Administration's plan to transform the agency and its workforce 
to meet the modern demands of small businesses. As you know, 
small businesses are the foundation of our nation's economy. 
SBA assistance has helped many of today's successful small 
businesses.
    Today, almost a quarter of American households are either 
starting a business, own a business or are investing in someone 
else's business. President Bush has shown a strong commitment 
to small businesses. He recently stated, ``One of my jobs is to 
create an environment in which the entrepreneurial spirit 
flourishes, in which small business owners are able to keep 
making a living, and keep people employed.''
    The SBA's transformation plan seeks to shape the agency so 
that it will be in a position to create such an environment.
    Small businesses must be able to change with the times, 
adjusting to the changing demands of their customers as well as 
incorporating new technologies to remain competitive. SBA faces 
a similar challenge.
    In the President's F.Y. 2003 budget request, SBA has 
requested $15 million to undertake this transformation effort 
that will bring the agency's organization in line with the way 
it will serve small businesses in the future. This testimony 
will summarize these plans.
    The SBA is a small agency with about 2,100 employees in the 
field, 700 in headquarters, and approximately 1,300 full and 
part-time employees in the disaster assistance program. While 
SBA is one of the five major credit agencies, its regular 
appropriation for F.Y. 2002 was just $768 million. With this 
amount and modest fees, SBA has the ability to leverage $25 
billion in capital and credit.
    The President has called for federal agencies to not only 
become more citizen centered and results oriented, but also 
market-based. SBA has been quite successful in leveraging its 
scarce resources, largely because of a business model that is 
market-based. Instead of providing its non-disaster services to 
small businesses directly, SBA operates through a public/
private partnership model where the agency relies on resource 
partners to deliver its products and services.
    For example, instead of making direct loans, SBA guarantees 
loans made by lending institutions, and instead of delivering 
technical assistance programs directly, SBA funds its 
entrepreneurial development partners like the Service Corps of 
Retired Executives and the Small Business Development Centers 
to deliver such services.
    This market-based model has enhanced SBA's ability to serve 
small businesses. In 1990, SBA provided just $3.7 billion in 
lending through its business lending programs. In 2001, it 
provided$14 billion. Over this decade the number of clients 
counseled and trained through SBA's entrepreneurial development 
programs increased from about 800,000 to 1.3 million, while at the same 
time overall agency personnel dropped by 30 percent.
    Despite this success over the past decade, SBA continues to 
face the challenge of serving more small businesses while still 
being customer centered and results oriented. Administrator 
Hector Barreto has charged the agency to continue to accomplish 
the following:
    Find new ways to reach out to America's 25 million small 
businesses; operate using a model of client and partner 
relationship management, and measure SBA's success by its 
customers' success.
    With the remainder of my comments, I will explain how SBA's 
transformation plan will meet these challenges and serve more 
small businesses. I will describe why the agency needs to 
transform itself, addressing the problems raised by the General 
Accounting Office and SBA's Inspector General. I will show how 
SBA intends to transform itself, and in doing so address the 
concerns that have been raised. I will also point to the 
management principles that SBA will use as guidance.
    The SBA's plan to transform its organization and workforce 
is based largely on three sources: the President's Management 
Agenda, the Administrator's vision for the agency, and the need 
for fundamental change as identified by GAO and SBA's IG.
    The GAO has just referred to the challenges SBA's current 
organizational structure presents, and SBA agrees that they do 
pose a problem. SBA's transformation plan addresses ineffective 
lines of communication by increasing the responsibility and 
accountability of the 10 regional administrators and relying 
more on the regional offices to enhance communication.
    Regarding the confusion and inconsistency related to 
mission and the structure of district offices, SBA will change 
the role of the district offices from being process-oriented to 
providing greater marketing and outreach to small businesses.
    We have, Mr. Chairman, and will continue to make it clear 
to all within the Agency and to our partners that serving small 
businesses is our mission, and all small business owners are 
our customers.
    In response to the complicated and overlapping 
organizational relationships, SBA's transformation plan will 
remove most of the processing and servicing functions, often 
called the backroom functions, from the districts and 
consolidate these functions within the centers. This will also 
be addressed by the structural reorganization that will give 
the regional administrators more responsibility and hold them 
more accountable for all field activities.
    With this plan, SBA has acknowledged the difficult 
challenges it faces in improving its service delivery. The fact 
that SBA is biting the bullet and committing to correcting 
these longstanding problems is due to the leadership of 
Administrator Barreto. Since the necessary changes are 
substantial in scope, they will be phased in over the next five 
years.
    The following outlines the main components of SBA's 
transformation plan:
    The regional offices, under the direction of the regional 
administrators, will have a larger role in facilitating 
communication from headquarters to the field and will have 
greater responsibility for the delivery of all SBA services in 
the field.
    The SBA will also place one senior career staffer with 
solid knowledge of all program areas in each regional office to 
support that regional administrator.
    The SBA will consolidate the government contracting offices 
and the surety bond field functions within the regional 
offices.
    The SBA will remove most loan processing, servicing, 
guaranteed purchases and liquidation of business loans, as well 
as servicing and liquidation of disaster loans, from the 
district offices, and consolidate them into the centers. 
Districts will retain, however, some processing and servicing 
responsibilities for the most difficult cases.
    The SBA will consolidate the certification, eligibility, 
and review functions for the HUBzone, SDB, and 8(a) programs. 
