Human Capital: DOD's National Security Personnel System Faces	 
Implementation Challenges (14-JUL-05, GAO-05-730).		 
                                                                 
The Department of Defense's (DOD) new personnel system--the	 
National Security Personnel System (NSPS)--will have far-reaching
implications not just for DOD, but for civil service reform	 
across the federal government. The National Defense Authorization
Act for Fiscal Year 2004 gave DOD significant authorities to	 
redesign the rules, regulations, and processes that govern the	 
way that more than 700,000 defense civilian employees are hired, 
compensated, promoted, and disciplined. In addition, NSPS could  
serve as a model for governmentwide transformation in human	 
capital management. However, if not properly designed and	 
effectively implemented, it could severely impede progress toward
a more performance- and results-based system for the federal	 
government as a whole. This report (1) describes DOD's process to
design its new personnel management system, (2) analyzes the	 
extent to which DOD's process reflects key practices for	 
successful transformations, and (3) identifies the most 	 
significant challenges DOD faces in implementing NSPS.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-730 					        
    ACCNO:   A29898						        
  TITLE:     Human Capital: DOD's National Security Personnel System  
Faces Implementation Challenges 				 
     DATE:   07/14/2005 
  SUBJECT:   Civil service					 
	     Federal agency reorganization			 
	     Federal employees					 
	     Human capital					 
	     Human capital management				 
	     National security personnel system 		 
	     Performance management				 
	     Personnel management				 
	     Program evaluation 				 
	     Program management 				 
	     Strategic planning 				 
	     National Security Personnel System 		 

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GAO-05-730

                 United States Government Accountability Office

                     GAO Report to Congressional Committees

July 2005

HUMAN CAPITAL

    DOD's National Security Personnel System Faces Implementation Challenges

                                       a

GAO-05-730

[IMG]

July 2005

HUMAN CAPITAL

DOD's National Security Personnel System Faces Implementation Challenges

  What GAO Found

DOD's current process to design its new personnel management system
consists of four stages: (1) development of design options, (2) assessment
of design options, (3) issuance of proposed regulations, and (4) a
statutory public comment period, a meet and confer period with employee
representatives, and a congressional notification period. DOD's initial
design process was unrealistic and inappropriate. However, after a
strategic reassessment, DOD adjusted its approach to reflect a more
cautious and deliberative process that involved more stakeholders.

DOD's NSPS design process generally reflects four of six selected key
practices for successful organizational transformations. First, DOD and
OPM have developed a process to design the new personnel system that is
supported by top leadership in both organizations. Second, from the
outset, a set of guiding principles and key performance parameters have
guided the NSPS design process. Third, DOD has a dedicated team in place
to design and implement NSPS and manage the transformation process.
Fourth, DOD has established a timeline, albeit ambitious, and
implementation goals. The design process, however, is lacking in two other
practices. First, DOD developed and implemented a written communication
strategy document, but the strategy is not comprehensive. It does not
identify all key internal stakeholders and their concerns, and does not
tailor key messages to specific stakeholder groups. Failure to adequately
consider a wide variety of people and cultural issues can lead to
unsuccessful transformations. Second, while the process has involved
employees through town hall meetings and other mechanisms, it has not
included employee representatives on the working groups that drafted the
design options. It should be noted that 10 federal labor unions have filed
suit alleging that DOD failed to abide by the statutory requirements to
include employee representatives in the development of DOD's new labor
relations system authorized as part of NSPS. A successful transformation
must provide for meaningful involvement by employees and their
representatives to gain their input into and understanding of the changes
that will occur.

DOD will face multiple implementation challenges. For example, in addition
to the challenges of continuing to involve employees and other
stakeholders and providing adequate resources to implement the system, DOD
faces the challenges of ensuring an effective, ongoing two-way
communication strategy and evaluating the new system. In recent testimony,
GAO stated that DOD's communication strategy must include the active and
visible involvement of a number of key players, including the Secretary of
Defense, for successful implementation of the system. Moreover, DOD must
ensure sustained and committed leadership after the system is fully
implemented and the NSPS Senior Executive and the Program Executive Office
transition out of existence. To provide sustained leadership attention to
a range of business transformation initiatives, like NSPS, GAO recently
recommended the creation of a chief management official at DOD.

United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
NSPS Design Process Evolved Into a Phased Approach
DOD's NSPS Design Process Generally Reflects Practices of

Successful Transformations, but Some Key Practices

Are Lacking DOD Faces Multiple Challenges in Implementing NSPS Conclusions
Recommendations for Executive Action Agency Comments and Our Evaluation

                                                                     1 5 9 12

15 28 31 32 32

Appendixes                                                              
                Appendix I:             Scope and Methodology              37 
                                DOD Labor Unions, Estimated Number of      
               Appendix II:                   Employees                    
                              Represented, and Membership in the United    
                                               Defense                     
                                          Workers Coalition                40 
              Appendix III:    Comments from the Department of Defense     42 
              Appendix IV:      GAO Contact and Staff Acknowledgments      47 

  Related GAO Products

Tables Table 1:	DOD Labor Unions, Estimated Number of Employees
Represented, and Membership in the United Defense Workers Coalition (as of
June 2005).

Figures	Figure 1: Key Elements of the NSPS Design Process 13 Figure 2:
NSPS Design and Implementation Team Organization 21 Figure 3: NSPS
Timeline and Implementation Goals 23

Contents

Abbreviations

DOD Department of Defense
NSPS National Security Personnel System
OIPT Overarching Integrated Product Team
OPM Office of Personnel Management
PEO Program Executive Office

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.

A

United States Government Accountability Office Washington, D.C. 20548

July 14, 2005

Congressional Committees

The Department of Defense (DOD) is designing a new civilian personnel
management system-the National Security Personnel System (NSPS)- that
represents a huge undertaking for DOD, given its massive size and
geographically and culturally diverse workforce. The National Defense
Authorization Act for Fiscal Year 20041 gave DOD significant authorities
to redesign the rules, regulations, and processes that govern the way that
more than 700,000 defense civilian employees are hired, compensated,
promoted, and disciplined. The Congress provided these authorities to DOD
in response to the department's position that the inflexibility of federal
personnel systems was one of the most important constraints on its ability
to attract, retain, reward, and develop a civilian workforce to meet the
national security mission of the 21st century. In addition, DOD's new
personnel management system will have far-reaching implications, not just
for DOD, but for civil service reform across the federal government. NSPS
could serve as a model for governmentwide transformation in human capital
management. However, if not properly designed and effectively implemented,
NSPS could severely impede progress toward a more performance-and
results-based personnel management system for the federal government as a
whole.

Implementing large-scale change management initiatives, such as
organizational transformations, can be a complex endeavor. Experience
shows that failure to adequately address-and often even consider-a wide
variety of personnel and cultural issues is at the heart of unsuccessful
transformations. In our prior work, we identified nine key practices and
lessons learned from major public and private sector organizational
mergers, acquisitions, and transformations.2 These practices are to (1)
ensure top leadership drives the transformation, (2) establish a coherent
mission and integrated strategic goals to guide the transformation, (3)
focus on a key set of principles and priorities at the

1Pub. L. No. 108-136, S: 1101 (Nov. 24, 2003).

2See GAO, 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) and Results-Oriented
Cultures: Implementation Steps to Assist Mergers and Organizational
Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).

outset of the transformation, (4) set implementation goals and a timeline
to build momentum and show progress from day one, (5) dedicate an
implementation team to manage the transformation process, (6) use the
performance management system to define responsibility and assure
accountability for change, (7) establish a communication strategy to
create shared expectations and report related progress, (8) involve
employees to obtain their ideas and gain their ownership for the
transformation, and (9) build a world-class organization.

