Small Business Administration: Progress Made, but Transformation
Could Benefit from Practices Emphasizing Transparency and
Communication (31-OCT-03, GAO-04-76).
The Small Business Administration (SBA) has recognized that it
needs to realign its current organizational structure and
processes to improve its ability to fulfill its primary
mission--supporting the nation's small businesses. In July 2002,
SBA announced that it was initiating a transformation effort to
increase the public's awareness of SBA's services and products
and make its processes more efficient. GAO evaluated SBA's
progress in implementing its transformation initiatives and
challenges that have impeded or could impede implementation and
whether SBA's transformation incorporates practices GAO has
identified in previous work that are important to successful
organizational change.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-76
ACCNO: A08815
TITLE: Small Business Administration: Progress Made, but
Transformation Could Benefit from Practices Emphasizing
Transparency and Communication
DATE: 10/31/2003
SUBJECT: Performance measures
Small business
Agency missions
Federal agency reorganization
Internal controls
Strategic planning
Public administration
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GAO-04-76
United States General Accounting Office
GAO
Report to Congressional Requesters
October 2003
SMALL BUSINESS
ADMINISTRATION
Progress Made, but Transformation Could Benefit from Practices Emphasizing
Transparency and Communication
a
GAO-04-76
Highlights of GAO-04-76, a report to congressional requesters
The Small Business Administration (SBA) has recognized that it needs to
realign its current organizational structure and processes to improve its
ability to fulfill its primary mission-supporting the nation's small
businesses. In July 2002, SBA announced that it was initiating a
transformation effort to increase the public's awareness of SBA's services
and products and make its processes more efficient. GAO evaluated SBA's
progress in implementing its transformation initiatives and challenges
that have impeded or could impede implementation and whether SBA's
transformation incorporates practices GAO has identified in previous work
that are important to successful organizational change.
October 2003
SMALL BUSINESS ADMINISTRATION
Progress Made, but Transformation Could Benefit from Practices Emphasizing
Transparency and Communication
SBA has made some progress in transforming its organization, although
efforts could be impeded by budgetary and staffing challenges. SBA started
three district office pilots to test marketing and outreach techniques and
two pilots to centralize loan processes. However, SBA officials told us
that their plans for expanding the pilots and implementing additional
initiatives have changed because the agency did not receive any funding
for transformation in fiscal year 2003 and may not receive any in fiscal
year 2004. GAO found that SBA did not provide consistent, clear budget
requests with a detailed plan for transformation results. The challenge of
staffing its centralization initiatives, including relocating employees
and avoiding undue disruptions to operations, could further complicate
SBA's progress.
When SBA initially planned and began implementing transformation, it gave
some attention to practices important to successful organizational change.
SBA drafted a plan and created an implementation team to manage the
transformation. However, significant weaknesses in implementation could
impede further progress and exacerbate the challenges noted above. The
transformation could fail if practices and implementation steps focusing
on transparency and communication are not given more attention.
Key Practices and Examples of Weaknesses in SBA's Actions and Plans
SBA should (1) ensure that implementation leadership is clearly identified
to employees and stakeholders, (2) finalize its transformation plan and
share it with employees and stakeholders, (3) develop performance goals,
(4) use the performance management system to define responsibility, (5)
develop a communication strategy that promotes two-way communication, and
(6) solicit ideas of employees and the union and ensure that their
concerns are considered. SBA said it would consider our recommendations
but disagreed with some of our findings related to its budget requests and
employee communication and involvement.
Practice Weaknesses in SBA's actions and plans
Ensure top leadership drives SBA's leadership and implementation team has
experienced
the transformation and changes, but those changes were not made evident to
employees
dedicate an implementation and stakeholders.
team.
Set implementation goals and SBA created a transformation plan with
implementation goals and a
a timeline to build momentum timeline, but the plan remained in draft and
was never shared with
and show progress from day employees and stakeholders.
one.
Establish a coherent mission SBA needs to develop and link performance
goals to support SBA's
and integrated strategic goals strategic goals for transformation, such as
expanding outreach to
to guide the transformation. small businesses.
Use the performance SBA's new performance management system is at risk if
management system to define employees' understanding of performance goals
and individual
responsibility. responsibility remains unclear.
Establish a communication SBA communicated through managers and a
newsletter, but did not
strategy to create shared allow for two-way communication to obtain
feedback from
expectations and report employees and stakeholders.
related progress.
Involve employees to obtain SBA did not benefit from employee perspectives
or gain employee
their ideas and gain their support because employee and union involvement
was limited.
ownership for the
transformation.
Source: GAO.
www.gao.gov/cgi-bin/getrpt?GAO-04-76.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Davi D'Agostino at (202)
512-8678 or d'[email protected].
Contents
Letter
Results in Brief
Background
SBA Has Made Some Progress in Implementing Transformation, but
Budget Constraints and Staffing Challenges Could Continue to Impede
Progress
SBA Applied Some but Not Many Aspects of Practices and Implementation
Steps Important to Successful Transformation
Conclusions
Recommendations for Agency Action
Agency Comments
Objectives, Scope, and Methodology
1 3 5
8
21 33 34 35 37
Appendix
Appendix I: Comments from the Small Business Administration
Table Table 1: Key Practices and Implementation Steps for Organizational
Transformations
Figures Figure 1: Timeline of Major Organizational and Operational
Changes by Fiscal Year 7
Figure 2: Phoenix, Arizona, District Office Organizational
Structure "Before and After" Transformation 12
Figure 3: SBA's Available Operating Funds Have Declined Since
Fiscal Year 2001 16
Figure 4: Comparison of SBA's Fiscal Years 2003 and 2004 Budget
Requests for Transformation 18
Contents
Abbreviations
IRS Internal Revenue Service
SBA Small Business Administration
SCORE Service Corps of Retired Executives
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separately.
A
United States General Accounting Office Washington, D.C. 20548
October 31, 2003
The Honorable Olympia J. Snowe Chair, Committee on Small Business and
Entrepreneurship United States Senate
The Honorable Donald A. Manzullo Chairman, Committee on Small Business
House of Representatives
The Honorable Christopher S. Bond Member, Committee on Small Business and
Entrepreneurship United States Senate
Like many federal agencies, the Small Business Administration (SBA) has
recognized it needs to realign its current organizational structure and
processes. In doing so, SBA aims to improve its ability to fulfill its
primary mission-supporting the nation's small businesses and protecting
their interests-by increasing the public's awareness of SBA's services and
products and making its business and loan processes more efficient. For
over a decade, SBA has been centralizing some functions of its many
district offices to improve efficiency and has been moving more toward
partnering with outside entities such as private sector lenders to provide
direct services. SBA's district offices were initially created to be the
local delivery system for SBA's programs, but as SBA has centralized
functions and placed more responsibilities on its lending partners, the
district offices' responsibilities have also changed. In a previous
report, we found that past realignment efforts during the 1990s had
changed SBA's organization but had also left parts of the previous
structure intact, contributing to complicated organizational relationships
and a field structure that was not consistently matched with mission
requirements.1 For example, we found confusion over the mission of the
district offices, with SBA headquarters officials believing the district
office's key customer was small businesses and district office staff
believing that their key customer was the lender who makes the loans to
small businesses.
1U.S. General Accounting Office, Small Business Administration: Current
Structure Presents Challenges for Service Delivery, GAO-02-17 (Washington,
D.C.: Oct. 26, 2001).
SBA transformation efforts have not been a reaction to any change in SBA's
mission. Rather, SBA's intent has been to transform the agency so that it
can more effectively and efficiently achieve its mission. In its current
transformation effort, SBA intends to expand centralization to additional
loan functions and some of its other small business programs to improve
efficiency. As centralization frees up employees in the district offices,
SBA intends to better define the district office role to focus on
marketing and outreach to small businesses and managing SBA's
relationships with lenders and other resource partners.2
Following SBA's testimony in July 2002,3 which stated that SBA was
initiating a 5-year workforce transformation plan, you requested that we
(1) review SBA's progress in implementing its transformation initiatives
and discuss any challenges that have impeded or could impede
implementation and (2) determine whether SBA's transformation incorporates
practices that are important to successful organizational change and
effective human capital management in the federal government. This report
contains the results of our review of SBA's implementation of the first
phase- approximately 6 months-of the transformation effort. As part of
phase one, SBA planned to implement pilot initiatives to test a new
marketing focus for its district offices and centralize some of its loan
functions.
