The Chief Operating Officer Concept and its Potential Use as a	 
Strategy to Improve Management at the Department of Homeland	 
Security (28-JUN-04, GAO-04-876R).				 
                                                                 
In a May 18, 2004 letter, you observed that many management and  
integration challenges remain at the Department of Homeland	 
Security (DHS) and to strengthen the departmentwide reforms and  
transformation underway at DHS the Select Committee is		 
considering options such as the Chief Operating Officer (COO)	 
concept to help address these challenges. At your request, this  
letter describes the roles and responsibilities of an effective  
COO and presents certain options that could serve to strengthen  
and streamline management functions in a department as large and 
diverse as DHS. As agreed, we have summarized our reports on the 
COO concept, organizational transformation, as well as DHS's	 
management and transformation challenges. On September 9, 2002,  
GAO also convened a roundtable of government leaders and	 
management experts to discuss the COO concept and how it might	 
apply within selected federal departments and agencies.The intent
of the roundtable was to generate ideas and to engage in an open 
dialogue on the possible application of the COO concept to	 
selected federal departments and agencies. There was general	 
agreement on a number of overall themes concerning the need for  
agencies to elevate, integrate, and institutionalize attention on
key management challenges. Our prior work presented in issued	 
reports on DHS's management and transformation challenges was	 
done in accordance with generally accepted government auditing	 
standards.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-876R					        
    ACCNO:   A10709						        
  TITLE:     The Chief Operating Officer Concept and its Potential Use
as a Strategy to Improve Management at the Department of Homeland
Security							 
     DATE:   06/28/2004 
  SUBJECT:   Audit reports					 
	     Auditing procedures				 
	     Auditing standards 				 
	     Financial management				 
	     Information technology				 
	     Homeland security					 

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GAO-04-876R

United States General Accounting Office Washington, DC 20548

June 28, 2004

The Honorable Christopher Cox
Chairman
Select Committee on Homeland Security
House of Representatives

Subject: The Chief Operating Officer Concept and its Potential Use as a
Strategy to Improve Management at the Department of Homeland Security

Dear Mr. Chairman:

In a May 18, 2004 letter, you observed that many management and
integration challenges remain at the Department of Homeland Security (DHS)
and to strengthen the departmentwide reforms and transformation underway
at DHS the Select Committee is considering options such as the Chief
Operating Officer (COO) concept to help address these challenges. At your
request, this letter describes the roles and responsibilities of an
effective COO and presents certain options that could serve to strengthen
and streamline management functions in a department as large and diverse
as DHS. As agreed, we have summarized our reports on the COO concept,
organizational transformation, as well as DHS's management and
transformation challenges.

On September 9, 2002, GAO also convened a roundtable of government leaders
and management experts to discuss the COO concept and how it might apply
within selected federal departments and agencies.1 The intent of the
roundtable was to generate ideas and to engage in an open dialogue on the
possible application of the COO concept to selected federal departments
and agencies. There was general agreement on a number of overall themes
concerning the need for agencies to elevate, integrate, and
institutionalize attention on key management challenges. Our prior work
presented in issued reports on DHS's management and transformation
challenges was done in accordance with generally accepted government
auditing standards. Because this response is based primarily on our
previously issued work and the non-audit work performed for the
roundtable, we

1U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief
Operating Officer Concept: A Potential Strategy to Address Federal
Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct. 4, 2002).

did not obtain agency comments on a draft of this letter. However, we are
sending a copy of this letter to the Secretary of the Department of
Homeland Security.

As DHS and other agencies across the federal government embark on
large-scale organizational change initiatives in order to address 21st
century challenges, there is a compelling need to elevate, integrate, and
institutionalize responsibility for key functional management initiatives
to help ensure their success. A COO or similar position may effectively
provide the continuing, focused attention essential to successfully
completing these multiyear transformations. However, the specific
implementation of such an approach must be determined within the context
of the particular facts, circumstances, challenges, and opportunities of
each individual agency. In addition, certain mechanisms can serve to
augment the COO position, and thus further strengthen and streamline
management functions within an agency. These mechanisms include
articulating the COO's role in statute in order to make clear its broad
responsibilities, using performance agreements to clarify individual
performance expectations, and setting a term appointment for the position
to ensure accountability over the long term. Finally, strong and
continuing congressional oversight can help determine how best to elevate,
integrate, and institutionalize key management and transformation
responsibilities in executive agencies.