In recent years, we have examined various aspects of DOD's human capital
management of its civilian workforce. For example, we have reported on
gaps in the defense components' civilian human capital plans, including
the absence of results-oriented performance measures3 and the need for
comprehensive strategic workforce plans and for data on the skills and
competencies needed to successfully accomplish future missions.4 Prior to
the enactment of NSPS legislation in November 2003, we raised a number of
critical issues about the proposed system in a series of testimonies
before three congressional committees.5 In recent testimony on DOD's
transformation efforts, we indicated that DOD is challenged in its efforts
to affect fundamental business management reform, such as NSPS, and
indicated that our ongoing work continues to raise questions about DOD's
chances of success.6 Our recently released report on the fiscal challenges
the federal government faces in the 21st century identifies several issues
regarding DOD's civilian workforce that are ripe for reexamination,
including whether DOD is pursuing the design and implementation of NSPS

3GAO, DOD Personnel: DOD Actions Needed to Strengthen Civilian Human
Capital Strategic Planning and Integration with Military Personnel and
Sourcing Decisions, GAO-03-475 (Washington, D.C.: Mar. 28, 2003).

4GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce Plans
Needed, GAO-04-753 (Washington, D.C.: June 30, 2004).

5See GAO, Defense Transformation: Preliminary Observations on DOD's
Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, D.C.: Apr.
29, 2003); Defense Transformation: DOD's Proposed Civilian Personnel
System and Governmentwide Human Capital Reform, GAO-03-741T (Washington,
D.C.: May 1, 2003); and Human Capital: Building on DOD's Reform Effort to
Foster Governmentwide Improvements, GAO-03-851T (Washington, D.C.: June 4,
2003).

6GAO, Department of Defense: Further Actions Are Needed to Effectively
Address Business Management Problems and Overcome Key Business
Transformation Challenges, GAO-05-140T (Washington, D.C.: Nov. 18, 2004).

in a manner that maximizes the chance of success.7 To address challenges
inherent in business transformation reforms, such as NSPS, we recently
recommended installing a chief management official at DOD.

In 2001, we designated strategic human capital management as a high-risk
area because of the federal government's long-standing lack of a
consistent strategic approach to marshaling, managing, and maintaining the
human capital needed to maximize government performance and ensure its
accountability.8 The strategic management of human capital was identified
as a top priority of the President's Management Agenda in 2001, and the
Congress also has sought to elevate human capital issues through a wide
range of initiatives.9 Significant changes in how the federal workforce is
managed are under way, but strategic human capital management remains high
risk because federal human capital strategies are still not appropriately
constituted to meet current and emerging challenges. These challenges
include providing the sustained leadership essential to completing
multiyear transformations, developing effective strategic workforce plans,
creating effective hiring processes and using flexibilities and incentives
to retain critical talent and reshape workforces, and reforming
performance management systems so that pay and awards are linked to
performance and organizational results.

We prepared this report under the Comptroller General's authority and are
providing it to you to assist the Congress in evaluating federal human
capital management systems. This report addresses DOD's efforts to design
its new civilian personnel management system. Specifically, this report
(1) describes DOD's process to design its personnel management system, (2)

7GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).

8GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005), pp. 41-42.

9For example, the Congress has taken the following four steps to improve
the federal government's human capital management systems: (1) created
Chief Human Capital Officer positions in 24 federal agencies and a Council
to advise and assist agency leaders in their human capital efforts; (2)
provided several agenciesmost notably the Departments of Homeland
Security and Defensewith authorities to design and manage their
human capital systems; (3) provided agencies across the executive branch
with additional human capital flexibilities, such as specific hiring
authorities; and (4) in conjunction with the administration, reformed the
performance management and compensation systems for senior executives to
better link the institutional, unit, and individual performance and reward
systems.

analyzes the extent to which DOD's process reflects key practices for
successful transformations, and (3) identifies the most significant
challenges DOD faces in implementing NSPS.

To describe DOD's design process, we interviewed key agency officials at
DOD and the Office of Personnel Management (OPM), as well as design team
participants, DOD employee representatives, and experts in federal labor
relations and federal adverse actions and personnel appeals systems. We
also examined documents relevant to NSPS design efforts (e.g., focus group
reports and town hall meeting schedules, requirements and other planning
documents, and briefings on the results of various design options), and
applicable laws and regulations governing federal civilian personnel
management.10 Using six of the nine key practices for organizational
transformations from our prior work, we determined the extent to which
DOD's NSPS design process incorporated key practices of successful
transformations. The six key practices that we used are: (1) ensuring that
top leadership drives the transformation, (2) focusing on a key set of
principles and priorities, (3) setting implementation goals and a
timeline, (4) dedicating an implementation team, (5) establishing a
communication strategy, and (6) involving employees. We did not evaluate
the key practices "establishing a coherent mission and integrated
strategic goals to guide the transformation" because in March 2003, we
reported on the department's strategic planning efforts for civilian
personnel and assessed whether DOD and selected defense components' goals
and objectives contained in strategic plans for civilian personnel were
aligned with overarching missions of the organizations.11 In addition, we
did not evaluate the key practices of "using a performance management
system to define responsibility and assure accountability for change" and
"building a world-class organization" because DOD has considerable work
ahead to design and implement NSPS and assess the overall system. To
identify the most significant challenges DOD faced in developing NSPS, we
interviewed key DOD, OPM, and other federal agency officials and DOD labor
union representatives (referred to as employee representatives throughout
this report) and reviewed and analyzed relevant documents.

We conducted our review from October 2004 through June 2005 in accordance
with generally accepted government auditing standards.

10Pub. L. No. 108-136, S: 1101 (Nov. 24, 2003) and relevant provisions of
Title 5, U.S. Code.

11GAO-03-475.

Additional information on our scope and methodology can be found in
appendix I. A list of recent GAO products related to DOD's civilian
personnel management is included at the end of this report.

Results in Brief	DOD's current process to design its new personnel
management system consists of four stages: (1) development of design
options, (2) assessment of design options, (3) issuance of proposed
regulations, and (4) a statutory public comment period, a meet and confer
period with employee representatives, and a congressional notification
period. DOD's initial process to design NSPS was unrealistic and
inappropriate because of a broad range of legal, policy, and technical
issues that, according to OPM, needed to be addressed. However, after a
strategic reassessment of the assumptions, roles, strategies, and
schedules for the new system, DOD adjusted its approach to reflect a more
cautious and deliberative process that involved more stakeholders,
including OPM. Under the adjusted approach, senior experts representing
various disciplines within DOD, OPM, and the Office of Management and
Budget established a management framework to guide the design and
implementation of NSPS, including a NSPS Senior Executive and a Program
Executive Office (PEO), which was based on DOD's acquisition management
model. In the first stage of the design process, the PEO formed six
multidisciplinary design teams (referred to as working groups) that
reviewed research on human capital approaches, received input from
employees and employee representatives, and developed a range of potential
design options. Second, the design options were assessed by an advisory
group of senior DOD and OPM executives, who made recommendations for
proposed regulations to the NSPS Senior Executive. The NSPS Senior
Executive then submitted his recommendations to the Secretary of Defense
and the Director of OPM for consideration as proposed NSPS regulations.
Third, the Secretary and Director proposed draft NSPS regulations and
jointly released them for public comment in the Federal Register on
February 14, 2005. Fourth, the proposed regulations were subjected to a
statutory 30-day public comment period, after which DOD held a 30-day meet
and confer period with employee representatives. As allowed by statute,
DOD extended the meet and confer process. Lastly, DOD is to engage in a
30-day congressional notification period.