To conduct this review, we analyzed planning, budget, and implementation
documents related to SBA's transformation and interviewed key officials at
SBA headquarters. We also conducted site visits at each of the pilot
offices involved in the first phase-three district office pilots in
Phoenix, Arizona; Miami, Florida; and Charlotte, North Carolina; and two
center pilots in Santa Ana and Sacramento, California. At these locations,
we interviewed all employees who were directly affected by the pilot. To
ensure open communication, we met with directors, supervisors, and
employees separately. We compared SBA's implementation process for
transformation with practices important to successful transformations,
using practices we identified in literature and our previous work on
2SBA's resource partners include organizations such as Small Business
Development Centers and Women's Business Centers that provide management
and technical assistance and the Service Corps of Retired Executives
(SCORE) chapters in which volunteer business executives counsel small
businesses and potential entrepreneurs.
3House Committee on Small Business, Subcommittee on Workforce,
Empowerment, and Government Programs, Maximizing Organization and
Leadership in a Federal Agency to Fulfill Its Statutory Mission:
Restructuring of the Small Business Administration, 107th Cong., 2nd
sess., 2002.
reorganizations, organizational change, and human capital management.4 We
performed our review from February through September 2003 in accordance
with generally accepted government auditing standards.
Results in Brief SBA has made some progress in implementing the first
phase of its transformation, but further progress could be hampered by
budget and staff realignment challenges. To meet its objectives for phase
one, SBA (1) implemented a pilot initiative at three district offices to
test a new marketing focus and (2) centralized a number of loan functions
from these offices to two centers to assess ways to improve the efficiency
and consistency of its loan functions. SBA is currently nearing completion
of phase one, and to prepare for its new marketing focus, it has provided
marketing-related training to staff at the three district offices and also
conducted an analysis to identify staffs' developmental needs in
marketing. In addition, SBA transferred most of the loan processing and
liquidation cases from the three district office pilots to the two
centralization pilots. However, SBA officials told us that they delayed
the start-up of the district office and centralization pilots in phase one
due to the requirement in their appropriations that they notify the
appropriations committees prior to going forward with any organizational
restructuring, the government's fiscal year 2003 continuing resolution,
and a shrinking operating budget. As of our report date, phase two has not
yet begun; however, SBA officials told us that plans for this phase have
been scaled back because the agency did not receive any of the funds
specifically requested for the transformation in its fiscal year 2003
budget, and officials believe that SBA may not receive any requested
transformation funds in its fiscal year 2004 budget request. Thus, SBA
would have to rely on any available operating funds to carry out the
transformation. Given the current situation, officials said the focus is
now on creating a new center for centralizing all of its loan liquidation
and loan guaranty purchase activities. While SBA's implementation efforts
have been and could continue to be impeded by budget constraints, we found
that the agency's budget requests for transformation were inconsistent and
lacked a detailed plan that showed priorities and linked resources to
desired results. SBA's centralization efforts could also be impeded by the
challenge of realigning staff from
4The main document we relied on in identifying key practices was our
recent report, U.S. General Accounting Office, Results Oriented Cultures:
Implementation Steps to Assist Mergers and Organizational Transformations,
GAO-03-669 (Washington, D.C.: July 2, 2003).
multiple field offices so that SBA can operate its central locations with
experienced employees.
When SBA initially planned and implemented its transformation it gave some
attention to practices important to successful organizational
transformation. However, over time SBA began to overlook key aspects of
these practices involving leadership, setting implementation goals and a
timeline, establishing an integrated mission and strategic goals, using
the performance management system, communication, and employee involvement
that are important to successful organizational change. SBA's top
leadership, the Administrator and Deputy Administrator, has demonstrated
support for the transformation. However, after SBA's Chief Operating
Officer left the agency shortly after initiating the pilots, it was not
evident to employees and stakeholders who was responsible for implementing
the transformation. Although SBA had developed a sound draft
transformation plan explaining the purpose, implementation goals and a
timeline, it did not make the draft plan public or provide the reasons for
upcoming steps. As a result, it appeared to many district office employees
and stakeholders that headquarters lacked a plan and direction. In its
fiscal year 2004 performance plan, SBA reported strategic goals to guide
the transformation, but it has not linked transformation to existing
performance goals or developed new goals against which to measure its
marketing and outreach efforts. In addition, in the human capital area,
although SBA has taken steps toward creating a performance management
system that would define responsibility and set expectations for
employees, it too is at risk because the agency has not yet created a
clear and defined linkage between the employees' roles and the goals of
the transformation. Also, SBA has not established an effective strategy
for communicating with employees and stakeholders to engage them in the
transformation process, encourage two-way communication, and communicate
early and often to build trust. Many district office employees and
stakeholders told us that they generally heard about transformationrelated
actions through rumors. Finally, district office employees and union
officials told us that they have not been actively involved in planning or
implementing the transformation.
This report includes recommendations to SBA's Administrator. To improve
implementation of its transformation, we are recommending that SBA (1)
ensure that implementation leadership is clearly identified to employees
and stakeholders, (2) finalize its draft transformation plan and share it
with employees and stakeholders, (3) develop and link performance goals to
its strategic goals, (4) use the new performance management system to
define
responsibility, (5) develop a communication strategy that promotes twoway
communication, and (6) involve employees and the union to solicit ideas
and ensure that their concerns are considered.
We obtained written comments on a draft of this report from SBA's Chief
Financial Officer. SBA's comments and our response are discussed near the
end of this report, and SBA's letter is reprinted in appendix I. In
commenting on the draft, SBA did not state whether it concurred with our
recommendations but said it would consider them as it continues to plan
for and implement its transformation efforts. SBA specifically noted that
it had already addressed recommendations related to developing performance
goals and using the performance management system to define responsibility
as a result of a new strategic plan issued after the completion of our
audit work and implementing its new performance management system for
employees on October 1, 2003. SBA disagreed with our finding that its
budget requests for transformation were unclear. SBA also disagreed with
our characterization of the extent to which it had communicated with and
involved employees.
Background In pursuing its mission of aiding small businesses, SBA
provides small businesses with access to credit, primarily by guaranteeing
loans through its 7(a) and other loan programs, and provides
entrepreneurial assistance through partnerships with private entities that
offer small business counseling and technical assistance. SBA also
administers various small business procurement programs, which are
designed to assist small and small disadvantaged businesses in obtaining
federal contracts and subcontracts. In addition, SBA makes loans to
businesses and individuals trying to recover from a disaster.
As figure 1 shows, SBA has experienced many organizational changes over
the past 20 years partly due to changing the way it delivers its services
and partly due to budget cuts. Perhaps the largest change to SBA's service
delivery has occurred in its lending programs, where the agency went from
making loans directly to guaranteeing loans made by commercial lenders.
SBA provides small businesses with access to credit, primarily by
guaranteeing loans through its 7(a) and 504 programs. For the 7(a)
program, SBA can guarantee up to 85 percent of the loan amount made by
private lenders to small businesses. Within the 7(a) program, for smaller
loans, SBA offers SBA Express as an option to lenders who will use their
own applications and underwriting procedures by agreeing to a lower
guaranty of 50 percent. Within the 7(a) program, there are three
classifications of lenders-regular, certified, and preferred lenders-that
illustrate the various range of responsibilities handed over to lenders.
SBA continues to provide final approval of loans made by its regular
lenders through the district offices. Certified lenders have the authority
to process, close, service, and may liquidate SBA guaranteed loans, and
SBA provides expedited loan processing and servicing. Preferred lenders
are given full authority to make loans without prior SBA approval.
However, these lender-approved preferred loans are submitted to SBA's
Sacramento Processing Center, which, among other things, verifies that the
lender has documented eligibility requirements, issues a loan number, and
processes the loan guaranty. Under the 504 program, SBA provides its
guaranty through certified development companies-private nonprofit
corporations-that sell debentures that are fully guaranteed by SBA to
private investors and lend the proceeds to qualified small businesses for
acquiring real estate, machinery, and equipment, and for building or
improving facilities. When a 7(a) or 504 loan defaults, SBA reviews the
lender's request for SBA to purchase the guaranty, and if the lender met
SBA's program requirements, SBA pays the claim. SBA usually relies on the
lender to recover as much as it can by liquidating collateral or SBA takes
over the loan servicing and liquidation.5
5Liquidation is the act of enforcing collection on a debt that has
defaulted by selling underlying securities that the borrower has pledged
as collateral. If collateral proceeds are insufficient to cover the
outstanding balance, lenders may pursue personal guarantees or obligations
provided by business owners or others in support of the loan.
Figure 1: Timeline of Major Organizational and Operational Changes by
Fiscal Year
Reduced headquarters and regional staff Consolidated five regional
personnel offices into one center in Denver
Created liquidation center in
Centralized Preferred Lender
Santa Ana, CA, due to increased Program loan processing workload from 1994
Northridge Quake in a center in Sacramento, CA
Created commercial loan servicing center in Fresno, CA
Preferred Lender Program established Centralized government contracting
field staff in six area offices
1995 1996 1997
Began district office and centralization pilots
Created Lender Oversight Program
Required that lenders service and liquidate 7(a) loans
Source: GAO.