DHS Faces Management and Organizational Transformation Challenges

DHS faces enormous management and organizational transformation challenges
as it works to simultaneously establish itself, integrate numerous
entities and systems, and protect the nation from terrorism. To achieve
success, the result should not simply be a collection of components in a
new department, but the transformation of the various programs and
missions into a high-performing, focused organization.2 However, the size,
complexity, and importance of DHS's mission make the challenges involved
especially daunting. As a reflection of this, in January 2003 we
designated the implementation and transformation of DHS as high risk.3
This determination reflected the fact that DHS was formed from diverse
components with a wide array of existing major management challenges and
program risks. For example, one DHS directorate's responsibility includes
the protection of critical information systems that we already considered
a high-risk area. Also, many of the originating components-including the
Immigration and Naturalization Service, the Transportation Security
Administration, the U.S. Customs Service, the Federal Emergency Management
Agency, and the U.S. Coast Guard-individually faced one or more major
management challenge, such as strategic human capital risks, critical

2For additional information on the attributes of high-performing
organizations, see U.S. General Accounting Office, Highlights of a GAO
Forum on High-Performing Organizations: Metrics, Means, and Mechanisms for
Achieving High Performance in the 21st Century Public Management
Environment, GAO-04-343SP (Washington, D.C.: Feb. 13, 2004).

3U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119
(Washington, D.C.: January 2003).

information technology management challenges, or financial management

4

vulnerabilities.

The high-risk designation also reflected DHS's daunting management
challenge associated with the process of organizational integration and
transformation itself. During its first year of operations, nearly 180,000
employees from 22 different agencies with a combined budget of over $30
billion became part of the new department. Moreover, we have previously
noted that successful merger and transformation efforts can be much more
difficult to achieve in the public sector than in the private sector.5
Public sector transformation efforts, such as that under way at DHS, must
contend with more stakeholders and power centers, less management
flexibility, and greater transparency than in the private sector.
Organizational mergers of this magnitude carry significant risks,
including lost productivity and inefficiencies. Furthermore, top officials
in the public sector are typically political appointees who do not stay in
their positions long enough to effectively address key transformation
initiatives. Indeed, major mergers and acquisitions in the private sector
often do not live up to their expectations, and in the short term, the
experience of major private sector mergers and acquisitions has

6

been that productivity and effectiveness actually decline. This can happen
for a number of reasons. For example, attention is concentrated on
critical and immediate integration issues and diverted from longer-term
mission issues. In addition, employees and managers inevitably worry about
their place in the new organization. The key is to adopt practices that
minimize the duration and the significance of factors that reduce
productivity and effectiveness.

The COO Concept Can Provide Needed Focus to Address Management and
Organizational Transformation Challenges

The COO concept may provide federal agencies, such as DHS, with a tool to
provide the long-term attention required to effectively address
significant management challenges and transformational needs. Under this
concept, the COO provides a single organizational focus for key management
functions, such as human capital, financial management, information
technology, acquisition management, and performance management as well as
for selected organizational transformation initiatives. Establishing a COO
position can enable selected federal agencies to address the following.

4GAO-03-119, and U.S. General Accounting Office, Major Management
Challenges and Program Risks: Department of Homeland Security, GAO-03-102
(Washington, D.C.: January 2003).

5U.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-03293SP (Washington, D.C.: Nov. 14, 2002).

6U.S. General Accounting Office, Results-Oriented Cultures: Implementation
Steps to Assist Mergers and Organizational Transformations, GAO-03-669
(Washington, D.C.: July 2, 2003).

Elevate Attention on Management Issues and Transformational Change

As a result of short-term priorities and other demands on the time of
agency heads and their deputies, they generally do not have the ability to
focus enough dedicated attention to management issues. However, the nature
and scope of the changes needed in many agencies require the sustained and
inspired commitment of the top political and career leadership. As
mentioned earlier, many of the originating organizational components
merged to create DHS brought with them preexisting management challenges.
Top leadership attention is essential to overcome organizations' natural
resistance to change, marshal the resources needed to implement change,
and build and maintain the organizationwide commitment to new ways of
doing business. We have previously reported that building an effective DHS
will require consistent and sustained leadership from top management to
ensure the needed transformation of disparate agencies, programs, and
missions into an integrated organization.7 A COO position can provide one
potential approach for achieving this goal.