DOD's NSPS design process generally reflects four of six selected key
practices for successful transformations. First, DOD and OPM have
developed a process to design the new personnel system that is supported
by top leadership in both organizations. Top leadership that is clearly

involved in transformations provides stability and sets the direction,
pace, and tone for the transformation. Second, from the outset, a set of
guiding principles and key performance parameters have guided the NSPS
design process. These principles and performance parameters can serve as
core values for human capital management at DOD. Third, DOD has a
dedicated team in place to design and implement NSPS and manage the
transformation process. Dedicating an implementation team is important to
ensuring that the day-to-day management of the transformation receives the
focused, full-time attention needed to be successful. Fourth, DOD has
established a timeline, albeit ambitious, and implementation goals for its
new personnel system. While it is appropriate to develop and integrate
NSPS within the department in a quick and seamless manner, moving too
quickly or prematurely can significantly raise the risk of doing it wrong.
Having an ambitious timeline is reasonable only insofar as it does not
impact the quality of the human capital management system that is created.
The design process, however, is lacking in two other practices. First, DOD
developed and implemented a written communication strategy document that
provides a structured and planned approach to communicate timely and
consistent information about NSPS, but the strategy is not comprehensive.
For example, the written communication strategy document does not identify
all key internal stakeholders and their concerns. Failure to adequately
consider a wide variety of people and cultural issues can lead to
unsuccessful transformations. Furthermore, the written communication
strategy document does not tailor key messages to specific stakeholder
groups of employees, such as DOD human resource personnel, executives and
flag officers, and supervisors and managers, even though these employee
groups may have divergent interests and specific information needs.
Tailoring information is important because it helps employees feel that
their concerns are specifically addressed. An organization must develop a
comprehensive communications strategy that reaches out to employees,
customers, and stakeholders and seeks to genuinely engage them in the
transformation process. Second, while the process involved employees
through town hall meetings and other mechanisms, it has not included
employee representatives on the working groups that drafted the design
options for the new system. It should be noted that 10 federal labor
unions have filed suit alleging that DOD failed to abide by the statutory
requirements to include employee representatives in the development of
DOD's new labor relations system authorized as part of NSPS. The
composition of the team is important because it helps employees see that
they are being represented and that their views are being considered in
the decision-making process. A successful transformation must provide for
meaningful involvement by employees and

their representatives to, among other things, gain their input into and
understanding of the changes that will occur in the organization.

As DOD implements its new personnel management system, it will face
multiple challenges in both the early and later stages of implementation.

    Early Implementation Challenges

o 	Establishing an overall communications strategy. Ensuring an effective
and ongoing two-way communications strategy that creates shared
expectations about, and reports related progress on, the implementation of
the new system is a key practice of a change management initiative. DOD
acknowledges that a comprehensive outreach and communications strategy is
essential for designing and implementing NSPS, but the proposed
regulations do not identify a process for the continuing involvement of
employees during the implementation of NSPS.

o 	Providing adequate resources for implementing the new system. Another
challenge facing DOD is to allocate necessary resources to ensure
sufficient implementation, training, and evaluation of the new system.
Implementation of NSPS will result in costs for, among other things,
developing and delivering training, modifying automated personnel
information systems, and starting up and sustaining the National Security
Labor Relations Board. DOD estimates that the overall cost associated with
implementing NSPS will be approximately $158 million through fiscal year
2008. However, it has not completed an implementation plan for NSPS,
including an information technology plan and a training plan; thus, the
full extent of the resources needed to implement NSPS may not be well
understood at this time.

o 	Involving employees and other stakeholders in implementing the system.
DOD faces a significant challenge in involvingand continuing to
involveits employees, employee representatives, and other
stakeholders in implementing NSPS. For example, while providing for
continuing collaboration with employee representatives, DOD does not
identify a process for the continuing involvement of employees in the
implementation of NSPS. High-performing organizations have found that
actively involving employees and stakeholders, such as unions or other
employee associations, when developing results-oriented performance
management systems helps improve employees' confidence and belief in the
fairness of the system and increases their understanding and ownership of
organizational goals and objectives.

This involvement must be active and continuing if employees are to gain a
sense of understanding and ownership of the changes that are being made.

    Later Implementation Challenges

o 	Ensuring sustained and committed leadership. As DOD implements this
large-scale organizational change, its challenge will be to elevate,
integrate, and institutionalize leadership responsibility for NSPS to
ensure its success. DOD may face a future leadership challenge when the
NSPS Senior Executive and the PEO transition out of existence once NSPS is
fully implemented in 2009. According to a PEO official, at that time,
ongoing implementation responsibility for NSPS would come under the
Civilian Personnel Management Service, which is part of the Office of the
Under Secretary of Defense for Personnel and Readiness. One way to ensure
sustained leadership over NSPS (and all DOD's business transformation
efforts) would be to create the position of Deputy Secretary of Defense
for Management, who would serve as the department's chief management
official. This position would elevate, integrate, and institutionalize
within DOD the high-level attention essential for ensuring that a
strategic business transformation plan such as NSPS-as well as the
business policies, procedures, systems, and processes that are necessary
for successfully implementing and sustaining overall business
transformation efforts-are implemented and sustained.

o 	Evaluating the new personnel management system. DOD's ongoing challenge
will be to continually review and revise NSPS based on datadriven lessons
learned and changing needs in the work environment. Evaluating the impact
of NSPS provides DOD managers with more authority and responsibility for
managing the new system. Collecting and analyzing data will be essential
for measuring the effectiveness of these approaches in support of DOD's
mission and goals. Adequate evaluation procedures of NSPS would facilitate
better congressional oversight; allow for any midcourse corrections;
assist DOD in benchmarking its progress with other efforts; and help
document best practices and lessons learned with employees, stakeholders,
other federal agencies, and the public. DOD is planning to establish
procedures to evaluate the implementation of its new personnel management
system.

We are making three recommendations to improve the comprehensiveness of
the NSPS communication strategy and to evaluate the impact of NSPS.

DOD provided written comments on a draft of this report that did not
concur with one recommendation and partially concurred with two others. In
not concurring with our recommendation to identify all key internal
stakeholders and their concerns, the department stated that, among other
things, it adopted a multifaceted communications outreach strategy to
inform and involve key stakeholders. However, our review of DOD's written
communication strategy document showed that not all key internal
stakeholders and their concerns were identified. In partially concurring
with our recommendation to customize key messages to be delivered to
groups of employees to meet their divergent needs, the department noted
that, among other things, it recently released NSPS brochures tailored to
key internal stakeholders. Our review of these brochures showed that they
do in fact tailor and customize key messages for some, but not all,
employee groups. Furthermore, we believe that DOD's written communication
strategy document should serve as the single, comprehensive source of
DOD's key messages, which are tailored to and customized for all employee
groups. In partially concurring with our recommendation to develop
procedures for evaluating NSPS that contain results-oriented performance
measures and reporting requirements, the department stated that it has
begun developing an evaluation plan and will ensure that the plan contains
results-oriented performance measures and reporting mechanisms. If the
department follows through with this effort, we believe that it will be
responsive to our recommendation.

Background	The National Defense Authorization Act for Fiscal Year 200412
provided DOD with authority to establish (1) a pay and performance
management system, (2) an appeals process, and (3) a labor relations
system-which together comprise NSPS. The legislation permits significant
flexibility for designing NSPS, allowing for a new framework of rules,
regulations, and processes to govern how defense civilian employees are
hired, compensated, promoted, and disciplined. The law granted DOD certain
exemptions from laws governing federal civilian personnel management found
in Title 5 of the U.S. Code.13 The Congress provided these flexibilities
in response to DOD's position that the inflexibility of federal personnel

12Pub. L. No. 108-136, S: 1101 (Nov. 24, 2003).

13The Congress did not exempt DOD from provisions of Title 5, U.S. Code,
pertaining to veterans' preference, merit systems principles, prohibited
personnel practices, and equal employment opportunity.

systems was one of the most important constraints to the department's
ability to attract, retain, reward, and develop a civilian workforce to
meet the national security mission of the 21st century.

Initial NSPS Design Process	The initial proposals for NSPS were developed
by DOD and were based on a 2002 compilation of best practices generated by
demonstration projects that experimented with different personnel
management concepts. After these proposals were sent to OPM for review,
OPM identified a broad range of legal, policy, and technical concerns, and
also noted that the labormanagement relations proposal was developed
without any prior OPM involvement or union input. OPM also indicated that
the initial proposals had been crafted with only token employee
involvement, and it noted a high level of concern expressed by
congressional oversight committees, stakeholders, and constituent groups.
In addition to OPM, assistant secretaries for the military services'
manpower organizations also expressed concerns that NSPS as designed would
not work.