SBA's loan programs have also been the focus of a major organizational
change with the creation of centers to process and service the majority of
SBA's loans-work once handled largely by district office staff. (See fig.
1.) About 92 percent of the processing and servicing of SBA-guaranteed
loans are handled in centers instead of district offices. Among other
things, these centers process the loan guaranty and review servicing
requests submitted by lenders and borrowers.
In response to budget reductions, SBA streamlined its field structure
during the 1990s, downsizing the 10 regional offices, moving the workload
to either district offices or headquarters offices, and eliminating most
of the regions' role as an intermediate management layer between
headquarters and the field. SBA created the Office of Field Operations to
take over the role of intermediary. SBA's overall workforce has decreased
by over 20 percent since 1992 and as of 2002 includes about 4,075
employees, including 956 for the Office of Disaster Assistance and 102
employees for the Office of the Inspector General.
When SBA embarked on this current transformation effort, it planned its
implementation in three phases. The key pilot initiatives SBA undertook in
phase 1 that began on March 10, 2003, focuses on (1) transforming the role
of the district office to focus on outreach to small businesses about
SBA's products and services and linking these businesses to the
appropriate resources, including lenders and (2) centralizing its loan
functions to improve efficiency and consistency of its loan approval,
servicing, and liquidation processes. Later phases will include expanding
these pilots to the remaining district offices. As SBA proceeds in
transforming the district offices and centralizing many of its processes,
it will analyze its business processes to identify opportunities for
improvement and reduce its office space to achieve some cost savings.
Finally, SBA's plan included initiatives to apply technology and use the
Internet to reach out to more small businesses.
SBA Has Made Some Progress in Implementing Transformation, but Budget
Constraints and Staffing Challenges Could Continue to Impede Progress
As part of the first phase of SBA's transformation, the agency began
implementing pilot initiatives to test a new marketing focus for its
district offices and centralizing some of its loan functions. As the first
phase nears completion, SBA has made some progress in implementing the
pilot initiatives at three district offices and two centers. While SBA's
implementation efforts have been and could continue to be impeded by
budget constraints, we found that the agency did not always clearly
communicate its budget requirements. SBA's centralization efforts could
also be impeded by the challenge of realigning staff from multiple field
offices so that it can operate its central locations with experienced
employees.
SBA Made Progress in Implementing Initial District Office and
Centralization Pilots
SBA's purpose for transformation is to realign its organization,
operations, and workforce to better serve its small business customers.
Based on SBA transformation documents and agency officials, the agency
planned to approach its transformation in phases to allow it to test a
number of initiatives and to make refinements before implementing the
initiatives agencywide. In our July 2002 testimony on SBA's workforce
transformation plan, we noted that SBA had started to develop a sound
implementation plan for its transformation.6 As part of phase one, SBA
intended to test a new marketing and outreach initiative for its district
offices that would refocus their efforts on becoming more responsible and
6U.S. General Accounting Office, Small Business Administration: Workforce
Transformation Plan Is Evolving, GAO-02-931T (Washington, D.C.: July 16,
2002).
accountable for promoting small business growth and development as well as
on providing better oversight and management of its lenders and resource
partners. Additionally, SBA planned to centralize a number of the offices'
loan functions to (1) free up district office staff to reach and respond
to the needs of local businesses and to do more lender and partner
management and oversight and (2) improve the efficiency and consistency of
its loan processing, servicing, and liquidation functions. To accomplish
these initiatives, in March 2003, SBA began its initial pilot initiative
at three district offices and two centers and based on its initial
transformation plan, it expected to run the pilots for 6 months before
moving to the second phase of its transformation. As of our report date,
SBA is nearing the completion of phase one of its district office and
centralization pilots and plans to expand the results of phase one to all
of its other district offices. Based on our site visits to the pilot
offices and discussions with SBA headquarters officials, we identified a
number of transformation-related activities that SBA has made progress in
since implementing its initial pilot initiative. Specifically, for its
district office initiative to
o prepare staff in carrying out their new marketing and outreach roles,
during March through June 2003, SBA provided training at the three
district office pilots on topics such as marketing and outreach,
presentation skills, and customer/partner relationships;
o develop the competencies necessary for staff to carry out their new
roles and to evaluate gaps in the existing skill sets of its staff, SBA
has hired a contractor to conduct a skills analysis. In July 2003, the
contractor completed the analysis for the three pilot district offices and
according to SBA officials, district office management will use the
results to identify its employees' developmental needs in the marketing
and outreach areas;
o update and clarify the specific duties that SBA expects its district
office staff to perform in their new marketing roles, the agency developed
new job descriptions for its marketing and outreach specialist positions
at the district office level; and
o allow staff at the three pilot district offices more time to conduct
marketing and outreach functions, in March 2003, these offices had stopped
processing any new 7(a) liquidations and guaranty purchase cases and 504
loan origination applications. In addition, the offices had also
transferred most of their outstanding 7(a) liquidation cases to SBA's
liquidation center in Santa Ana, California.
Additionally, a key component of SBA's transformation is to make
fundamental changes over the next 5 years at its district office level to
reflect the change in the agency's vision for its district offices from
making and servicing loans to primarily reaching out to new markets and
overseeing its private-sector partners. Based on our site visits to the
three pilot district offices, we found that the offices have begun to move
toward SBA's new vision for its district offices. Specifically, SBA's
Phoenix, Arizona, office has officially changed its organization structure
to allow its staff to focus mainly on marketing and outreach-related
activities. As shown in figure 2, the office has replaced its portfolio
management division with divisions for lender development and marketing
and outreach, and it also moved some staff formerly in portfolio
management to its business development division. The Miami and Charlotte
district pilots have also started to expand their marketing and outreach
efforts. For example, a Charlotte official told us that it plans to use
"SBA Days" as a way to reach out to small businesses in its district. SBA
Days are events conducted at local chambers of commerce around the
district's state where SBA staff along with chamber members and other
firms in the area conduct one-onone counseling sessions with business
owners and potential entrepreneurs. To reach small businesses in the Miami
area, officials told us that the office is using one of its resource
partners to work with a national chain of office supply stores to provide
on-site counseling to small business customers when they are in the
stores.
SBA headquarters officials provided us with briefing slides that show that
the three district office pilots have submitted proposals for establishing
alternative customer service sites so that SBA employees can provide
direct customer service in areas outside the physical location of the
district offices. For example, the Phoenix district office already has one
marketing specialist located in Tucson and is proposing two additional
positions to support lender relations. Officials also told us they are
working with local governments and resource partners to identify free
office space for these new sites, but in some cases there may be some
rental expenses.
[This page intentionally left blank]
Figure 2: Phoenix, Arizona, District Office Organizational Structure "Before and
After" Transformation
Source: GAO.
Finally, as part of its centralization initiative to improve the
efficiency and consistency of its loan approval, servicing, and
liquidation processes, in March 2003, SBA's two pilot centers assumed
their new roles and responsibilities. The liquidation center in Santa Ana,
California, began processing new 7(a) liquidations and guaranty purchase
cases from the three pilot district offices, and the loan processing
center in Sacramento, California started processing new 504 loan
origination applications from these offices. In May 2003, the Santa Ana
center also started working on 1,275 outstanding 7(a) liquidation cases
from the three pilot district offices. Based on SBA's benchmark reporting
data for its centralization pilot, as of October 2003, the Santa Ana
center had processed 185 of 227 new 7(a) guaranty purchase cases it had
received and closed 55 of 450 7(a) liquidation cases. The Sacramento
center had processed 582 new 504 applications that it had received since
beginning the pilot initiative.
According to SBA and representatives from two lender trade associations,
the centralization pilot has resulted in a more efficient and consistent
processing of SBA's 7(a) liquidation and guaranty purchases and 504 loan
approvals. SBA headquarters officials told us that the agency would be
able to perform these functions with far fewer resources than it has to
date. According to the officials, based on results from a workload
analysis SBA did of the Santa Ana centralization initiative, it found that
the 7(a) liquidation and purchase guaranty process could be done by 40
employees in a center, as opposed to the 266 employees that now process
the cases in its district offices. SBA officials also told us that
centralization results in faster processing times. SBA data indicate that
the average turnaround time for processing 7(a) guaranty purchases has
decreased from 129 days to 32 days and, for 504 applications, it has gone
from about 14 days on average to about 2 days. We reviewed about 450 cases
of the 504 application approvals from the pilot and found that most
applications were processed and returned to the certified development
companies in about 2 days. We did not review data for any of the other
measures. When we visited the two centers participating in the pilots,
center officials showed us documentation they were using to make the
process more efficient and consistent. For example, for the 504 pilot, the
Sacramento center developed standardized letters to send to certified
development companies in situations where the center receives an
incomplete application package from a company. According to a center
official, some district offices spend a lot of time making telephone calls
to the development companies requesting the necessary data to complete the
processing. However, by using the letters, the official said the center is
saving time because it stops processing the application until it receives
the needed information, and in
the meantime it can continue processing applications that are complete.