SBA will also centralize all lender oversight functions and 
purchase reviews.
    The Agency will streamline headquarters operations by 
eliminating management layers, expanding their span of control, 
and implementing a rent savings initiative to decrease the 
burden of overhead costs.
    In support of these efforts, SBA will use a more flexible 
service delivery model, we will use more flexible service 
delivery mechanism, including telecommuting, off-site 
locations, and storefronts.
    The SBA will also implement a training regime that will 
support all of the new responsibilities we will be asking of 
our employees. Indeed, SBA's most valuable asset is its 
employees, and SBA could not achieve this transformation effort 
without dedicating significant resources toward their 
development.
    While SBA's programs have changed over the past decade, its 
required employee skills and training programs have not. This 
has left SBA with skill gaps in critical areas, hindering the 
Agency's ability to effectively serve its clients.
    The SBA recognizes the task in taking on such a broad 
initiative. The implementation plan relies on an incremental 
phased-in approach that mitigates potential risks. SBA's 
transformation efforts begin with studying the best practices 
of its planned changes.
    In phase I, we will remove back room lending functions from 
three districts: Miami, Florida, Charlotte, North Carolina, and 
Phoenix, Arizona. SBA will transfer the 7(a) loan purchases and 
the 7(a) and disaster loan liquidation activities from these 
offices and transfer them to the Santa Ana liquidation center. 
Also, SBA will transfer all 504 loan processing from these 
districts and the Sacramento district office to the Sacramento 
PLP Processing Center.
    This six-month pilot is scheduled to begin in earnest after 
a two-month transition.
    Two assessments will evaluate the district's new 
operations: one in three months, and one after the six-month 
period. SBA will use the first assessment to learn from the 
district's experiences and adjust the new operations 
accordingly. The second assessment will conclude with a report 
on the success of this pilot to make the necessary changes in 
the second and the third phases.
    Phase II of the transformation will extend the pilots to up 
to 20 more districts with an eye on the effects of the 
diversity of regions' market size and small business needs on 
the implementation of these new responsibilities.
    Around April 2004, SBA will have a solid understanding of 
the benefits and consequences of its transformation and will 
begin full implementation in Phase III.
    The SBA's implementation plan includes five key elements: 
client relationship management, partner relationship 
management, personnel development, the implementation of 
technology, and organization and business process re-
engineering.
    In addition, SBA is following GAO's guidance for successful 
management reform which includes the following: demonstrated 
leadership commitment, integration of management improvement 
initiatives to programmatic decision making, thoughtful and 
rigorous planning to guide decisions, effective employee 
involvement, organizational alignment to streamline operations 
and clarify accountability, and strong and continuing 
congressional involvement.
    The SBA anticipates that full implementation will yield 
several long-term results. Theyinclude: more satisfied and 
successful customers, more efficient and effective delivery of its 
services, reduced costs, and improved oversight of all resource 
partners.
    Mr. Chairman, SBA is at a crossroads. Unless the Agency 
makes fundamental changes, it cannot effectively serve small 
businesses in the future. This plan documents how the Agency 
will transform itself through increasing use of technology, 
investing in our personnel, becoming more customer focused, and 
forging more constructive relationships with our partners.
    The $15 million SBA has requested in the President's F.Y. 
2003 budget is critical to facilitate these changes to meet the 
needs of small businesses. This is what the President and 
Congress demand, and this is what citizens expect.
    Thank you, Mr. Chairman, for the opportunity to address the 
Subcommittee, and I am happy to answer any of your questions.
    [Mr. Blanchard's statement may be found in the appendix.]
    Chairman DeMint. Thank you, Dr. Blanchard. We will hold our 
questions until we hear from the other two panelists.
    Mr. Jasper, we will keep you to five minutes, and you will 
see a green light until you are almost out of time, and then 
you will see a yellow light, and when the red light comes on 
the hook comes out. Thank you.

STATEMENT OF HERBERT JASPER, FELLOW, NATIONAL ACADEMY OF PUBLIC 
                         ADMINISTRATION

    Mr. Jasper. Mr. Chairman and Subcommittee members, I 
appreciate the opportunity to offer comments on principles to 
guide the structuring of federal agencies.
    Last October's report by GAO on SBA's structure identifies 
a number of challenges. I will start with general comments on 
guiding principles. Then I will discuss the challenges facing 
SBA, especially those relating to organization.
    Following is an adaptation of principles regarding federal 
organization and agency management from previous academy papers 
that appear most pertinent to this hearing.
    Agency heads should be held accountable for the quality of 
management. Legislation that lodges functions in officers other 
than agency heads or that stipulates reporting channels will 
impair effective management and make it harder to hold agency 
heads accountable.
    The quality of program management depends heavily on the 
field organization's design. Experience favors decentralized 
management, but there must be clear policies and standards to 
guide field officials.
    No agency can function well unless it relies heavily on an 
experienced cadre of career civil servants.
    Principal field officials usually should be in the career 
civil service.
    I turn now to some organizational challenges for SBA. I 
begin by applauding SBA's efforts to date. What follows is 
intended to fill in some of the plan's gaps and to encourage 
early attention to those and to the remainder of the agency's 
agenda. First, a few more thoughts about restructuring.