Subsequently, the Secretary of Defense established a 3-week reassessment
of system requirements, process issues, personnel and communication
strategies, and program schedules and milestones. The Overarching
Integrated Product Team (OIPT), an advisory group co-chaired by the
Principal Deputy Under Secretary of Defense for Personnel and Readiness
and OPM, and including the military services' assistant secretaries for
manpower and reserve affairs, oversaw this reassessment.

    Employees Covered by NSPS

NSPS labor relations provisions will be implemented across the entire
department once final NSPS regulations are issued and effective, and they
will apply to all DOD employees currently covered by the labor relations
provisions of Title 5, U.S. Code, Chapter 71. In contrast, NSPS
regulations governing the new pay and performance management system and
appeals process will be phased in and will not apply to some employees, as
stipulated by law (e.g., intelligence personnel and employees in DOD's
laboratory demonstration organizations). The authorizing legislation
stipulates that these latter regulations may not apply to organizations
with more than 300,000 employees until the Secretary of Defense determines
and certifies that the department has a performance management system in
place that meets the statutory criteria established for NSPS.

The first phase of implementation-Spiral One-will provide the basis for
this certification prior to the deployment of Spiral Two. Spiral One
includes

approximately 300,000 general schedule defense civilian employees, who
will be converted to the new system over a period of 18 months. DOD
currently plans to initiate Spiral One, beginning in early fiscal year
2006. Spiral Two will include the remainder of DOD's eligible workforce,
including wage-grade employees. Spiral Three will apply to demonstration
laboratory employees no earlier than October 1, 2008, and then only to the
extent the Secretary of Defense determines that NSPS provides greater
personnel management flexibilities to the laboratories than those
currently implemented.

DOD's Employee Unions	According to DOD, almost two-thirds of its more than
700,000 civilian employees are represented by 43 labor unions, including
over 1,500 separate bargaining units. Table 1 in appendix II lists current
DOD labor unions, the estimated number of employees represented by each
union, and which unions belong to the United Defense Workers Coalition.14
According to a DOD official, since 2000, defense civilian employee
membership in DOD's labor unions has remained about the same; however, the
number of unions has dropped from about 60 unions to the current 43
unions, primarily the result of mergers and consolidation among the
unions.

    Practices and Implementation Steps for Mergers and Transformations

In our prior work, we identified key practices and lessons learned from
major public and private sector organizational mergers, acquisitions, and
transformations.15 This work was undertaken to help federal agencies
implement successful cultural transformations in response to governance
challenges. While no two mergers or transformation efforts are exactly
alike and the "best" approach depends on a variety of factors specific to
each context, there was general agreement on a number of key practices,
which are as follows:

1.	Ensure top leadership drives the transformation. Leadership must set
the direction, pace, and tone and provide a clear, consistent rationale
that brings everyone together behind a single mission.

14 The United Defense Workers Coalition currently represents 36 of the 43
DOD labor unions. The Coalition was formed in February 2004 to more
effectively represent the interests of its members during NSPS design
meetings with DOD officials. The remaining unions, for various reasons,
decided to remain independent of the Coalition.

15GAO-03-293SP and GAO-03-669.

2.	Focus on a key set of principles and priorities at the outset of the
transformation. A clear set of principles and priorities serves as a
framework to help the organization create a new culture and drive employee
behaviors.

3.	Set implementation goals and a timeline to build momentum and show
progress from day one. Goals and a timeline are essential because the
transformation could take years to complete.

4.	Dedicate an implementation team to manage the transformation process. A
strong and stable team is important to ensure that the transformation
receives the needed attention to be sustained and successful.

5.	Establish a communication strategy to create shared expectations and
report related progress. The strategy must reach out to employees,
customers, and stakeholders and engage them in a two-way exchange.

6.	Involve employees to obtain their ideas and gain their ownership for
the transformation. Employee involvement strengthens the process and
allows them to share their experiences and shape policies.

  NSPS Design Process Evolved Into a Phased Approach

DOD's current process to design NSPS is divided into four stages: (1)
development of options for the personnel system, (2) assessment of the
options and translation into recommended proposals, (3) issuance of
proposed regulations, and (4) a statutory public comment period, a meet
and confer period with employee representatives, and a congressional
notification period. As discussed earlier, DOD's initial process to design
NSPS was unrealistic and inappropriate. However, after a 3-week
reassessment, DOD adjusted its approach and attempted to create a more
cautious and deliberate process that would involve all of the key
stakeholders, including OPM. At this time, DOD adopted a management
framework to guide the design of NSPS based on DOD's acquisition
management model and adopted an analytical framework to identify system
requirements as well as a phased approach to implementing the new system,
also based on the acquisition management model.16 Figure 1

16The acquisition management model is contained in DOD Directive 5000.1
and DOD Instruction 5000.2, Operation of the Defense Acquisition System
(May 12, 2003).

presents the four stages in DOD's current process in terms of the key
organizational elements, inputs, and outputs.

               Figure 1: Key Elements of the NSPS Design Process

                 Source: GAO analysis based on DOD information.

In the first stage, the NSPS PEO17 convened six multidisciplinary design
teams-called working groups-that were functionally aligned to cover the
following personnel program areas: (1) compensation (classification and
pay banding); (2) performance management; (3) hiring, assignment, pay
setting, and workforce shaping; (4) employee engagement; (5) adverse
action and appeals; and (6) labor relations. The working groups were
cochaired by DOD and OPM, and they were largely staffed from the defense
components. The working groups reviewed and analyzed data from alternative
federal personnel systems and laboratory and acquisition demonstration
projects, research materials from the Department of Homeland Security's
personnel system design process, and private industry practices. According
to DOD, the working groups also received input and participation from DOD
human resources practitioners, attorneys, financial management experts,
and equal employment opportunity specialists. The working groups also
reviewed input gathered from DOD employee and employee representatives.
The PEO was responsible for conducting outreach to employees and employee
representatives, in conjunction with NSPS program managers in the DOD
components;18 their efforts included 106 focus groups, more than 50 town
hall meetings worldwide, and 10 meetings with DOD employee
representatives. The working groups provided a broad range of options for
the OIPT in September and October 2004; they did not prioritize the design
options.

In the second stage of the design process, OIPT assessed the design
options, and then submitted them to the NSPS Senior Executive in November
2004. The Senior Executiveappointed by the Secretary of Defense to
design and implement NSPS on his behalf-reviewed and approved the design
options and presented them as proposed enabling regulations to submit to
the Secretary of Defense and the Director of OPM for a decision.
Throughout this period, the OIPT, PEO, and working group members continued
to participate, both in drafting and reviewing the proposed regulations.

In the third stage, the Secretary of Defense and Director of OPM reviewed
the proposals submitted by the NSPS Senior Executive. After finalizing the

17The PEO is the policy and program management office responsible for
conducting the design, planning development, implementation, and
assessment of NSPS.

18Component program managers are dual-hatted under their parent components
and the NSPS PEO.

proposed regulations, the Secretary and Director jointly released them for
public comment in the Federal Register on February 14, 2005.

In the fourth stage, the NSPS proposed regulations were subjected to a
statutory 30-day public comment period, after which DOD held a 30-day meet
and confer period (which began on April 18, 2005), with employee
representatives to discuss their views; the meetings were facilitated by
the Federal Mediation and Conciliation Service. As allowed by statute, DOD
extended the meet and confer process. Lastly, DOD is to engage in a 30-day
congressional notification period. As called for in the authorizing
legislation, the proposed regulations are subject to change based on
consideration of formal comments received during the 30-day public comment
period and the results of a 30-day meet and confer process with employee
representatives. As provided for in the authorizing legislation, DOD can
immediately implement those parts of the regulations upon which they have
reached agreement with employee representatives. DOD can implement those
parts of the proposed regulations not agreed to only after another 30
calendar days have elapsed after (1) notifying the Congress of the
decision to proceed with implementation and (2) explaining why
implementation is appropriate.