One official representing certified development companies told us that the
companies participating in the pilot initiative for SBA's 504 program are
pleased with the results of the pilot. Officials representing 7(a) lenders
said that some lenders might not be in favor of centralization because
they have good working relationships with the local SBA district office
and would prefer to continue working directly with them.
Budget Uncertainties and Constraints Affected Transformation, but SBA Needs
to Better Communicate Budget Requirements
SBA transformation efforts have been impeded and could continue to be
impeded by budget uncertainties and constraints. SBA officials stated that
due to inflation and increases in employee compensation and benefits,
available operating funds had been declining since 2001 as shown in figure
3. Therefore, SBA requested specific funding for its transformation.
According to SBA officials, the agency expected to start its pilot
initiative in July 2002 with funds from its 2002 operating budget and then
expand the initiative in phase two of its transformation, 6 months later,
with funds specifically requested for transformation in its 2003 budget.
But SBA delayed the start of the pilot until March 2003 due to a number of
uncertainties about its budget. SBA officials explained that language in
its appropriations bills requires that SBA notify the appropriations
committees 15 days prior to reprogramming its funds for relocating an
office or employees, or reorganizing offices.7 In the summer of 2002, SBA
notified the appropriations committees about its intent to go forward with
the pilots. However, SBA was told that it should first negotiate with its
union before moving forward. Although SBA reached agreement with its
union, starting the initiative still remained an issue for SBA because,
according to officials, it was too late to use 2002 operating funds as it
initially planned. While SBA then planned to use 2003 operating funds to
start the pilot initiative, officials said that the government's 2003
continuing resolution8 further delayed the start because without an
approved operating budget,
7Consolidated Appropriations Resolution FY 2003, (H.J. Res. 2) Pub. L.
108-7, Div. B, Title VI, S: 605 (2003).
8If Congress has not enacted an annual appropriations for an agency by the
beginning of a fiscal year the agency must begin an orderly shutdown of
most of its activities and operations due to the funding gap, unless
Congress passes a continuing resolution. A continuing resolution is a
temporary appropriations authorizing an agency to incur obligations during
an interim period at a fixed rate until Congress enacts the annual
appropriations for the agency.
SBA did not know the portion of its operating budget that would be
available for transformation.
Figure 3: SBA's Available Operating Funds Have Declined Since Fiscal Year 2001
Dollars in thousands
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0 FY2001 FY2002 FY2003
Salaries and Expenses budget
Available operating funds
Compensation & benefits
Agencywide costs ("fixed" costs, such as rent, telecommunications, etc.)
Available operating funds
(includes travel, operating funds for district offices, training, office
supplies, IT support, etc.)
Source: GAO depiction of SBA data.
For its 2003 budget, Congress did not approve any of the $15 million that
SBA specifically requested for transformation activities planned for phase
two, and SBA officials told us they do not believe the agency will receive
any of the $21.1 million for transformation in its 2004 budget request.
According to officials, SBA has had to change its transformation plans and
the level of funding associated with these plans because of its shrinking
operating budget and the lack of specific appropriations for
transformation. Specifically, officials stated that SBA actually spent
$96,000 in 2003 operating funds on the first phase of its transformation
for activities associated with its pilot initiative, including shipping
files, training, travel, and pilot office evaluations. Officials could not
tell us how much money SBA initially planned to spend in phase one when it
was going to use 2002
operating funds or whether any of the activities associated with this
phase had to be cut back due to the lack of funds. However, many employees
in the district offices we visited told us that they had not received the
level of funding needed to support marketing and outreach functions
including money for travel, laptops, and cell phones that would allow them
to cover a wider geographic area in the districts and to test
telecommuting and alternative work sites.
Although SBA struggled with budget uncertainties and constraints as it
began implementation of its transformation, SBA could have provided better
information about its budget requirements. Based on our analysis of SBA
budget request data for fiscal years 2003 and 2004, SBA has not clearly
defined its budgetary needs for transformation. As shown in figure 4, the
labeling of specific transformation initiatives varies between SBA's
fiscal years 2003 and 2004 Budget Request and Performance Plans, making it
difficult to compare and align its transformation activities from year to
year. Also, as shown in figure 4, in its fiscal year 2004 budget request,
SBA requested $21.1 million for a number of investment initiatives, of
which $8.8 million was for transformation. The $8.8 million figure was
also the amount cited by SBA's Administrator during two congressional
hearings.9 When we met with SBA headquarters officials to discuss the
variances in its budget request data, the officials told us that SBA's
2004 budget request for transformation is the entire $21.1 million, and
not the $8.8 million. In response to our questions about the budget data
inconsistencies, SBA officials attributed the differences to the agency's
changing environment. However, the inconsistencies we found in SBA budget
request data and the lack of a detailed plan make it difficult for
outsiders, including congressional stakeholders, to understand the
direction SBA wants to take with transformation and the resources it needs
to achieve results.
9During his statements on June 4 and February 26, 2003, regarding SBA's
fiscal year 2004 budget request, before the Senate Committee on Small
Business & Entrepreneurship and the House Committee on Small Business,
SBA's Administrator, Hector V. Barreto, indicated that its budget request
included $8.8 million for its transformation effort in fiscal year 2004.
Figure 4: Comparison of SBA's Fiscal Years 2003 and 2004 Budget Requests
for Transformation Dollars in millions
Source: GAO.
Note: In SBA's fiscal year 2004 budget request for transformation, SBA
listed $2,000,000 for space restructuring. This amount should have been
$2,750,000, which SBA had listed in another location of the document.
Staffing Challenges Could Impact Centralization Efforts
To staff its centralization initiatives, SBA will have to relocate
employees from its 68 district offices scattered throughout the country.10
Realigning staff from multiple field offices to central locations is and
will be an ongoing challenge for SBA. Relocations could not only prove
potentially disruptive for employees but can also have an effect on SBA's
operations by negatively impacting morale and productivity. As part of
phase one of its transformation, SBA centralized a number of loan
functions from the three pilot district offices to two of its existing
loan processing and servicing centers. In phases two and three of its
transformation, SBA had planned to expand its centralization initiative
until all of its loan functions performed by its remaining 65 district
offices were centralized. In addition, SBA had planned to have fewer
centers by consolidating some of its existing ones.
Based on our discussions with SBA staff in the pilot offices, the staffing
of any centralization initiative with experienced staff could be
potentially challenging for SBA. Specifically, some staff believed that
the two pilot centers would not have a sufficient number of staff to
handle the increased workloads when SBA expands its centralization
initiative to include more district offices. According to one district
office employee, unless the two pilot centers or any other center have
enough staff with the right skill mix, they will be unable to adequately
respond to lenders, which the employee believed could potentially affect
relationships between SBA and the lending community. One center official
characterized the problem as fundamental because in his view staff are not
all equally adept and SBA is faced with matching jobs with people who do
not have the skills to do the work. An official representing one of SBA's
lender trade associations also expressed concern that if SBA forced
employees to move, that the centralization initiatives will be staffed
with employees with low morale that could hurt productivity.
SBA's first attempt to realign staff with one of its centralization
initiatives was to establish a new 7(a) liquidation and guaranty purchase
center near Washington, D.C., beginning in early October 2003 and operate
it with 40 liquidation staff relocated to the center from its district
offices. Based on SBA transformation documents, SBA plans to relocate
those staff with the greatest experience into the center to take advantage
of their expertise.
10Prior to February 2003, SBA had 70 district offices. In February 2003,
SBA notified Congress of its intent to designate two of its district
offices--Spokane, Washington; and Cedar Rapids, Iowa-as branch offices and
this change was formally made in September 2003.
According to SBA officials, to identify experienced staff the agency used
results from a cost allocation survey that provided information on the
amount of time district office staff spend on loan liquidation functions.
On September 10, 2003, SBA sent notification letters to certain district
office employees identified as having worked on liquidations, informing
them that they were eligible for a monetary buy-out if they separated from
federal service not later than September 30, 2003. While the letter also
states that the employee has 7 calendar days to accept the buy-out offer,
it is unclear how SBA would handle reassigning those staff who do not
accept the buyout offer. Specifically, the letter does not mention where
staff are being assigned, or what relocation costs SBA would pay.