    Thomas Stanton noted in a recent paper that, ``as in 
architecture, form should follow function or purpose.'' SBA has 
experienced significant growth in number, size, and complexity 
of its programs, but it is not clear that SBA had previously 
changed its structure sufficiently in response to changes in 
programs, priorities and methods. So it is probably time for a 
program review addressing the possible elimination or 
combination of programs, as well as a review of structure.
    As also noted by Stanton, ``* * * reorganization is not a 
substitute for inadequate resources.'' Further, I believe that 
reorganization is always costly and disruptive; is a way to 
emphasize certain values or goals; and seldom saves money. 
SBA's plan proposes some changes to make the agency more 
responsive to its principal small business customers, but the 
first phase of the plan does not go very far in rationalizing a 
complicated field structure with 10 regions, 70 district and 16 
branch offices, more than 1100 centers, plus six area offices 
and nine loan servicing centers.
    The GAO noted that creation of the Office of Field 
Operations was not reconciled with a coherent redefinition of 
the regional administrator's role. Perhaps creation of that 
office was a mistake.
    Substantial delegation of operating responsibilities to the 
field is desirable. However, for various headquarters offices 
to deal directly with a large number of field offices is 
guaranteed to cause confusion and conflicts. I believe regional 
administrators ought to be in the chain of command to district 
offices. That should go far toward clearing up two challenges 
cited by GAO; namely, overlapping organizational relationships 
and ineffective lines of communication.
    Also, the number of district offices appears excessive, and 
some area offices no longer have a significant workload. SBA, 
with up to 60 appointees, has an inordinate number of such 
positions. I suggest that SBA convert regional administrators 
to career positions and eliminate or convert a substantial 
number of other appointed positions.
    Congress should consider removing unnecessary prescriptions 
about internal management matters that GAO noted. The four most 
significant appeared to be: number and location of the field 
offices, apparently some located in response to congressional 
influence, and termination of them or a combination will surely 
require congressional acquiescence.
    Second, constraining the Administrator's ability to 
integrate the SBDC program and other programs with defined 
reporting relationships is a difficult approach and makes it 
impossible to hold the Administrator accountable for results. 
He must be able to adapt the delegations of authority from time 
to time as conditions change.
    Third, servicing of direct loans for disaster assistance is 
sometimes performed by the same personnel who service other 
loans, but the funding for those service centers is not able to 
be combined.
    I have just a couple of more points if you would like me to 
finish.
    Chairman DeMint. Sure, please.
    Mr. Jasper. Eleven positions beyond presidential appointees 
are required by statute. I am not referring to the programs 
they are responsible for. Those should be authorized by law. 
But specifying administrative arrangements locks in the 
reporting channels and prevents adjustments as programs evolve.
    Finally, about the overlapping positions at headquarters, 
the COO in executive departments is usually the deputy 
secretary, but not in SBA, which also has a chief of staff and 
a deputy associate administrator for management and 
administration.
    So SBA has four positions that are concerned with agency-
wide management and operations. I suggest it is time to 
consider either lodging the COO job in the deputy or 
alternatively combining the COO and chief of staff jobs. 
However that combined position would be titled, I think it is 
vital that it should remain in the career civil service--should 
be put in, that is, because it currently is not although it was 
recently.
    I close by reiterating my strong support for what the 
transformation plan outlines, but I urgecareful attention to 
the issues I have discussed. In particular, I urge that Congress work 
with SBA to minimize statutory prescriptions or other constraints 
regarding matters that should be left to the Administrator.
    Thank you.
    [Mr. Jasper's statement may be found in the appendix.]
    Chairman DeMint. Thank you, Mr. Jasper. And I do hope, Dr. 
Blanchard in our question period, if you might respond 
specifically to some of the things that we just heard.
    General Anderson, we will hear from you now. Thank you.

   STATEMENT OF BG (RET) FRANK J. ANDERSON, JR., PRESIDENT, 
                 DEFENSE ACQUISITION UNIVERSITY

    Mr. Anderson. Thank you. Mr. Chairman and members of the 
Committee, thank you for inviting me here to share some ideas 
on effective leadership principles.
    In defining leadership, most authors distinguish between 
leadership and management. Leadership is creating a vision, 
setting direction, aligning people, and leading change, while 
management is planning, budgeting, organizing, staffing, 
controlling and problem solving.
    My comments today will focus on three critical but 
interrelated aspects of leadership: leadership attributes, 
leadership functions and leadership results.
    Leadership is a leader's ability to communicate, inspire, 
facilitate, mentor and influence others. The leader must be 
able to sell ideas and shape the environment so that good 
people will want to excel. Effective communication is how the 
leader ensures that the strategic direction is understood and 
that all employees are aligned with the organization's mission 
and vision.
    Critical leadership functions include strategic planning, 
leveraging technology and organization redesign, and maybe the 
most important function, selecting, aligning and empowering the 
right leadership team. The leader must provide a clear vision 
and long-term perspective to shape the organization's future. 
This provides a mission, vision, strategic goals, and 
strategies to obtain them.
    A deliberate strategic planning process that links 
performance and accountability for results is essential to 
guide the organization. All too often strategic plans are 
drafted and approved, and then become dust collectors that 
never influence organizational results. To avoid this very 
common outcome, the strategic plan must be constantly managed 
and renewed.