  DOD's NSPS Design Process Generally Reflects Practices of Successful
  Transformations, but Some Key Practices Are Lacking

DOD's NSPS design process generally reflects four of six key practices we
identified that have consistently been found at the center of successful
transformations. The design process generally reflects the following four
practices. First, DOD and OPM have developed a process to design the new
personnel system that is supported by top leadership in both
organizations. Second, from the outset, a set of guiding principles have
guided the NSPS design process. Third, DOD has a dedicated team in place
to design and implement NSPS and manage the transformation process, to
include program managers from DOD components. Fourth, DOD has established
a timeline, albeit ambitious, and implementation goals for implementing
its new personnel system. The design process, however, does not fully
reflect two other key practices. First, DOD developed and implemented a
written communication strategy document, but it is not comprehensive.
Second, while the NSPS design has involved employees through town hall
meetings and other mechanisms, it has not included employee
representatives on the working groups that drafted the design options for
the new system.

    Top DOD and OPM Leadership Drives Human Capital Transformation

DOD and OPM have developed a process to design DOD's new human capital
resources management system that is supported by top leadership in both
organizations. As previously discussed, DOD's initial process to design
NSPS was unrealistic and inappropriate; however, after a strategic
reassessment, DOD adjusted its approach to reflect a more cautious,
deliberative process that involved top DOD and OPM leadership. In our
report on key practices for successful transformations, we noted that top
leadership that is clearly and personally involved in transformations
provides stability and an identifiable source for employees to rally
around during tumultuous times.19 In addition, we noted that leadership
should set the direction, pace, and tone for the transformation. In our
prior reports and testimonies, we observed that top leadership must play a
critical role in creating and sustaining high-performing organizations.20

Senior leaders from DOD and OPM are directly involved in the NSPS design
process. For example, the Secretary of Defense tasked the Secretary of the
Navy to be the NSPS Senior Executive overseeing the implementation of
NSPS. Also, the Under Secretary of Defense for Personnel and Readiness and
the NSPS Senior Executive provided an open letter to all DOD civilian
employees stating that DOD is tasked to design a transformation system for
the department's civilian employees that supports its national security
mission while treating workers fairly and protecting their rights. In
addition, the Principal Deputy Under Secretary of Defense for Personnel
and Readiness, the Assistant Secretaries for Manpower and Reserve Affairs
from each military service, and the OPM Senior Advisor to the Director for
the Department of Defense are members of an integrated executive
management teamthe OIPTthat, among other things, provides
overall policy and strategic advice on the implementation of NSPS.
Similarly, senior-level executives from DOD and OPM are members of a
group, known as the Senior Advisory Group, that provides advice on general
NSPS conceptual, strategic, and implementation issues. Finally, senior
leaders from DOD and the military components participated in town hall
meetings

19GAO-03-669.

20See GAO Managing for Results: Federal Managers' Views Show Need for
Ensuring Top Leadership Skills, GAO-01-127 (Washington, D.C.: Oct. 20,
2000); Management Reform: Using the Results Act and Quality Management to
Improve Federal Performance, GAO/T-GGD-99-151 (Washington, D.C.: July 29,
1999); and Management Reform: Elements of Successful Improvement
Initiatives, GAO/T-GGD-00-26 (Washington, D.C.: Oct. 15, 1999).

at DOD installations worldwide to discuss the concept and design elements
of NSPS.

Experience shows that successful major change management initiatives in
large private and public sector organizations can often take at least 5 to
7 years. This length of time and the frequent turnover of political
leadership in the federal government have often made it difficult to
obtain the sustained and inspired attention to make needed changes. The
development of the position of Deputy Secretary of Defense for Management,
who would act as DOD's Chief Management Officer, is essential to elevate,
integrate, and institutionalize responsibility for the success of DOD's
overall business transformation efforts, including its new personnel
management system.

As DOD embarks on a large-scale change initiative, such as DOD's new
personnel management system, ensuring sustained and committed leadership
is crucial in developing a vision, initiating organizational change,
maintaining open communications, and creating an environment that is
receptive to innovation. Without the clear and demonstrated commitment of
agency top leadership, organizational cultures will not be transformed and
new visions and ways of doing business will not take root.

    Guiding Principles and Key Performance Parameters Steer Design Process

During the strategic reassessment of the NSPS design process, DOD and OPM
senior leadership developed a set of guiding principles to direct efforts
throughout all phases of NSPS development. We have reported that in
bringing together the originating components, the new organization must
have a clear set of principles and priorities that serve as a framework to
help the organization create a new culture and drive employee behaviors.21
Principles are the core values of the new organization and can serve as an
anchor that remain valid and enduring while organizations, personnel,
programs, and processes may change. Focusing on these principles and
priorities helps the organization maintain its drive towards achieving the
goals of the new transformation.

According to DOD, its guiding principles translate and communicate the
broad requirements and priorities outlined in the legislation into
concise,

21 GAO-03-669.

understandable requirements that underscore the department's purpose and
intent in creating NSPS. The NSPS guiding principles are

o 	put mission first-support national security goals and strategic
objectives,

o  respect the individual-protect rights guaranteed by law,

o  value talent, performance, leadership and commitment to public service,

o  be flexible, understandable, credible, responsive, and executable,

o  ensure accountability at all levels,

o 	balance personnel interoperability with unique mission requirements,
and

o  be competitive and cost effective.

Senior DOD and OPM leadership also approved a set of key performance
parameters, which define the minimum requirements or attributes of NSPS.
The key performance parameters are

o 	high-performing workforce and management: employees and supervisors are
compensated and retained based on performance and contribution to mission,

o 	agile and responsive workforce management: workforce can be easily
sized, shaped, and deployed to meet changing mission requirements,

o 	credible and trusted: system assures openness, clarity, accountability,
and merit principles,

o 	fiscally sound: aggregate increases in civilian payroll, at the
appropriations level, will conform to Office of Management and Budget
fiscal guidance, and managers will have flexibility to manage to budget,

o 	supporting infrastructure: information technology support, and training
and change management plans are available and funded, and

o 	schedule: NSPS will be operational and demonstrate success prior to
November 2009.

These principles and key performance parameters can serve as core values
for human capital management at DODvalues that define the
attributes that are intrinsically important to what the organization does
and how it will do it. Furthermore, they represent the institutional
beliefs and boundaries that are essential to building a new culture for
the organization. Finally, they appropriately identify the need to support
the mission and employees of the department, protect basic civil service
principles, and hold employees accountable for performance.

    Team Established to Manage the NSPS Design and Implementation Process

As previously discussed, DOD established a team to design and implement
NSPS and manage the transformation process. Dedicating a strong and stable
design and implementation team that will be responsible for the
transformation's day-to-day management is important to ensuring that it
receives the focused, full-time attention needed to be sustained and
successful. Specifically, the design and implementation team is important
to ensuring that various change initiatives are sequenced and implemented
in a coherent and integrated way. Because a transformation process is a
massive undertaking, the implementation team must have a "cadre of
champions" to ensure that changes are thoroughly implemented and sustained
over time. Establishing networks can help the design and implementation
team conduct the day-to-day activities of the merger or transformation and
help ensure that efforts are coordinated and integrated. To be most
effective, establishing clearly defined roles and responsibilities within
this network assigns accountability for parts of the implementation
process, helps reach agreement on work priorities, and builds a code of
conduct that will help all teams to work effectively.

The Secretary of Defense appointed a NSPS Senior Executive to, among other
things, design, develop, and establish NSPS. Under the Senior Executive's
authority, the PEO was established as the central policy and program
office to conduct the design, planning and development, deployment,
assessment, and full implementation of NSPS. Specifically, its
responsibilities include designing the labor relations, appeals, and human
resource/pay for performance systems; developing a communication strategy
and training strategy; modifying personnel information technology; and
drafting joint enabling regulations and internal DOD implementing
regulations. As the central DOD-wide program office, the PEO provides
direction and oversight of the components' NSPS program managers who are
dual-hatted under their parent component and the NSPS PEO. These program
managers also serve as their components' action officers and participate
in the development of NSPS and plan and

implement the deployment of NSPS. Figure 2 shows the organization of the
NSPS design and implementation team.