According to the memorandum of understanding between SBA and its
employees' union signed September 9, 2003, the two parties agreed that
current district office staff at the GS-9 level and above who reported
spending at least 25 percent of their time performing liquidations on
SBA's most recent cost allocation study would be directly reassigned to
the new liquidation center in the Washington, D.C., metropolitan area, or
to one of the six most severely understaffed SBA district offices in New
York, New York; Newark, New Jersey; Atlanta, Georgia; Chicago, Illinois;
and San Francisco and Los Angeles, California. The memorandum indicates
that SBA identified the six offices based on staffing levels for those
district offices with the lowest ratio of SBA staff to small businesses in
their service area, as of August 1, 2003. Also, the memorandum states that
SBA plans to begin relocating staff 30 days from the time it notifies them
about their reassignment to the center and that it will pay all of an
employee's relocation cost in accordance with the law. While SBA has
indicated that it will make reassignments as minimally disruptive for its
employees as possible, depending on where the 40 staff being reassigned to
the center currently work, logistical factors associated with moving, such
as finding a new home, could pose a challenge for these staff. As of our
review date, SBA had not informed us about when it expects to begin the
reassignments or the number of and office locations for the employees that
it intends to relocate.
SBA Applied Some but Not Many Aspects of Practices and Implementation Steps
Important to Successful Transformation
We compared SBA's implementation process to practices that have been
identified in major private and public sector organizational
transformations as key for a successful transformation. Building on
lessons learned from the experiences of large private and public sector
organizations, these practices can help agencies successfully transform
their cultures so that they can be more results oriented, customer
focused, and collaborative. While SBA applied some key practices, such as
involving top leadership, dedicating an implementation team and developing
an implementation plan, it also overlooked key aspects that emphasize
transparency and communication. For example, although it developed a draft
transformation plan with implementation goals and a timeline, it did not
share the plan with employees and stakeholders. SBA developed strategic
goals for transformation but still needs to link those goals with
performance goals and its performance management system. Finally, a lack
of communication and employee involvement in SBA's communication approach
did not encourage two-way communication to obtain feedback from employees
and stakeholders and involve employees to obtain their ideas and gain
their ownership for the transformation.
Practices Important to Successful Transformation
According to key transformation practices, people are at the center of any
change management initiative-people define the organization's culture,
drive its performance, and embody its knowledge base. Experience shows
that failure to adequately address-and often even consider-a wide variety
of people and cultural issues are at the heart of unsuccessful
transformations. Recognizing the "people" element in these initiatives and
implementing strategies to help individuals maximize their full potential
in the new organization, while simultaneously managing the risk of reduced
productivity and effectiveness that often occurs as a result of the
changes, is the key to a successful transformation. Thus, transformations
that incorporate strategic human capital management approaches will help
to sustain agency efforts to improve efficiency, effectiveness, and
accountability in the federal government.
We convened a forum on September 24, 2002, to identify and discuss useful
practices and lessons learned from major private and public sector
mergers, acquisitions, and transformations.11 The invited participants
were a cross section of leaders who have had experience managing
large-scale organizational mergers, acquisitions, and transformations, as
well as academics and others who have studied these efforts. The forum
neither sought nor achieved consensus on all of the issues identified
through the discussion. Nevertheless, there was general agreement on a
number of key practices that have consistently been found at the center of
successful mergers, acquisitions, and transformations. In a follow-up
report issued on July 2, 2003, we identified specific implementation steps
for these key practices.12 These practices and implementation steps are
shown in table 1.
Table 1: Key Practices and Implementation Steps for Organizational
Transformations
Practice Implementation step
Ensure top leadership drives the o Define and articulate a succinct and
transformation. compelling reason for change.
o Balance continued delivery of services with merger and transformation
activities.
Establish a coherent mission and integrated strategic goals to guide the
transformation.
o Adopt leading practices for results-oriented strategic planning and
reporting.
Focus on a key set of principles and
o Embed core values in every aspect of the
priorities at the outset of the transformation.
organization to reinforce the new culture.
11U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
Transformation: Lessons Learned for a Department of Homeland Security and
Other Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov. 14, 2002).
12U.S. General Accounting Office, Results-Oriented Cultures:
Implementation Steps to Assist Mergers and Organizational Transformations,
GAO-03-669 (Washington, D.C.: July 2, 2003).
(Continued From Previous Page)
Practice Implementation step
Set implementation goals and a timeline to build momentum and show
progress from day one.
o Make public implementation goals and timeline.
o Seek and monitor employee attitudes and take appropriate follow-up
actions.
o Identify cultural features of merging organizations to increase
understanding of former work environments.
o Attract and retain key talent.
o Establish an organizationwide knowledge and skills inventory to
exchange knowledge among merging organizations.
Dedicate an implementation team to o Establish networks to support
manage the transformation process. implementation team.
o Select high-performing team members.
Use the performance management system to define the responsibility and
assure accountability for change.
o Adopt leading practices to implement effective performance management
systems with adequate safeguards.
Establish a communication strategy to
o Communicate early and often to build trust.
create shared expectations and report related progress.
o Ensure consistency of message.
o Encourage two-way communication.
o Provide information to meet specific needs of employees.
Involve employees to obtain their ideas o Use employee teams.
and gain ownership for the transformation. o Involve employees in
planning and sharing performance information.
o Incorporate employee feedback into new policies and procedures.
o Delegate authority to appropriate organizational levels.
Build a world-class organization. o Adopt leading practices to build a
worldclass organization.
Source: GAO.
SBA Transformation Has One of the key practices important to a successful
transformation is for the Top Leadership Support and agency to ensure that
top leadership drives the transformation. SBA has a Designated followed
this practice, with both the Administrator and the Deputy
Administrator demonstrating support for the transformation. The
SBAImplementation Team, but Administrator has provided a rationale behind
the purpose of the agencySenior Officials' Roles Were and the goals of the
transformation by addressing district directors and Not Always Transparent
visiting field offices to discuss the importance and goals of
transformation-to increase awareness of SBA's services and to make SBA a
better trained, better equipped, and more efficient organization. SBA
officials told us that the Deputy Administrator has also visited many
field offices to discuss the transformation.
Designating a strong and stable implementation team that will be
responsible for the transformation's day-to-day management is also
important to ensuring that transformation receives the focused, full-time
attention needed to be sustained and successful. SBA has dedicated an
implementation team to manage the transformation process, but it has
experienced leadership changes that were not made apparent to employees
and stakeholders. The composition of the team is important because of the
visual sign it communicates regarding which organizational components are
dominant and subordinate or whether the transformation team involves a
team of equals. Prior to the Deputy Administrator assuming the lead for
implementing the transformation, the Chief Operating Officer was
responsible. The Chief Operating Officer, along with SBA's Associate
Administrator for the Office of Field Operations, visited the pilot
district offices during the kick off to promote the transformation and to
address questions and concerns of the pilot district office staff.
However, the Chief Operating Officer left SBA shortly after the first
pilot phase was initiated.13 Similarly, the person who was initially the
Associate Administrator for the Office of Field Operations, who was
responsible for overseeing the district office pilots, was no longer
involved in the transformation shortly after implementation. SBA officials
told us that it was not productive for its Chief Operating Officer to be
in charge of the transformation because the Chief Operating Officer
position was equal in terms of authority to the other key positions on the
implementation team. Since the Chief Operating Officer left the agency,
SBA has not publicly designated a day-to-day manager for the
transformation effort. Based on our discussions with stakeholders and
field and union officials, the Counselor to the Administrator appeared to
be the manager. However, SBA has not issued any announcement or otherwise
clarified the leadership or implementation team to employees and
stakeholders. SBA officials told us that the person now serving as the
Associate Administrator for the Office of Field Operations leads the
weekly conference calls with the district and center directors involved in
the pilots and is the person most involved in the day-to-day management of
the transformation.
13 This position was still vacant as of October 23, 2003.
The Deputy Administrator, who can direct the other members of the
implementation team, leads the current team, which comprises senior
executives of the key program areas affected by the transformation such as
the Associate Deputy Administrator for Capital Access, the Associate
Administrator for the Office of Field Operations, Chief Human Capital
Officer, and the three pilot district office directors. The team also
includes the Counselor to the Administrator and two Regional
Administrators. Officials on the implementation team told us that they
meet on a weekly basis with the Deputy Administrator and sometimes the
Administrator to discuss the status and concerns related to the pilot's
implementation. SBA officials also emphasized that the implementation team
includes a mix of political appointees and senior career officials. For
example, the Associate Deputy Administrator for Capital Access and the
Associate Administrator for Office of Field Operations are political
appointees. The Chief Human Capital Officer and the Counselor to the
Administrator are career officials.