    Technology is a powerful enabler that can facilitate the 
leader's drive to transform an organization. Organization 
redesign enabled by the smart application of technology can 
have a powerful impact on an organization's productivity and 
eventual outcomes. But organizational redesign and enabling 
technology must be thoughtfully considered together. Simply 
imposing new technology on old organizational structures and 
old business practices will not only result in a more costly, 
but still inefficient organization.
    To achieve solid results, the leader must address the 
organization's culture. Culture is the existing practices and 
social norms. Culture is how an organization routinely thinks, 
acts, and conducts business. It impacts how an organization 
responds to customers and stakeholders. The leader must value, 
nurture and reward collaboration and efforts to positively 
change the culture, to eliminate outdated practices, and to 
significantly improve internal processes and mindsets. 
Moreover, if the goal is to create a high-energy, customer-
focused organization, the leader must provide opportunities and 
incentives for people to change from old to new paradigms.
    For organizational success, selecting the right people and 
placing them in the right positions are important; however, 
aligning the leadership team is not only important but vital. 
Leadership alignment involves all actions to ensure the 
leadership team has collective ownership of the mission, 
vision, goals, and direction set by the senior leader. This is 
paramount for long-term organizational success. Leadership 
alignment is about focus and getting the key leadership team to 
move and act in one voice, one plan, and one play book.
    In closing, I am honored to be here today and to have an 
opportunity to work with the hardworking and dedicated members 
of the Small Business Administration, and the Department of 
Defense Acquisition, Technology and Logistics workforce. I 
appreciate the support provided by Congress and look forward to 
working with this Committee in any way possible to realize our 
common goals for a viable, healthy, and strong small business 
program. I am happy to address any questions you may have.
    Thank you.
    [Mr. Anderson's statement may be found in the appendix.]
    Chairman DeMint. Thank you, General Anderson, for your 
words because you reminded me of many things that I needed to 
be thinking about as we look at restructuring.
    And, Dr. Blanchard, I would certainly like your 
consideration. Let me make some comments, and you may want to 
respond to that because I very much appreciate the 
organizational structure and where you want to go with that, 
but I am reminded that there is probably not enough discussion 
or has not been enough at least in our hands about reshaping 
the mission and the vision of SBA itself. And I think in a 
strategic plan we would certainly need to review that, what the 
agency is, what it wants to become.
    But I would also like to see more discussion of who your 
customers are, because who your customers are today, at least 
in my mind, are not who your customers need to be tomorrow. A 
lot of us on the Committee have been concerned that we have 
been basically picking the low-hanging fruit as far as loans to 
businesses that are well established with collateral. Those 
that really need to get started and need help--we are not there 
for them, or maybe we have too many requirements for them to 
get in the loop.
    So I would really like to see as a preface to this 
restructuring plan, mission, vision, and customers. And as Mr. 
Jasper suggested, I really do think in front of structural 
planning has to come some review of our programs and how that 
matches who our customers are, who they need to become, and how 
that fits with our mission. I think those are very important 
aspects of what we need to see, I think, to have the 
credibility to ask for $15 million in the first year, and what 
we need to be totally behind this. I think the structural plan 
makes a lot of sense in the abstract but I hope it could be 
connected to those things.
    Another part of this, I think, on the end of it that is 
missing, as was mentioned by the General, is every plan should 
have some way that we are going to measure results. How are we 
going to determine if these changes have actually affected 
appropriate outcome and actually achieved our mission to our 
customers?
    So I think this is probably a good start, although maybe we 
started on second rather than at home, to really look at the 
mission and vision, and I would appreciate just your input back 
to myself that I could share with the Committee of how these 
aspects of mission, vision, customers and programs fit with the 
structural design of the agency and how long term we are going 
to look at measuring the results.
    And before I ask for some interaction here, Mr. Grucci, 
you--oh, I am sorry, but we have had comments and you have not, 
but I will yield to you, Ms. Ranking Member. He had just 
indicated he could not stay the whole time. So Felix, would you 
like to make a few comments.
    Mr. Grucci. Well, I would, but in the context of brevity I 
will ask that my comments be made a part of the record, and we 
may continue on with the questioning that may want to take 
place by the Ranking member.
    Chairman DeMint. Okay, we will begin with the Ranking 
Member and you will be next.
    Ms. Millender-McDonald. Thank you so much, sir, for your 
sense of protocol, and I thank you, Mr. Chairman.
    In the reports that you get, please make sure the Ranking 
Member gets a copy as well so that she can transfer this to the 
members on her side.
    I have appreciated the structural outline that Ms. 
D'Agostino gave to us, and I suppose many of us who have been 
in personnel positions, directorships, recognize organizational 
structure. And I am still a bit concerned, Mr. Blanchard, as to 
the responsibilities of your field units, your regions, your 
districts, who does what to whom, one reports to whom. The 
logistical nightmare in and of itself seems extremely 
complicated.
    There are some questions that I must raise in your 
comments. Dr. Blanchard, is it? I am sorry.
    Mr. Blanchard. Yes.
    Ms. Millender-McDonald. When you spoke about having the 
president's management agenda, which seeks to make federal 
agencies citizen-centered, results oriented and market-based, 
have you done a market analysis, and have you talked with 
citizens, especially those who are small business persons?
    And as the Chairman says, a lot of the dynamics have 
already--the dynamics has already changed in terms of small 
businesses. You have more minorities, more women. And so what 
has taken place in terms of your marketing analysis of that?