Integrate Various Key Management and Transformation Efforts

By their very nature, the problems and challenges facing agencies are
crosscutting and thus require coordinated and integrated solutions.
However, the federal government too often places management
responsibilities, such as information technology, human capital, or
financial management, into "stovepipes" and fails to design and implement
organizational transformation efforts in a comprehensive, ongoing, and
integrated manner. In recent testimony before the Select Committee, DHS's
Deputy Secretary reported that DHS has consolidated 22 different personal
property management systems into 3 and expects to further reduce them to a
single, departmentwide system over the next few years.

The COO concept is consistent with the commonly agreed-upon governance
principle that there needs to be a single point within agencies with the
perspective and responsibility-as well as authority-to ensure the
successful implementation of functional management and, if appropriate,
transformation efforts. At the same time, given the competing demands on
deputy secretaries in executive branch departments across the government
to help execute the President's policy and program agendas, it is not
practical to expect that they will be able to consistently undertake this
vital integrating responsibility. Moreover, while many deputy secretaries
may be nominated based in part on their managerial experience, it has not
always been the case, and not surprisingly, the management skills,
expertise, and interests of the deputy secretaries have always varied and
will continue to vary.

To take advantage of the added status and visibility a COO position would
provide and in order to be successful, the COO will need to be among an
agency's top leadership (for example, a new level two position with the
title of deputy secretary

7GAO-03-102.

for management or principal under secretary for management). However,
consistent with the desire to integrate responsibilities, the creation of
a senior management position needs to be considered carefully with regard
to existing positions and responsibilities so that it does not result in
unnecessary "layering" at an agency.

Institutionalize Accountability for Addressing Management Issues and
Leading Transformational Change

Management weaknesses in some agencies are deeply entrenched and
longstanding and will take years of sustained attention and continuity to
resolve. This is especially important since private sector experience with
mergers and acquisitions suggests that over 40 percent of executives in
acquired companies leave within the

                                       8

first year and 75 percent within the first 3 years. In addition, making
fundamental changes in agencies' cultures will also require a long-term
effort. In our previous work, we have noted that the experiences of
successful transformation initiatives in large private and public sector
organizations suggest that it can often take at least 5 to 7 years until
such initiatives are fully implemented and the related cultures are

                                       9

transformed in a sustainable manner. In the federal government, the
frequent turnover of the political leadership has often made it extremely
difficult to obtain the sustained attention required to make needed
changes. The creation of a COO position can provide one way for
institutionalizing accountability over the long term.

Certain Mechanisms Can Augment the COO Position

In the context of providing agencies with a tool to elevate, integrate,
and institutionalize responsibility for certain key management functions
and transformational efforts within federal agencies, Congress can further
enhance the importance and authority of the COO position, and thus
strengthen and streamline management functions within a department. For
example, Congress could articulate the COO's broad responsibilities in
statute. In 2003, Congress created the position of Deputy Architect of the
Capitol/COO; this official is responsible for the overall direction,
operation, and management of that organization. Under the statute, besides
developing and implementing a long-term strategic plan, including a
comprehensive mission statement and an annual performance plan, the Deputy
Architect/COO is to propose organizational changes and new positions
needed to

10

carry out the organization's mission and strategic and annual performance
goals.

8GAO-03-669.

9GAO-03-293SP.

10Section 1203 of Division H, Title I, Pub. L. No. 108-7, February 20,
2003, (The Consolidated Appropriations Resolution, 2003). The Architect of
the Capitol appointed the first COO on July 28, 2003.

Articulating the role and responsibilities of the COO in statute helps to
create unambiguous expectations for the position and underscores Congress'
desire to follow a professional, nonpartisan approach in connection with
these positions. In addition, it provides, in effect, an implicit set of
qualification standards and expectations that the incumbents will have
leadership experience in the areas that will be within their portfolios.
For example, under the statute, the Deputy Architect/COO is to have strong
leadership skills and demonstrated ability in management, including such
areas as strategic planning, performance management, worker safety,
customer satisfaction, and service quality. Congress also set
qualifications in statute when it created the position of Chief Financial
Officer (CFO) at 24 departments and federal agencies. The CFOs are to
"possess demonstrated ability in general management of, and knowledge of
and extensive practical experience in financial management practices in
large governmental or business entities."11 In addition, Congress set the
qualifications for the position of Chief Information Officer (CIO) at
federal departments and agencies. CIOs are to "be selected with special
attention to the professional qualifications" required for records
management, information dissemination, security, and technology management
among others areas.12