Figure 2: NSPS Design and Implementation Team Organization

aIncludes the U.S. Navy and the U.S. Marine Corps.

b Represents defense agencies, DOD field activities, the Joint Chiefs of
Staff, Office of the Inspector General, U.S. Court of Appeals for the
Armed Services, and Office of the Secretary of Defense.

Ambitious Timeline and DOD established an ambitious 18-month timeline and
implementation goals Implementation Goals for completing the design
process and beginning the phased Established implementation of NSPS. We
have reported that successful practices of

mergers and transformations have noted that the establishment of a
timeline with specific milestones allows stakeholders to track the
organization's progress towards its goals.22 Figure 3 shows the current
timeline and implementation goals for designing and implementing NSPS.

22GAO-03-669.

                Figure 3: NSPS Timeline and Implementation Goals

                 Source: GAO analysis based on DOD information.

Although DOD established a clear timeline with specific implementation
goals, they have allotted about 6 months for completing the design process
and beginning implementation of NSPS (as shown in the shaded area of
figure 3). Specifically, the authorizing legislation provides for a meet
and confer process for not less than 30 calendar days with the employee
representatives in order to attempt to reach agreement. However, as
allowed by statute, DOD extended the 30-day meet and confer period with
employee representatives. After the meet and confer process is concluded,
the Secretary of Defense must notify the Congress of DOD's intent to
implement any portions of the proposal where agreement has not been
reached, but only after 30 calendar days have elapsed after notifying the
Congress of the decision to implement those provisions. In addition, DOD
and OPM must jointly develop and issue the final NSPS regulations, which
must go through an interagency coordination process before they are
published in the Federal Register. Also, DOD must develop and conduct
indepth and varied training for its civilian employees, military and
civilian supervisors, and managers. Moreover, DOD must modify its existing
automated human resource information systems, including personnel and
payroll transaction process systems departmentwide, before NSPS can become
operational. Finally, DOD plans to roll out the NSPS labor relations
system and establish the National Security Labor Relations Board before
the initial roll out of the NSPS performance management system in early
fiscal year 2006. The board must be staffed with both board members as
well as about 100 professional staff, which will support the board.

A large-scale organizational change initiative, such as DOD's new
personnel management system, is a substantial commitment that will take
years before it is completed, and therefore must be carefully and closely
managed. As a result, it is essential to establish and track
implementation goals and establish a timeline to pinpoint performance
shortfalls and gaps and suggest midcourse corrections. While it is
appropriate to develop and integrate personnel management systems within
the department in a quick and seamless manner, moving too quickly or
prematurely can significantly raise the risk of doing it wrong. Having an
ambitious timeline is reasonable only insofar as it does not impact the
quality of the human capital management system that is created. In recent
hearings on the NSPS proposed regulations, we testified that DOD's new
personnel management system will have far-reaching implications for the
management of the

department and for civil service reform across the federal government.23
We further testified that NSPS could, if designed and implemented
properly, serve as a model for governmentwide transformation. However, if
not properly designed and implemented, NSPS could impede progress toward a
more performance-and results-based system for the federal government as a
whole.

    Communication Strategy Not Comprehensive

DOD developed and implemented a written communication strategy document
that provides a structured and planned approach to communicate timely and
consistent information about NSPS, but this strategy is not comprehensive.
It does not contain some elements that we have identified as important to
successful communication during transformations. As a result, the written
communication strategy document may not facilitate two-way communication
between employees, employee representatives, and management, which is
central to forming effective partnerships that are vital to the success of
any organization.

Specifically, the strategy does not identify all key internal stakeholders
and their concerns. For example, the strategy acknowledges that employee
representatives play an important role in the design and implementation of
NSPS, but it does not identify them as a key stakeholder. Instead, DOD's
written communication strategy document characterizes union leadership as
a "detractor," in part due to their criticism of NSPS. Consequently, DOD
identified the following four objectives as its most urgent communications
priorities, which are to (1) demonstrate the rationale for and the
benefits of NSPS, (2) express DOD's commitment to ensuring that NSPS is
applied fairly and equitably throughout the organization, (3) demonstrate
openness and transparency in the design and process of converting to NSPS,
and (4) mitigate and counter any potential criticism of NSPS from such
detractors as unions and their support groups. Experience shows that
failure to adequately consider a wide variety of people and cultural
issues can lead to unsuccessful transformations.

23GAO, Human Capital: Preliminary Observations on Proposed Regulations for
DOD's National Security Personnel System, GAO-05-559T (Washington, D.C.:
Apr. 14, 2005); Human Capital: Preliminary Observations on Proposed
Department of Defense National Security Personnel System Regulations,
GAO-05-517T (Washington, D.C.: Apr. 12, 2005); and Human Capital:
Preliminary Observations on Proposed DOD National Security Personnel
System Regulations, GAO-05-432T (Washington, D.C.: Mar. 15, 2005).

Furthermore, although the written communication strategy document
identified key messages for those internal and external stakeholders that
are identified, it does not tailor these messages to specific stakeholder
groups. For example, the strategy does not tailor key messages to such
groups of employees as human resource personnel, DOD executives and flag
officers, supervisors, and managers, even though these employees may have
divergent interests and information needs. Tailoring information helps
employees to feel that their concerns are specifically addressed. We have
reported that organizations undergoing a transformation should develop a
comprehensive communications strategy that reaches out to employees,
customers, and stakeholders and seeks to genuinely engage them in the
transformation process and facilitate a two-way honest exchange with and
allow for feedback from employees, customers, and stakeholders.24

    NSPS Design Process has Involved Employees

While the design process has involved employees through many mechanisms,
including focus groups, town hall meetings, a NSPS Web site for employee
comments, and meetings with employee representatives, it has not included
employee representatives on the working groups that drafted the design
options.25 The composition of the team is important because it helps
employees see that they are being represented and that their views are
being considered in the decision-making process. A successful
transformation must provide for meaningful involvement by employees and
their representatives to, among other things, gain their input into and
understanding of the changes that are occurring in the organization.
Employee involvement strengthens the transformation process by including
frontline perspectives and experiences. Further, employee involvement
helps increase employee's understanding and acceptance of organizational
goals and objectives, and gain ownership for new policies and procedures.
Involving employees in planning helps to develop agency goals and
objectives that incorporate insights about operations from a front-line
perspective. It can also serve to increase employees' understanding and
acceptance of organizational goals and improve motivation and morale.

24GAO-03-669.

25It should be noted that 10 federal labor unions have filed suit alleging
that DOD failed to abide by the statutory requirements to include employee
representatives in the development of DOD's new labor relations system
authorized as part of NSPS. See American Federation of Government
Employees, AFL-CIO et al v. Rumsfeld et al, No. 1:05cv00367 (D.D.C. filed
Feb. 23, 2005).

The PEO sponsored a number of focus group sessions and town hall meetings
at various sites across DOD and around the world to provide employees and
managers an opportunity to participate in the development of NSPS. During
a 3-week period beginning in July 2004, over 100 focus groups were held
throughout DOD, including overseas locations. The purpose of the focus
groups was to elicit perceptions and concerns about current personnel
policies and practices as well as new ideas from the DOD workforce to
inform the NSPS design process. Separate focus groups were held for
employees, civilian and military supervisors, and managers and
practitioners from the personnel, legal, and equal employment opportunity
communities. According to DOD officials, bargaining unit employees and
employee representatives were invited to participate. DOD officials stated
that over 10,000 comments, ideas, and suggestions were received during the
focus group sessions and were summarized and provided to NSPS working
groups for use in developing options for the labor relations, appeals,
adverse actions, and personnel design elements of NSPS.