    And the other thing that I had pointed out in your 
comments, we have any number of 10 regional offices, 70 
district offices. You have said here that the SBA 
transformation plan addresses this problem by enhancing the 
responsibility and accountability by the 10 regional 
administrators.
    That is confusing to me because I have yet to see where the 
accountability will lie ultimately. Who would have that 
responsibility for the accountability given the structure that 
we have?
    And it says here further that the 10 regional offices, and 
by giving the 10 regional administrators and 70 district 
directors responsibility over all SBA program activities to me 
becomes extremely confusing. As the structure has been in its 
present form, there was a confusion about the mission statement 
and your mission objective.
    And here with this conglomerate of persons having the 
responsibility over all of this, I suppose I need to be walked 
again, and you can do this perhaps in my office if you want to 
so that we will not belabor this, but I am still totally 
confused as to these layers and the transformation of those, 
the accountability and to whom reports to whom, and if you have 
done a market analysis, and where have you done this market 
analysis to reflect those persons of color, women in your whole 
restructuring plan?
    Mr. Blanchard. Thank you, Madam Ranking Member.
    It is the way our current structure is now. It is very 
confusing, and part of our plan is to try to get rid of some of 
that confusion. Indeed, it was the confusion that was pointed 
out by the GAO and our own IG that encouraged us to take a hard 
look at the structure at the same time that we look at on 
programs. We recently took a look at these during our district 
director conference. But I will get to that in just a second, 
and will address your question, if I may, on the market 
analysis or market-base.
    When the President calls for agencies to be market-based, 
he means for them to use the private sector as much as possible 
and using, to the greatest extent possible and to the greatest 
extent feasible, public/private partnerships. For SBA, however, 
being market-based not only means using those public/private 
partnerships for service delivery, but it also means 
understanding our market, our customers, small businesses and 
their needs.
    And associated with this plan is a plan to perform a needs 
assessment, to understand clearly what small businesses need so 
that we can address those needs, but we cannot address those 
needs very well with the disjointed nature of our structure.
    What we are calling for is for the field through the 
regional administrators and the district directors, to have 
responsibility for the delivery of all of our programs because 
indeed they are the faces of the SBA. They are the members of 
this agency that touch small businesses. And we need to arm 
them with access to all of our services.
    Right now we have SBDCs performing our entrepreneurial 
services, our counseling and technical training. We have our 
lending partners and other banks providing loans. And then we 
have an entirely separate structure for our government 
contracting.
    Ms. Millender-McDonald. Is that not amazing? So in other 
words, your regional office heads or someone there in the 
structure that we have currently has not done any needs 
assessment to discern what those needs are at this juncture?
    Mr. Blanchard. I suppose that some regional administrators 
have done that needs assessment on an ad hoc basis. There is 
nothing in our regular program to compel that to be done on a 
regular basis. What we want to do is to compel it to be done on 
a regular basis, and that needs assessment is not the needs of 
the business of the customers that we presently serve, but the 
customers that we want to serve in the future. That includes 
not only the more beginning and start-up small businesses, but 
also minority- and women-owned small businesses, and those 
businesses that are somewhat mature but want to grow even 
further, thus contributing more to this economy.
    Ms. Millender-McDonald. You know, Dr. Blanchard, when you 
have said that your needs assessment would more or less be 
predicated on what your future aspects of the constituency or 
the small business persons will be as opposed to what they are 
now, women are making up a large segment of the small 
businesses, so that need assessment should be in place now in 
terms of women-owned businesses, and a great degree of 
minority-owned businesses, especially Latino businesses are 
already in place, so that needs assessment should already 
reflect those groups as we speak, and of course, African 
Americans and others who are coming, Asian small businesses as 
well.
    So I would like to think that there is a needs assessment 
out there now that has to some degree those components. If not, 
then I am quite disturbed on that.
    Mr. Blanchard. Well, the needs assessment that I speak of 
is one that is much more comprehensive so that it can guide a 
fundamental change in our program set.
    Ms. Millender-McDonald. And that is fine and I understand 
that, as long as you do not leave out any one of those subsets 
in your----
    Mr. Blanchard. No, ma'am.
    Ms. Millender-McDonald [continuing]. In your plethora or 
your complete comprehensive plan.
    Mr. Blanchard. Yes, ma'am.
    Ms. Millender-McDonald. The one thing that I spoke of, Mr. 
Chairman, if I may, and then I will conclude for the moment, I 
spoke about the workforce, and you spoke about your workforce 
as well. And I am hoping that in your restructuring you include 
in that a workforce that is depictive of this country's 
constituency, and more importantly, the small businesses.
    And I would like to ask you what are you doing in your 
assessment of your skill labor and your employees, and your 
contemplation of ensuring that they reflect the country?
    Mr. Blanchard. That is a very good question. Let me first 
say we are very proud at SBA that our employees and our 
workforce, are indeed reflective of our national demographics. 
The fact that Hector Barreto is our Administrator, and I sit 
here before you today----
    Ms. Millender-McDonald. From California, I might add.
    Mr. Blanchard. Yes, ma'am. Yes, ma'am.
    And what we are doing to improve the development of our 
workforce is very much a big part of this plan. What we need to 
do is to address the significant demographic problem that we 
face. That is not to say demographics along ethnicity, but 
demographics along age. In a year or two almost half of our 
employees will be prepared to retire. We are not prepared at 
this moment, and this is true for many agencies in the federal 
government, to deal with that because the agency has not done 
well to build a succession plan.