Lack of a Transparent Plan and Changing Focus Made SBA's Implementation
Goals and Progress Reports Confusing
A key practice in organizational transformations is to set implementation
goals and a timeline to build momentum and show progress from day one.
Although SBA had developed a transformation plan that contains goals,
anticipated results, and an implementation strategy, it never made the
plan public. SBA headquarters officials told us that all of its plans
provided to us were "preliminary" documents because of changes made to the
plan; therefore, it had not been shared with employees or stakeholders.
Making the implementation goals and timeline public is important for
transparency and accountability in a transformation and because employees
and stakeholders are not only concerned with what results are to be
achieved, but also how to achieve those results. According to SBA's draft
transformation plan, SBA intended to keep its employees apprised of the
current status of activities, and continuously inform its employees on
what the agency intended to do. However, SBA has not made much information
available to its employees and stakeholders regarding the details of
upcoming steps, measures for success, and reasons for decisions. As a
result, it appeared to many district office employees and stakeholders
that headquarters lacked a plan and direction. Stakeholders, including
representatives from lender trade associations, informed us that SBA has
not been forthcoming in discussing its transformation plans with them.
Generally, district office employees told us they thought SBA had no clear
plan and lacked direction. Specifically, two district office employees
told us that despite any planning that SBA had done for the
transformation, headquarters officials kept adding to the plan, and
changing goals during
mid-year, which left employees in the district office uncertain about what
to expect.
SBA officials told us that internal and external factors, such as budget
uncertainties, caused SBA to alter aspects of the draft transformation
plan. Initially, phases two and three of its transformation were to expand
its district office and centralization pilot initiatives to additional
district offices. SBA had also planned a number of other initiatives as
part of the later phases, including analyzing its business processes to
identify opportunities for improvement, restructuring its surety bond
program, and expanding its technology systems. According to a revised plan
dated August 1, 2003, and discussions with SBA officials, the focus of
SBA's transformation is now on creating a new center for centralizing all
of its 7(a) loan liquidation and loan guaranty cases. Also, the plan and
other documentation describing SBA's new centralization initiative
indicate that SBA's reason for the initiative is to allow it to correct
staffing imbalances at its district offices nationwide and will allow
these districts to increase the number of people in the field offices who
are providing direct assistance to small businesses, including providing
assistance in areas that have not had access to SBA services. While SBA
officials told us the focus of the transformation had changed, we had
difficulty in determining the extent of changes to the specific
initiatives in its initial transformation plan, including to what extent
SBA would test new marketing and outreach approaches, centralize other
functions, and improve business processes. According to a senior SBA
official, although there has not been a formal announcement about creating
the liquidation center, he expected that staff would be aware that SBA was
moving toward centralizing loan-related functions based on the new
marketing and outreach focus in the pilot district offices, and because
the union had been informed.
Similarly, although SBA planned for evaluating the progress of its pilot
initiatives, the SBA evaluations provided to us have been limited to
measuring the results of its centralization pilots and not the results of
the district office pilots or lessons learned from the implementation
process. As a result, employees and stakeholders are uncertain about the
results of the district office pilots. According to key transformation
practices, it is essential to establish and track implementation goals to
pinpoint performance shortfalls and suggest midcourse corrections.
According to SBA transformation documents and officials, follow-up
evaluations of its pilot initiatives were to take place after kick
off-every 90 days for the district office pilots and every 30 days for the
center pilots-to evaluate the progress of the pilots, and to monitor and
validate the information SBA
received. In addition, these reviews were intended to identify any
problems related to the transformation process, as well as best practices,
which would be documented and shared with the others in the pilot to
improve efficiency and effectiveness. For its centralization initiative,
SBA has established some evaluation standards-such as measuring average
turnaround and processing time for the centers, and has generated a
benchmark report reflecting the results of these measures. While SBA
gathered benchmark measurements to monitor progress in the district office
pilots as part of its quality service reviews conducted in January 2003,
SBA did not provide an evaluation of the results of SBA's district office
initiative. As of our report date, it is unclear to us whether SBA has
completed or begun district office evaluations. SBA officials told us that
they are working on developing a way to evaluate the impact of the
district office pilots and to link their marketing and outreach focus with
their existing performance goals, such as loan volume, so that they would
have a road map on lessons learned to use when adding more district
offices to the pilot.
SBA Has Developed Strategic Goals for Its Transformation, but Needs to Link
Performance Goals to Its Marketing and Outreach Focus
Establishing a coherent mission and integrated strategic goals is another
key practice in organizational transformations. Although SBA has developed
strategic goals to guide its transformation and included these goals in
its fiscal year 2004 performance plan, SBA has not linked them with
measurable performance goals that demonstrate the success of the agency's
expanded focus on marketing and outreach. According to the Government
Performance and Results Act, agencies are required to develop annual
performance plans that use performance measurement to reinforce the
connection between the long-term strategic goals outlined in their
strategic plans and the day-to-day activities of their staff, and include
performance indicators that will be used to measure performance and how
the performance information will be verified. District office employees we
interviewed generally indicated an understanding of the strategic goals
and the purpose of the transformation, and had a sense of what the
transformation intends to accomplish. However, some district office
employees told us that they did not know what the measures would be for
determining whether the new marketing and outreach focus was successful,
while others told us that they were unclear on how the district office
staff should conduct marketing and outreach. SBA officials told us that
the agency was still struggling with how to link its marketing and
outreach focus with its existing performance goals, such as number of
loans made by lending partners.
SBA currently uses quantitative measures, such as the number of jobs
created, number of loans made, and dollar volume of loans to determine how
well it is achieving its strategic goals. SBA officials told us that SBA
uses an Execution Scorecard, which is an Intranet-based system, as the
internal management tool to track data on each district offices'
performance goals, for monthly progress reviews with the Deputy
Administrator on key initiatives, including transformation. According to
an SBA official, the scorecard shows that the loan volume in two of the
three pilot district offices has increased more than in nonpilot district
offices when compared to last year's volume. However, we identified other
factors that could have contributed to an increase in loan volume. For
instance, the policy changes made to its SBA Express program, which allows
the lender to use its own documentation and applications, also most likely
contributed to an increase in loan volume. In fact, other district offices
not in the pilot have also seen an increase in loan volume. As a result,
the scorecard may be limited in measuring success that could be directly
attributed to the pilot efforts for marketing and outreach.
Lack of Clear Performance Goals Puts New Performance Management System At
Risk
Using the performance management system to define responsibility and
assure accountability for change is a key practice in organizational
transformations. SBA has taken steps toward creating a performance
management system that would define responsibility and set expectations
for the individuals' role in the transformed SBA. However, since SBA is
still struggling with how to define measurable outcomes for the new
marketing and outreach focus, its performance management system may also
send a confusing or ambiguous message to employees. We previously reported
that as agencies continued to shift towards a greater focus on results,
they would need to make progress connecting employee performance with
agency success.14 An explicit alignment of daily activities with broader
results helps individuals see the connection between their daily
activities and organizational goals. According to SBA headquarters
officials, SBA's performance management system, modeled after IBM's, would
focus more on results and not on activity. SBA officials told us that SBA
implemented its performance management system for senior executives and
supervisory staff in fiscal year 2003. SBA is implementing the system for
its nonsupervisory staff beginning in fiscal year 2004. SBA officials
provided us with documentation of the new position descriptions for the
marketing
14U.S. General Accounting Office, Managing for Results: Emerging Benefits
from Selected Agencies' Use of Performance Agreements, GAO-01-115
(Washington, D.C.: Oct. 30, 2000).
and outreach positions that explained the duties and expectations.
However, at the time of our review SBA was still developing the
performance standards and had not yet implemented them for nonsupervisory
staff. SBA recognized that it would need to provide training to help
employees make the transition from their former areas of expertise to a
new, broader, and in some respects, more complex job.
It was unclear what the linkage will be between these new job
responsibilities, performance standards, agency performance goals, and the
strategic goals for the transformation. District office employees who have
been conducting new marketing and outreach activities told us that they
were not sure how their performance will be measured because they have not
received information on their performance management standards, and are
unclear as to how their job responsibilities would change, or how they
would be rated. Specifically, one district office employee told us that it
was easy to measure loan specialist performance prior to the pilot because
the standards were clear and concise-he knew from his own self-assessment
where his performance stood-and that under the new performance management
system, it will be harder to measure results because they are not
tangible. In addition, another district office employee told us that
although many employees see benefits to the transformation, they do not
know how SBA will measure its progress toward reaching more of the public
since employees do not understand what exactly they need to accomplish,
such as number of clients the staff should contact or how many marketing
events staff should attend, to help SBA reach its goals.