In addition, town hall meetings were held and, according to DOD, are still
being conducted at DOD facilities around the world. According to DOD
officials, these town hall meetings have provided an opportunity to
communicate with the workforce, provide the status of the design and
development of NSPS, and solicit thoughts and ideas. The format for town
hall meetings included an introductory presentation by a senior leader
followed by a question and answer session where any employee in the
audience was free to ask a question or make a comment. To facilitate the
widest possible dissemination, some of the town hall meetings were
broadcast live, as well as videotaped and rebroadcast on military
television channels and Web sites.

DOD's NSPS Web site was available for DOD employees as well as interested
parties to view and comment on the proposed regulations as well as for the
most recent information and announcements regarding NSPS. After the
proposed NSPS regulations were published in the Federal Register, there
was a 30-day public comment period, providing all interested parties the
opportunity to submit comments and recommendations on the content of the
proposal. The proposed regulations were published on February 14, 2005,
and the 30-day comment period ended on March 16, 2005. During this time
period, according to DOD, it received more than 58,000 comments.

Prior to the publication of the proposed NSPS regulations, DOD and OPM
conducted 10 joint meetings with officials of DOD's 43 labor unions to

discuss NSPS design elements. According to DOD officials, these meetings
involved as many as 80 union leaders at any one time, addressed a variety
of topics, including (1) the reasons change is needed and the department's
interests; (2) the results of departmentwide focus group sessions held
with a broad cross-section of DOD employees; (3) the proposed NSPS
implementation schedule; (4) employee communications; and (5) proposed
design options in the areas of labor relations and collective bargaining,
adverse actions and appeals, and pay and performance management. According
to DOD officials, these meetings provided the opportunity to discuss the
design elements, proposals under consideration for NSPS, and solicit
employee representative feedback.

According to DOD, the focus group sessions and town hall meetings, as well
as the working groups and union meetings, assured that DOD employees,
managers, supervisors, employee representatives, and other stakeholders
were involved in and given ample opportunity to provide input into the
design and implementation of NSPS.

Opportunities for employee involvement were limited between the conclusion
of the town hall meetings and focus groups in July 2004 and the publishing
of the proposed NSPS regulations in February 2005; the primary means for
employees to provide feedback during this time was through the NSPS Web
site.

  DOD Faces Multiple Challenges in Implementing NSPS

As DOD implements its new personnel management system, it will face
multiple implementation challenges in both the early and later stages of
implementation. At recent hearings on the proposed NSPS regulations, we
highlighted multiple challenges: (1) establishing an overall
communications strategy, (2) providing adequate resources for the new
system, (3) involving employees and other stakeholders in implementing the
system, (4) ensuring sustained and committed leadership, and (5)
evaluating the new personnel management system after it has been
implemented.26

  Early Implementation  o  Establishing an overall communications strategy. A
 significant Challenges challenge for DOD is to ensure an effective and ongoing
                                    two-way

26GAO-05-432T, GAO-05-517T, and GAO-05-559T.

communications strategy, given its size, geographically and culturally
diverse audiences, and different command structures across DOD
organizations. We have reported that a communications strategy that
creates shared expectations about, and reports related progress on, the
implementation of the new system is a key practice of a change management
initiative. The communications strategy must include the active and
visible involvement of a number of key players, including the Secretary of
Defense, and a variety of communication means and mediums for successful
implementation of the system. DOD acknowledges that a comprehensive
outreach and communications strategy is essential for designing and
implementing its new personnel management system, but the proposed
regulations do not identify a process for continuing involvement of
employees in the planning, development, and implementation of NSPS.

o 	Providing adequate resources for implementing the new system.
Experience has shown that additional resources are necessary to ensure
sufficient planning, implementation, training, and evaluation for human
capital reform. According to DOD, the implementation of NSPS will result
in costs for, among other things, developing and delivering training,
modifying automated personnel information systems, and starting up and
sustaining the National Security Labor Relations Board. Major cost drivers
in implementing pay-for-performance systems are the direct costs
associated with salaries and training. DOD estimates that the overall cost
associated with implementing NSPS will be approximately $158 million
through fiscal year 2008. However, it has not completed an implementation
plan for NSPS, including an information technology plan and a training
plan; thus, the full extent of the resources needed to implement NSPS may
not be well understood at this time.

o 	Involving employees and other stakeholders in implementing the system.
DOD faces a significant challenge in involvingand continuing to
involveits employees, employee representatives, and other
stakeholders in implementing NSPS. DOD's proposed NSPS regulations, while
providing for continuing collaboration with employee representatives, do
not identify a process for the continuing involvement of employees and
other stakeholders in the planning, development, and implementation of
NSPS. The active involvement of all stakeholders will be critical to the
success of NSPS. The involvement of employees and their representatives
both directly and indirectly is crucial to the success of new initiatives,
including implementing a payfor-performance system. High-performing
organizations have found that

actively involving employees and stakeholders, such as unions or other
employee associations, when developing results-oriented performance
management systems helps improve employees' confidence and belief in the
fairness of the system and increases their understanding and ownership of
organizational goals and objectives. This involvement must be early,
active, and continuing if employees are to gain a sense of understanding
and ownership of the changes that are being made.

    Later Implementation Challenges

o 	Ensuring sustained and committed leadership. As DOD implements this
massive human capital reform, its challenge will be to elevate, integrate,
and institutionalize leadership responsibility for NSPS to ensure its
success. DOD may face a future leadership challenge when the NSPS Senior
Executive and the PEO transition out of existence once NSPS is fully
implemented. According to a PEO official, at that time, ongoing
implementation responsibility for NSPS would come under the Civilian
Personnel Management Service, which is part of the Office of the Under
Secretary of Defense for Personnel and Readiness. In recent testimony on
the transformation of DOD business operations, we stated that as DOD
embarks on large-scale business transformation efforts, such as NSPS, the
complexity and long-term nature of these efforts requires the development
of an executive position capable of providing strong and sustained change
management leadership across the department-and over a number of years and
various administrations. 27 One way to ensure such leadership would be to
create by legislation a full-time executive-level II position for a chief
management official, who would serve as the Deputy Secretary of Defense
for Management. This position would elevate, integrate, and
institutionalize the high-level attention essential for ensuring that a
strategic business transformation plan-as well as the business policies,
procedures, systems, and processes that are necessary for successfully
implementing and sustaining overall business transformation efforts, like
NSPS, within DOD-are implemented and sustained. In previous testimony on
DOD's business transformation efforts, we identified the lack of clear and
sustained leadership for overall business transformations as one of the
underlying causes that has impeded prior DOD reform efforts.28

27GAO, Defense Management: Key Elements Needed to Successfully Transform
DOD Business Operations, GAO-05-629T (Washington, D.C.: Apr. 28, 2005).

28GAO-05-140T.

o 	Evaluating the new personnel management system. Evaluating the impact
of NSPS will be an ongoing challenge for DOD. This is especially important
because NSPS would give managers more authority and responsibility for
managing the new personnel system. High-performing organizations
continually review and revise their human capital management systems based
on data-driven lessons learned and changing needs in the work environment.
Collecting and analyzing data will be the fundamental building block for
measuring the effectiveness of these approaches in support of the mission
and goals of the department.

According to DOD, the department is planning to establish procedures to
evaluate the implementation of its new personnel management system. During
testimony on the proposed NSPS regulations, we stated that DOD should
consider conducting evaluations that are broadly modeled on demonstration
projects. Under the demonstration project authority, agencies must
evaluate and periodically report on results, implementation of the
demonstration project, costs and benefits, impacts on veterans and other
equal employment opportunity groups, adherence to merit system principles,
and the extent to which the lessons learned from the project can be
applied governmentwide. We further testified that a set of balanced
measures addressing a range of results, and customer, employee, and
external partner issues may also prove beneficial. An evaluation such as
this would facilitate congressional oversight; allow for any midcourse
corrections; assist DOD in benchmarking its progress with other efforts;
and provide for documenting best practices and lessons learned with
employees, stakeholders, other federal agencies, and the public.