    What we plan to do, one, is to build a training regime that 
looks forward in regards to the vision that we have set forth, 
which is to serve many more small businesses, which is to build 
our district offices so that they can perform less of the 
backroom operations and more marketing and outreach, and also 
to measure our success by small business success, not simply by 
the widgets that we produce.
    And so this training program is a very important part of 
that effort. Included in the training regime are individual 
development plans, which you will see in our plan and in the 
written testimony, that are unique for each individual. What we 
want to do in this agency is not to keep on training 
specialists so that when job opportunities are presented folks 
are only able to apply for those jobs if they happen to have 
the special skills. What we want to do, and this is consistent 
with the changes we want to make in the district offices with 
regard to more marketers and outreaches, we want to create 
generalists so our finance professionals have a good 
understanding of the contracting world, so our entrepreneurial 
development professionals have a good understanding of our 
finance world, and the like.
    And so to the extent that we can do this and include the 
employees' individual goals within their individual development 
plans, we will be able to accomplish the goals that I think you 
and I share.
    Chairman Demint. Thank you, Dr. Blanchard.
    Mr. Blanchard. Thank you.
    Chairman Demint. Mr. Grucci.
    Mr. Grucci. Thank you, Mr. Chairman.
    Dr. Blanchard, I have just two questions for you based upon 
the testimony I have heard here today.
    In evaluating the restructure of the SBA, have you 
considered any changes to the current SBA programs in addition 
to the changes in the structure of the agency?
    And the second question, as Mr. Jasper suggested combining 
several positions, what are the differences, if there are 
differences, in the roles of the COO and the chief of staff?
    Mr. Blanchard. Thank you, sir. I will be happy to address 
those questions.
    With regard to consideration of changes in programs, which 
is also part of the Chairman's concern, recently we 
participated in a district director conference where we brought 
all of our regional administrators and district directors from 
around the country here to Washington to have a pow-wow as it 
were, to figure out what we want to do for the future.
    It was at this district director conference that the 
Administrator promulgated his vision. It was at this conference 
that we then took that vision and asked how we implement this 
vision to include a focus on specific programs within the 
context of the President's vision of being more customer-
centered, market-based and results oriented.
    It is this plan that moves in that direction. This is the 
plan that brings that vision and the President's vision 
together. Within that context, we spent that weekend thinking 
about what our loan programs should look like to be more 
customer focused development programs and our entrepreneurial, 
what should our technical training programs look like, to what 
degree do we want to do one-on-one counseling, and to what 
degree do we want to do training via the internet.
    We took a look at the contracting environment and tried to 
determine how can we do better at providing greater access to 
government contracting for small businesses. This was the 
debate that took place at that conference, again working within 
the President's and the Administrator's vision providing the 
parameters for that conversation.
    And what bubbled out of that were some new directions for 
our programs which I have not talked about here today, but you 
can rest assured that those programs were designed to be more 
customer centered, and to use private/public partnerships to 
deliver those programs because, frankly, we cannot do it 
ourselves. We can reach many more small businesses by having 
our partners out there helping us deliver services. We will 
provide oversight and coordination activities on behalf of our 
partners. We will have our partners in the one hand and the 
small business customers in the other, and we redirect the 
customers based on our assessment of what they need. They may 
need a loan and some training to help build their business 
plan, or they just may need a loan because they are more mature 
and have a well developed plan.
    Whatever it is, maybe they need access to contracting 
because they already have a mature company and they are ready 
to deliver high-quality services to the federal government or 
to state and local governments.
    So what we want to do is put the districts in a position to 
move those clients to our service partners as they see fit, and 
that is what I mean by client and partner relationship 
management as well as the marketing and outreach focus.
    Mr. Grucci. Would that cause any changes in the current 
programs?
    Mr. Blanchard. Again, the current programs will not change. 
This structure is built to facilitate the new programs that we 
want to engage in, and those new programs are not fundamentally 
different than what we have always done. We are just trying to 
find better ways to get them out there to more businesses.
    If I may, in response to your question about Dr. Jasper's 
point in regards to the role of the COO. There is an 
interesting debate about whether the COO should be separate 
from or embedded within the deputy of the Agency.
    The COO's role is a unique role in the federal government, 
but only recently in GAO's human capital products of July 
2002--the GAO suggested that there ought to be a COO that is 
separate presumably, I am not sure of that, from the deputy so 
that person can engage in the sort of day-to-day managerial and 
operational functions key for success, particularly for success 
in a reform effort.
    Whether or not the COO should be political or career, I 
understand the arguments of Mr. Jasper and Ms. D'Agostino. I 
happen to be political, but those who know me know that I am 
pretty much a management wonk anyway. So I do focus strictly on 
the ability of the Agency to deliver its services and not so 
much on all of the other responsibilities that typically are 
handled by the Deputy and the Administrator.
    Ms. Millender-McDonald. Mr. Chairman, I just wanted to ask 
him----
    Chairman DeMint. Ms. Millender-McDonald.
    Ms. Millender-McDonald [continuing]. If we find that there 
are a lot of political appointees, how will that climate change 
in this restructuring?
    And you stated that there are--there are seven to eight 
program--there were seven to eight program changes, yet you say 
with new programs coming on. I suppose you will integrate those 
changes. But when you do that, Dr. Blanchard, please speak to 
this, and I will just wrap mine up, you said--well, the 
workforce transformation plan outlines the agency plan to 
centralize the 8(a) program annual reviews, and also 
consolidate of 8(a) offices and associated personnel cost. Now, 
what does that mean?