Communication Strategy Is Limited
While establishing a communication strategy is a key practice in
organizational transformations, SBA has not established an effective and
on-going communication strategy that would allow the agency to create
shared expectations and report related progress to its employees and
stakeholders. Organizations implementing transformations have found that
communicating information early and often helps build an understanding of
the purpose of planned changes and builds trust among employees and
stakeholders. In particular, SBA does not have an effective communication
strategy that reaches out to its employees and stakeholders to engage them
in the transformation process, encourages two-way communication, and
communicates early and often to build trust. A comprehensive communication
strategy that reaches out to employees and stakeholders and seeks to
genuinely engage them in the transformation process is essential to
implementing a transformation.
SBA officials acknowledged that it was important for headquarters to
communicate and address staffs' concerns. However, when we reviewed SBA's
current methods of communication and asked employees in the pilot offices
how they received information, we determined that communication is one-way
and through a chain of command model, newsletters, or rumors.
Communication is not about just "pushing the message out," but also
involves facilitating an honest two-way exchange and allows for feedback
from employees and stakeholders. SBA officials told us that SBA
headquarters disseminated information to the employees through the
regional administrators and the district directors-and a newsletter-The
SBA Times. District office employees told us that they generally hear
about transformation-related events either through their district director
or their immediate supervisor, while other employees stated that they get
most of their information through rumors. In addition, stakeholders also
told us that they initially hear information through rumors. For instance,
a representative from a lender association informed us that they get
information through rumors because SBA did not provide any information
about the transformation to them. As we noted in an earlier report, it is
important for stakeholders to be involved because it helps to ensure that
resources are targeted at the highest priorities, and it creates a basic
understanding among the stakeholders of the competing demands that
confront most agencies, such as the limited resources available.15
It is also important to consider and use employee feedback and make any
appropriate changes to the implementation of a transformation. According
to union officials, SBA had set up an e-mail address in June 2002 to which
employees could send their questions regarding the transformation.
However, despite staff submitting questions, the district office staff
told us they have yet to see a list of the questions or SBA's responses.
According to SBA officials, these emails were provided to senior
management officials to respond to questions in conference calls held with
field staff. The draft transformation plan we reviewed included a set of
questions and answers about the transformation, but they were never made
public. SBA officials told us that because all the transformation plans
were preliminary, SBA has not drafted a thorough list of questions and
answers and therefore had not made them available to employees.
15U.S. General Accounting Office, Executive Guide: Effectively
Implementing the Government Performance and Results Act, GAO/GGD-96-118
(Washington, D.C.: June 1996).
SBA did not communicate sufficiently with its employees. The information
on the transformation initiative found in SBA's monthly newsletters from
June 2002 through March 2003 reported on the status of the transformation
effort, described the purpose of transformation, announced when the pilots
began, and described them. We reviewed all of the newsletters issued after
the kick off of the pilots in March 2003, to see what kind of information
was provided to SBA employees. With one exception, the newsletters had no
information about the transformation or the creation of the new 7(a)
Liquidation and Purchase Guaranty Center and SBA's intention to reassign
staff from overstaffed district offices to understaffed offices. The topic
related to transformation included in one issue was a brief reference to
the district office pilot in Phoenix. None of the newsletters mentioned
who would replace two people who had been key leaders in the
transformation-the Chief Operating Officer who left the agency or the
Associate Administrator for Office of Field Operations who had moved to a
different position within SBA. SBA officials told us that no one has
filled the position of the Chief Operating Officer and the replacement for
the Associate Administrator for Office of Field Operations was announced
in an agencywide e-mail. However, as we stated earlier, after the Chief
Operating Officer left the agency, SBA had not clarified who was leading
the implementation team for transformation.
Transformation Has Not Adequately Involved Employees
Involving employees from the beginning to obtain their ideas and gain
ownership of the transformation is important to successful
transformations. It strengthens the process by including frontline
perspectives and experiences. In addition, a study conducted by the
National Academy of Public Administration indicates that agencies that
have effectively restructured have also worked with their unions to
implement changes. 16 The Academy reported that when Congress mandated in
1998 that the Internal Revenue Service (IRS) restructure, IRS management
worked with the National Treasury Employees Union to implement benchmarks
and develop alternatives. As a result of this collaboration, according to
the Academy, IRS facilitated the process of moving employees into new jobs
and made the transition easier. Although SBA officials told us that SBA
has involved its union, the American Federation of Government Employees,
and signed memorandums of
16National Academy of Public Administration, Equal Employment Opportunity
Commission: Organizing for the Future (February 2003). This report also
includes the Academy's observations on the IRS restructuring.
understanding with the union on implementation of the pilot and on
establishing a liquidation center, union officials told us that they had
very little involvement. A union representative told us that SBA does not
involve them in any of the planning and only includes the union after it
has decided what it wants to accomplish. In addition, another union
representative told us that since signing the memorandum of understanding
for the first pilot phase in October 2002, SBA has not included the union
in aspects of the transformation, such as creating SBA's competency
models, or following up on training courses. SBA made a presentation to
the union in July 2003 regarding the second phase of the pilot-to create a
new liquidation center in the Washington, D.C., metropolitan area-prior to
signing the second memorandum of understanding but did not give the union
an opportunity for input on planning for the second phase. In September
2003, SBA and the union signed a memorandum of understanding on the
creation of the new center in which SBA agreed to offer an early
retirement for all agency personnel and a buyout option to those employees
who performed the liquidation function.
SBA's transformation has not involved employees in the planning or
implementation stages. During our field visits, we found that because SBA
has not actively involved its employees in the transformation process,
there is often anxiety and apprehension, as well as low morale in the
pilot district offices. However, based on our field visit, we observed
that the Arizona District Office's former Portfolio Management Team
appeared to be less anxious about the transformation than Portfolio
Management teams in the other district office pilots, mostly because the
team leader and her staff were involved early in the transformation by
preparing the loan files for the Santa Ana 7(a) center, and training the
center staff. We found that because of this early involvement, they had a
better sense of their role and were more optimistic about the
transformation. An SBA headquarters official told us that SBA intends to
use its employee feedback from training evaluations to modify its training
curriculum for the next pilot phase, but we were unable to identify any
other examples where employee opinions and perspectives were sought.
During our field visits to the pilot offices, we found that the employees
had valuable input on lessons learned and on ways that SBA could improve
its implementation process. For example, one employee suggested that SBA
create a guidebook for its employees on what to expect from the
transformation, and that the three district office pilots be a resource
for the guidebook. In addition, one district office employee suggested
that SBA change the order of the training curriculum so that the course on
results management is offered first to help
supervisors communicate with their staff regarding the transformation. We
also observed that employees generally were not opposed to the
transformation and saw benefits resulting from the transformation;
however, a few employees expressed frustration with the way the process
was implemented. If employees had a larger role in implementing and
planning the transformation, such as through employee teams, they could
help to facilitate the process by sharing their knowledge and expertise,
particularly those employees who have had experience in the marketing and
outreach area.
Conclusions SBA has made some progress in implementing its transformation
plan for phase one. However, continued success and progress in
implementing its transformation may be impeded by budget uncertainties and
constraints and the difficulties in realigning employees to staff
centralization efforts. To some extent, SBA has compounded the budget
challenge by not sharing its plan with a key stakeholder-Congress-and not
providing clear, consistent budget requests with a detailed plan that show
priorities and link resources to desired results. In addition, as SBA
moves forward in centralizing its loan and other functions, realigning
staff will likely present additional challenges, such as problems with
employee morale and productivity.
Transforming an organization is not an easy endeavor. It requires a
comprehensive, strategic approach that takes leadership, time, and
commitment. Although SBA may achieve progress in the short-term by
establishing new centers to improve some of its business processes, its
long-term success in defining and institutionalizing a new role for its
district offices will take more time and commitment. The practices we have
identified as being important to successful transformation are especially
important as SBA moves forward with its transformation and could also help
mitigate the challenges it faces with its budget and staff realignment.
However, the weaknesses we identified in SBA's implementation process
could derail or negatively impact its transformation effort as the agency
attempts to expand transformation and affect more of its operations and
employees. SBA's leadership changes, plans, and rationales for decisions
have not been made public and therefore have created an environment of
confusion about the leadership, specific goals, and timeline for
transformation. SBA is in the infant stages of developing a link between
its broad strategic objectives and measurable performance goals, which
will be important for determining the success of transformation. The lack
of frequent and two-way communication has
exacerbated an environment of confusion, even though many employees
understand the goals of transformation. Finally, SBA is missing out on one
of its key strengths-its employees-by not adequately involving employees
in the transformation process. This lack of employee involvement means
that SBA does not receive information and perspectives that could improve
and facilitate the transformation and promote employee buy-in.