Another potentially important accountability mechanism to augment the COO
role is to use clearly defined, results-oriented performance agreements
accompanied by

13

appropriate incentives, rewards, and accountability mechanisms.
Performance agreements for senior leaders provide a potentially important
mechanism for clarifying expectations, monitoring progress, and assessing
accountability. In addition, we have reported on a number of benefits of
performance agreements.14 Performance agreements can

o  strengthen alignment of results-oriented goals with daily operations,

o  foster collaboration across organizational boundaries,

o  	enhance opportunities to discuss and routinely use performance
information to make program improvements,

o  provide a results-oriented basis for individual accountability, and

o  maintain continuity of program goals during leadership transitions.

11Pub. L. No. 101-576, November 15, 1990, 104 Stat. 2838.

12Pub. L. No. 104-13, May 22,1995, 44 U.S.C. S:S:3501-3521.

13U.S. General Accounting Office, Results-Oriented Government: Shaping the
Government to Meet 21st Century Challenges, GAO-03-1168T (Washington,
D.C.: Sept. 17, 2003).

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).

While performance agreements can be implemented administratively as was
done in the Department of Transportation since the mid-1990s, Congress has
also required performance agreements in statute as well as provided for
performance assessments with consequences.15 For example, in 1998 Congress
established a COO position at the Department of Education's Office of
Student Financial

16

Assistance. In 2000 we reported that the COO is to complete an annual
performance agreement with measurable organizational and individual goals
that the COO would be accountable for achieving. Further, the COO's
progress in meeting these goals is to form the basis of a possible
performance bonus of up to 50 percent of base pay, as well as any
decisions to remove or reappoint him or her. The COO is to enter into
subsequent performance agreements with the Office of Student Financial
Assistance's senior managers. Similarly, Congress made it clear in statute
that the Deputy Architect/COO may be removed from office for failure to
meet performance goals. Congress also required in statute that annual
performance reports contain an evaluation of the extent to which the
Office of the Architect of the Capitol met its goals and objectives.

To help ensure accountability over the long term, setting a term
appointment can help provide the continuing focused attention essential to
successfully completing multiyear transformations, which can extend beyond
the tenure of political leaders. As mentioned above, large-scale change
initiatives and organizational transformations typically require
long-term, concerted effort, often taking years to complete. Providing a
COO with a term-appointment of about 5 to 7 years would be one way to
institutionalize accountability over extended periods needed to help
ensure long-term management and transformation initiatives are
successfully completed. No matter how the position is structured, it is
critical that the people appointed to these positions be vested with
sufficient authority to achieve results.

Finally, through enhanced oversight, Congress will need to continue to be
fully engaged in any ongoing discussions on how best to elevate,
integrate, and institutionalize key management and transformation
responsibilities and what role the COO concept should play in achieving
this goal. The Select Committee's record of holding oversight hearings and
its interest in considering a variety of potential strategies to
strengthen the management functions at DHS provides a clear example of
this engagement. For selected agencies, Congress may want to make the COO
subject to Senate confirmation to ensure that nominees have the requisite
leadership and management skills and the proven track records in similar
positions to successfully address the challenges facing federal agencies.
In creating such a position, Congress might consider making certain
subordinate positions, such as the CFO, not subject to Senate
confirmation.

15GAO-01-115, and U.S. General Accounting Office, Results-Oriented
Cultures: Creating a Clear Linkage between Individual Performance and
Organizational Success, GAO-03-488 (Washington, D.C.: Mar. 14, 2003).

16The name of the Office of Student Financial Assistance was changed to
Federal Student Aid on March 6, 2002.

                           __ __ __ __ __ __ __ __ __

We are sending copies of this letter to the Vice Chair and Ranking
Minority Member of the Select Committee on Homeland Security, the Chairman
and Ranking Minority Member of the Senate Committee on Governmental
Affairs, and the Secretary of the Department of Homeland Security. In
addition, we will make copies available to others upon request. This
letter will also be available on the GAO Web site at www.gao.gov. If you
have any questions concerning this letter, please contact me on (202)
512-5500 or J. Christopher Mihm, Managing Director, Strategic Issues, on
(202) 512-6806 or at [email protected].

Sincerely yours,

David M. Walker Comptroller General of the United States

(450333)
*** End of document. ***