    We do know that a lot of the minority small businesses, 
specifically African Americans, rely heavily on 8(a) programs, 
and also I need to have you further in your delineation of this 
restructuring, how will you speak to those programs that are 
faltering, that need to have some type of uplift and be put 
into the realm of success? And that is a lot of the African 
American small businesses.
    Mr. Blanchard. Yes, ma'am. Let me address that by saying 
that you might think of our functions in the agency as falling 
into two categories with regard to our services. Some are front 
room functions, that is the marketing and outreach, and the 
others are back room functions, that is the processing and 
servicing, and the sort of turning of the wheel and paper 
pushing.
    What we want to do is consolidate the latter, consolidate 
the activities that are really back room so that we can free up 
FTEs, free up our limited human capital resources, to do more 
of the front room functions, which is marketing and outreach, 
and that outreach includes reaching out to various communities, 
providing them with the services that we have available. 
Sometimes those services are particularly directed to those 
communities, like the 8(a) program, so that they can gain 
access to the government contracts that, for whatever reason, 
they have not been able to gain access to before.
    Remember, we want to move folks from back room operations 
to front room operations so that we can do precisely what you 
want us to do more of. We have a fixed human capital resource 
base. We have got to think more strategically as the President 
has called upon us to figure out how we are going to better 
manage that human capital. Without more human capital, we need 
to move that human capital around so to speak, and we believe 
that going toward the more back room functions is not the way 
to go. We can contract out back room functions. We can contract 
out that paper-pushing activity. What we want to do is move 
more toward front room functions--marketing, outreach, bringing 
the client to the services and providing those services.
    That is not to say that we do not have work to do in the 
delivery of our services. We do indeed have work to do, and the 
Administrator has also charged me with the role of program 
review, so we will through my office engage in comprehensive 
program review so that we can make sure that all of our 
programs are indeed meeting their goals as they were directed 
through legislation.
    Ms. Millender-McDonald. And meeting those goals with the 
variances of groups that are out there trying to be successful 
through this small business process.
    Mr. Blanchard. Yes, ma'am.
    Chairman DeMint. The Ranking Member made an important 
point, I think, that fits with some of the things I was 
mentioning earlier.
    We talk about customers, but I have found from the 
marketing business that some businesses go out and get who they 
want. Others go out and meet the needs of those who have unmet 
needs are sometimes not the easiest to reach out to. And I 
think absent perhaps from the proposal of restructuring again 
is clarification of mission, who the customers are, targeting 
those customers and really detailing their needs, and the 
different segments of this market.
    I think we really need to see how programs relate to the 
different market segments would help us evaluate our programs, 
and then our structure. So it almost seems now we are talking 
about something in the abstract without really laying out 
details.
    Now, I am not suggesting that this is information you do 
not already have at the agency, but it is something I think 
that would help us sell a plan. And if there has not been a 
market needs assessment, if there has not been customer 
research about what their needs really are once we target who 
needs to be served, I would suggest that be included in the 
budget, because to build a whole structural plan to serve 
people that we do not clearly know what their needs are. Now 
that may be obvious from those who have operated in the agency 
for years, but sometimes the obvious does not include what is 
really there.
    And so what I would like to do just briefly is to allow the 
three other panelists just to make any remarks after hearing 
all the other remarks, just advice to the SBA.
    Ms. D'Agostino, I will just start with you.
    Ms. D'Agostino. I guess the version of the plan, we 
understand it is still in a state of flux, and it is changing. 
I think it has changed since we--the copy we got. And I know 
there are a lot of details yet to be worked out for this plan. 
I think it is a good conceptual document.
    In looking at the plan, we identified a whole lot of 
strengths about the plan that I think are really important to 
recognize. This plan articulates the new business focus that 
SBA wants to pursue, which is getting closer back again to the 
customer, the small business, and I think it also provides for 
an employee line of sight, which I think is something we are 
always looking for with their ability to see their 
contributions to this new business focus.
    It also integrates all these important components like the 
organizational, functional, and human capital realignment, and 
the IT and training needs to accomplish this new business 
focus.
    It recognizes that it takes time and it costs some money to 
do these change initiatives. And the other good thing about 
this plan is that it is committed to evaluating progress, and 
that is often missing in many agencies change initiatives that 
we have identified.
    Some of the key questions that we still have remaining, and 
I am sure this will all become apparent over time is that we 
feel it is important to see how the performance management 
system and the district office goals and measures will be 
changed. And I think this is something you brought up, Chairman 
DeMint, to reinforce the new business focus that SBA's success 
will be defined by its small business clients' success, and how 
to marry those a little more closely than they have been in the 
past.
    And also how perhaps the SES contract terms, which is a 
very easy thing, it is such an easy thing to change each year 
to get focus from the leadership in the districts and the 
regions on being committed to this plan and making sure it 
works and gets carried out.
    But the bottom line is that performance goals and 
incentives are really crucial to gaining commitment and 
achieving success in a change initiative like this. So that is 
something we would like to see movement on.
    Chairman DeMint. Mr. Jasper.
    Mr. Jasper. Yes, thank you.