Recommendations for Agency Action
In order to improve and build on transformation efforts under way at SBA,
we recommend that the Administrator adopt key practices that have helped
other organizations succeed in transforming their organizations. Based on
our review of SBA's initial implementation of phase one of its
transformation, we specifically recommend that the Administrator
o Clarify for employees, congressional, and other stakeholders the
leadership and implementation team members who are guiding transformation.
o Finalize the draft transformation plan that clearly states SBA's
strategic goals for transformation and includes implementation goals,
timeline, and resource requirements, and share the plan with stakeholders
and employees.
o Develop performance goals that reflect the strategic goals for
transformation and more clearly link the strategic goals of transformation
to existing performance goals. In addition, develop budget requests that
clearly link resource needs to achieving these strategic and performance
goals.
o Ensure that the new performance management system is clearly linked to
well-defined goals to help individuals see the connection of their daily
activities and organizational goals and encourage individuals to focus on
their roles and responsibilities to help achieve those goals.
o Develop a communication strategy that facilitates and promotes frequent
and two-way communication between senior managers and employees and
between the agency and its stakeholders, such as Congress and SBA's
lenders. For example, SBA could electronically post frequently asked
questions and answers on its Intranet.
o Facilitate employees' involvement by soliciting ideas and feedback from
its union and staff, ensuring that their concerns and ideas are
considered. For example, SBA could develop employee teams and expand
employee feedback mechanisms like those it employed in the pilot training.
Agency Comments We received written comments on a draft of this report
from SBA's Chief Financial Officer, which are reprinted in appendix I. In
commenting on the draft, SBA did not state whether it concurred with our
recommendations but said it would consider them as it continues to plan
for and implement its transformation efforts. SBA specifically noted that
it had already addressed recommendations regarding developing performance
goals and using the performance management system to define responsibility
as a result of issuing a new strategic plan with revised performance goals
and implementing its new performance management system for employees on
October 1, 2003. SBA provided us with a draft strategic plan but then told
us that the plan was being revised significantly and that we should wait
until the revised plan was completed. Since this revised strategic plan
was issued after we had completed our work, we did not have time to
determine whether SBA had sufficiently addressed our recommendations
related to linking its transformation efforts to strategic and performance
goals and performance expectations for employees. Therefore, these
recommendations will remain in the report, and we will determine whether
SBA has implemented the recommendations as part of our recommendation
follow-up process.
SBA disagreed with our finding that its budget requests for transformation
were unclear. SBA stated that it clearly lays out its funding requests for
transformation in the Fiscal Year 2003 and Fiscal Year 2004 Budget Request
and Performance Plans. We used these documents to review SBA's budget
requests for transformation and as the source for our analysis shown in
figure 4 of the report. In its comments, SBA said that it had made changes
to its budget format in fiscal year 2004 to bring it more in line with the
requirements of the Results Act by integrating budget with performance
goals. We clarified some language in the final report to better reflect
the issues we identified with SBA's transformation budget requests. While
the fiscal year 2004 budget request may have at some level integrated its
budget request with performance goals for its programs, it did not make
clear linkages between its request for transformation funds and its
performance goals. The budget requests for transformation were not
consistent in terms of amounts requested or stated purposes nor were they
accompanied by a
detailed plan that showed priorities and linked resources to desired
transformation results. Therefore, we still maintain that SBA could
improve its transformation budget request presentation to better ensure
that it links the request to transformation performance goals and
outcomes.
SBA also disagreed with our findings related to communication and employee
involvement. SBA stated that officials have traveled to the pilot district
offices to explain the agency's transformation plans and solicited
comments from district directors in a May 2002 district director
conference. However, our draft report did not state that management was
not involved or was uninformed, but that employees below the district
director level in the pilot offices were not sufficiently involved and
informed. Furthermore, SBA cites its efforts to communicate prior to the
implementation of the pilots, which we recited in our draft report, but
employees told us that their level of involvement and the amount of
information they received was lacking after the pilot began. In its
comments, SBA also stated that it conducts weekly telephone calls with the
pilot district directors who in turn have regular meetings with their
employees. Our draft report acknowledged SBA's use of conference calls
with the district directors and the expectation that directors would then
have meetings with their employees. However, we also found that
notwithstanding communications with district directors, district office
employees remained confused and lacked avenues for two-way communication
with headquarters about the transformation. SBA also stated that it has
worked with its union to gain agreement through memorandums of
understanding for different parts of the plan, and these efforts were
reflected in our draft report. However, in more than one discussion with
us, union officials expressed concerns that SBA had approached them after
having already decided what it was going to do and had not adequately
informed the union about new initiatives or changes to the plan. We
continue to maintain that SBA's transformation efforts could benefit from
improved communication and employee involvement.
SBA also provided technical corrections, which we incorporated as
appropriate in this report.
Objectives, Scope, and Methodology
In preparing this report, we focused on the district office and
centralization pilots of phase one of SBA's transformation effort because
(1) they were initiatives that had begun at about the same time we began
our review and, therefore, we could observe the implementation process and
(2) these pilot initiatives, if expanded, would impact all 68 SBA district
offices.
To determine SBA's progress in implementing its transformation effort and
challenges that have or could impede progress, we analyzed planning,
budget, and implementation documents related to SBA's transformation and
interviewed key officials at SBA headquarters involved in the
transformation planning and implementation processes. We also conducted
site visits at each of the pilot offices involved in the first phase-
three district office pilots in Phoenix, Arizona; Miami, Florida; and
Charlotte, North Carolina; and two center pilots in Santa Ana and
Sacramento, California. At the center locations, we reviewed documents
that were developed to make the process more efficient and consistent (for
example, checklists and standardized letters). We also reviewed measures
that SBA is using to assess the centralization pilots. From data SBA
headquarters uses to track the pilots, we reviewed about 450 approvals for
the 504 loan program pilot and calculated an average total response and
processing time using the dates that were included in the data. At each of
the pilot locations, we interviewed all employees who were directly
affected by the pilot-in the case of the district offices, we met with
virtually all employees.17 To ensure open communication, we met with
directors, supervisors, and employees separately. We asked them to
describe how their office, role, and job had changed; how information was
communicated to them about transformation; and whether they had been
provided training and resources to transition into new roles. We also
asked them to identify the top five or fewer challenges and benefits of
transformation and lessons learned from the initial implementation
process.
17For employees that were not available at the time of our visits, we
followed up through telephone calls, in most cases.
To assess whether SBA applied practices that are important to
organizational change and human capital management in the federal
government, we reviewed the literature and our previous work on
reorganizations, organizational change, and human capital management to
identify key practices that have been recognized as contributing to
successful organizational transformation. The main document we relied on
in identifying key practices was our recent report Results Oriented
Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations.18 We used these criteria as a basis to assess SBA's
planning process for transformation, implementation process for the pilots
for phase one, leadership of the transformation, communication with
employees and key stakeholders, and level of employee involvement. When
interviewing SBA employees for objective one, we also asked questions to
determine their understanding of the transformation effort and how they
received information and communicated their questions or concerns. In
addition to talking with employees involved in the pilots, we also
interviewed representatives of SBA's union and asked the extent to which
they were involved in the transformation process. To obtain feedback from
SBA stakeholders, we interviewed officials representing the National
Association of Government Guaranteed Lenders and the National Association
of Development Companies, whose members include SBA 7(a) lenders and
certified development companies that make 504 loans, respectively. We also
met with SBA's congressional stakeholders who expressed views about their
role in SBA's transformation process.
We conducted our work in Washington, D.C.; Phoenix, Arizona; Sacramento
and Santa Ana, California; Miami, Florida; and Charlotte, North Carolina,
between February and September 2003, in accordance with generally accepted
government auditing standards.
Unless you publicly announce its contents earlier, we plan no further
distribution until 30 days after the date of this report. At that time, we
will send copies of the report to the Ranking Minority Member of the
Senate Committee on Small Business and Entrepreneurship, the Ranking
Minority Member of the House Committee on Small Business, other interested
congressional committees, the Administrator of the Small Business
Administration, and the Director of the Office of Management and Budget.
18GAO-03-669, July 2003.
We will make copies available to others on request. This report will also
be available at no charge on the GAO Web site at http:/www.gao.gov.
Please contact me at (202) 512-8678, [email protected] or Katie Harris at
(202) 512-8415, [email protected] if you or your staff have any questions.
Major contributors to this report were Patty Hsieh, Kay Kuhlman, and Rose
Schuville.
Davi M. D'Agostino Director, Financial Markets and Community Investment
Appendix I
Comments from the Small Business Administration
Appendix I
Comments from the Small Business
Administration
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