    The principal point I would emphasize that is largely, and 
I emphasize largely within the discretion of the agency, is the 
field structure issue that has been discussed. I think that 
needs to be simplified and rationalized, and I suggested one 
model for that.
    The more important thing that I guess I would like to say, 
and perhaps I could preface it by saying that after many years 
in the federal executive branch I came up to Capitol Hill, 
worked asSenate staff for five years, and then with two 
congressional staff agencies. I learned a great deal about the Congress 
by working up here as compared to what I thought before I came up, and 
I think I understand a little bit about what motivates members and 
committees to behave the way they do.
    Ms. Millender-McDonald. Really? Let me know what that is. 
[Laughter.]
    Mr. Jasper. But some of the things that are perfectly 
understandable for members and Committees to do can wreak havoc 
with an agency's internal administration. And I would suggest 
that both the rather surprising, almost shocking, number of 
appointee positions in a small agency, and the detailed 
prescriptions with respect to the 11 officers--11 positions 
that GAO pointed to really prevent managing the agency in a way 
that can adapt it to the rapid changes in program priorities.
    And I understand, because of what I said about the Hill, 
that this is not easy to do. But I urge that you work sort of 
sympathetically and cooperatively with the agency to identify 
those matters of the general character I just described that 
are really the most significant obstacles to more effective 
management. The objective should be to see if you can work to 
reduce some of the statutory prescriptions and perhaps 
encourage the reduction of some of the appointed positions.
    Those would be my main points.
    Chairman DeMint. Good ideas, and since we do not do the 
appointing, I do not think we will resist reducing the 
political appointments.
    Ms. Millender-McDonald. Mr. Chairman, I would like to ask 
Dr. Blanchard. Part of your restructuring, does it call for 
some reductions in those political appointees?
    Mr. Blanchard. I would say it does not. The purview of the 
political appointees is outside the agency, and so it was not 
appropriate for us to address those.
    However, we are looking to reduce management layers in 
particular, and if, for instance, a position was deemed as 
duplicative or just useless, if that position happens to be 
held by a political person, it would not change our 
recommendation because our recommendation is based on the 
functional activities of the agency rather than who sits in 
what chair.
    Ms. Millender-McDonald. Well, what about program 
underfunding. Now that would be something that is in your 
purview.
    Mr. Blanchard. The funding of the programs in part, I 
guess, could be, but overall funding is not.
    Ms. Millender-McDonald. I understand. But I am saying that 
you can certainly speak to the fact that some of the programs 
that you want to implement need more funding.
    Mr. Blanchard. Again, our request for funds are based on a 
larger consideration. You know, when the President submits his 
budget, which includes our request----
    Ms. Millender-McDonald. That is correct.
    Mr. Blanchard [continuing]. I would say that falls within a 
larger set of considerations government-wide, and our request 
is in effect a negotiated settlement between the Agency and the 
President's budget office.
    Ms. Millender-McDonald. And, Dr. Blanchard, I think you can 
negotiate very well.
    Mr. Blanchard. Thank you very much.
    Chairman DeMint. Okay, just a quick clarification, Dr. 
Blanchard, before we hear from General Anderson.
    You can reduce the number of positions. You just are not in 
control of how many of those end up being political appointees; 
is that right?
    Mr. Blanchard. That is correct, sir.
    Chairman DeMint. Okay. So you can do the structure the way 
you think it should be, and it would be up to us to put 
pressure on the executive branch or whatever to reduce.
    Mr. Blanchard. That is correct.
    Chairman DeMint. Okay. General Anderson
    Mr. Anderson. Mr. Chairman, since I did meet my five 
minutes, I would like for my extended text to be included in 
the record.
    And then a couple of points because I have not reviewed the 
details, but there are some fundamental organizing principles.
    One, as you start to look at reorganization or 
transformation, it starts from a clear definition and 
understanding of what is a mission, what are you tasked to do 
and what are you trying to achieve.
    By understanding those two things, and you made that point 
earlier, by understanding those two it allows you to get a 
clear focus on who the customers are and how you best serve 
them.
    As you start to look at an organization, the organizational 
structure that is put in place should be shaped around the 
mission or the tasking that you are trying to carry out, and 
that will drive both process and people.
    And probably the most significant decision in terms of 
people will be alignment of the key leadership team, knowing 
that from top through whatever the key leadership positions 
are, and that will be sorted out as you look at the regional 
and field structure, of the flow of communication and who you 
are holding accountable in those key positions.
    In a conversation that I had with Dr. Blanchard, I believe 
they are starting to sort through those issues, and they have a 
work in progress and time line that they have put in place to 
do that, but structure is always driven by what you are trying 
to do.
    So thank you.
    Chairman DeMint. Any additional comments, Ms. McDonald?
    Ms. Millender-McDonald. No, thank you. It seems like, as I 
have quickly reviewed Mr. Anderson's testimony, it seems like 
everything you say I agree to, so I didn't have any questions.
    Mr. Anderson. Okay.
    Ms. Millender-McDonald. But I thank you so much for your 
testimony as well as Mr. Jasper.
    Chairman DeMint. I want to thank all the panelists. It has 
been a great hearing, and I hope we can expect, Dr. Blanchard, 
to hear back from you on any additions or ideas after the input 
from this meeting. And I thank everyone in the audience. I 
appreciate your being here.
    This hearing is adjourned. Thank you.
    [Whereupon, at 3:40 p.m., the Committee was adjourned.]





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