Conclusions	DOD's efforts to design and implement a new personnel
management system represent a huge undertaking. However, if not properly
designed and implemented, the new system could severely impede DOD's
progress toward a more performance-and results-based system that it is
striving to achieve. Although DOD's process to design its new personnel
management system represents a phased, deliberative process, it does not
fully reflect some key practices of successful transformations. Because
DOD has not fully addressed all of these practices, it does not have a
comprehensive written communication strategy document that effectively
addresses employee concerns and their information needs, and facilitates
two-way communication between employees, employee representatives, and
management. Without a comprehensive written communication strategy

document, DOD may be hampered in achieving employee buy-in, which could
lead to an unsuccessful implementation of the system.

In addition, evaluating the impact of NSPS will be an ongoing challenge
for DOD. Although DOD has plans to establish procedures to evaluate NSPS,
it is critical that these procedures be adequate to fully measure the
effectiveness of the program. Specifically, adequately designed evaluation
procedures include results-oriented performance measures and reporting
requirements that facilitate DOD's ability to effectively evaluate and
report on NSPS's results. Without procedures that include outcome measures
and reporting requirements, DOD will lack the visibility and oversight
needed to benchmark progress, make system improvements, and provide the
Congress with the assessments needed to determine whether NSPS is truly
the model for governmentwide transformation in human capital management.

  Recommendations for Executive Action

To improve the comprehensiveness of the NSPS communication strategy, we
recommend that the Secretary of Defense direct the NSPS Senior Executive
and NSPS Program Executive Office to take the following two actions:

o  Identify all internal stakeholders and their concerns.

o 	Tailor and customize key messages to be delivered to groups of
employees to meet their divergent interests and information needs.

To evaluate the impact of DOD's new personnel management system, we
recommend that the Secretary of Defense direct the NSPS Senior Executive
and NSPS Program Executive Office to take the following action:

o 	Develop procedures for evaluating NSPS that contain results-oriented
performance measures and reporting requirements. These evaluation
procedures could be broadly modeled on the evaluation requirements of the
OPM demonstration projects.

Agency Comments and 	DOD provided written comments on a draft of this
report. The department did not concur with our recommendation to identify
all key internal

Our Evaluation stakeholders and their concerns. The department partially
concurred with

our recommendation to tailor and customize key messages to be delivered to
groups of employees to meet their divergent interests and information
needs. Also, the department partially concurred with our recommendation to
develop procedures for evaluating NSPS that contain results-oriented
performance measures and reporting requirements.

DOD did not concur with our recommendation that the department identify
all key internal stakeholders and their concerns. The department stated
that, among other things, it adopted a broad-based, event-driven approach
to the design and implementation of NSPS that included a multifaceted
communications outreach strategy to inform and involve key stakeholders,
and that it took great care to ensure that materials and messages
addressed stakeholders' concerns, both known and anticipated. However, our
review of DOD's written communication strategy document showed that not
all key internal stakeholders and their concerns were identified. For
example, the written communication strategy document does not identify
employee representatives as a key stakeholder but, instead, characterizes
union leadership as "NSPS' biggest detractor." Since the development and
implementation of the written communication strategy document, DOD notes
that specific plans were developed to identify key internal and external
stakeholders and provided key messages and communications products to
inform those groups. DOD provided us with these plans after we provided
the department with our draft report for comment. Our review of these
plans shows that they are not comprehensive. For example, the plans for
the most part do not identify employee representatives as a key
stakeholder or identify their concerns. Consequently, we continue to
believe that our recommendation has merit and should be implemented.

DOD partially concurred with our recommendation that the department tailor
and customize key messages to be delivered to groups of employees to meet
their divergent interest and information needs. The department stated that
it believes that it has been successful so far in developing, customizing,
and delivering key messages to employees and provided us with several
examples to illustrate its efforts. Although DOD's written communication
strategy document contained key messages for some employee groups, the
messages were general in content and not tailored to specific employee
groups. DOD acknowledges that each stakeholder group has a unique focus
and recently released NSPS brochures tailored to such groups of employees
as human resource personnel, senior leaders, supervisors and managers, and
employees. DOD provided us with these brochures after we provided the
department with our draft report for comment. Our review of these
brochures shows that they do in fact tailor

and customize key messages for some, but not all, employee groups.
Furthermore, we believe that DOD's written communication strategy document
should serve as the single, comprehensive source of DOD's key messages,
which are tailored to and customized for groups of employees.
Consequently, we continue to believe that this recommendation has merit
and should be implemented.

DOD partially concurred with our recommendation to develop procedures for
evaluating NSPS that contain results-oriented performance measures and
reporting requirements that could be broadly modeled on the evaluation
requirements of the OPM demonstration projects. The department stated that
it has begun developing an evaluation plan and will ensure that the plan
contains results-oriented performance measures and reporting mechanisms.
If the department follows through with this effort, we believe that it
will be responsive to our recommendation.

DOD's comments are reprinted in appendix III. DOD also provided technical
comments, which we have incorporated in the final report where
appropriate.

We are sending copies of this report to the Chairman and Ranking Member,
Senate Committee on Armed Services; the Chairman and Ranking Member,
Senate Committee on Homeland Security and Governmental Affairs; the
Chairman and Ranking Member, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia, Senate
Committee on Homeland Security and Governmental Affairs; the Chairman and
Ranking Member, House Committee on Armed Services; the Chairman and
Ranking Member, Subcommittee on the Federal Workforce and Agency
Organization, House Committee on Government Reform; and other interested
congressional parties. We also are sending copies to the Secretary of
Defense and Director of the Office of Personnel Management. We will make
copies available to other interested parties upon request. This report
also will be made available at no charge on GAO's Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-5559 or by e-mail at [email protected]. For further
information on governmentwide human capital issues, please contact Eileen
R. Larence, Director, Strategic Issues, at (202) 512-6512 or
[email protected]. Contact points for our Offices of Congressional
Relations and Public

Affairs may be found on the last page of the report. GAO staff who made
major contributions to this report are listed in appendix IV.

Derek B. Stewart, Director Defense Capabilities and Management

List of Congressional Committees

The Honorable John W. Warner
Chairman
The Honorable Carl Levin
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Susan M. Collins
Chairman
The Honorable Joseph I. Lieberman
Ranking Member
Committee on Homeland Security

and Governmental Affairs
United States Senate

The Honorable George V. Voinovich
Chairman
The Honorable Daniel K. Akaka
Ranking Member
Subcommittee on Oversight of Government Management,

the Federal Workforce, and the District of Columbia
Committee on Homeland Security

and Governmental Affairs
United States Senate

The Honorable Duncan Hunter
Chairman
The Honorable Ike Skelton
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable Jon C. Porter
Chairman
The Honorable Danny K. Davis
Ranking Member
Subcommittee on the Federal Workforce

and Agency Organization
Committee on Government Reform
House of Representatives

Appendix I

Scope and Methodology

In conducting our review of the Department of Defense's (DOD) National
Security Personnel System (NSPS), we met with officials in key offices
within DOD and the Office of Personnel Management (OPM) that have
responsibility for designing and implementing DOD's new performance
management system. We also met with DOD employee representatives, whose
members are affected by the transformation. We conducted our work in
Washington, D.C., at DOD, including the NSPS Program Executive Office
(PEO) and NSPS Program Management Offices in the Army, the Navy, the
Marine Corps, the Air Force, and Washington Headquarters Service. We also
met with members of the NSPS Overarching Integrated Product Team (OIPT)
and Senior Advisory Group.

At OPM, we met with the Senior Advisor to the Director for the Department
of Defense and Senior Policy Advisor and Chief Human Capital Officer in
the Office of the Director. We also met with key officials in OPM's Office
of Congressional Relations, Division for Strategic Human Resources Policy,
Homeland Security and Intelligence Group in the Division for Human Capital
Leadership and Merit System Accountability, and the Office of the Chief
Financial Officer. In addition, we met with the OPM co-chairs of each of
the DOD working groups that designed NSPS.

We met with representatives from the United Defense Workers Coalition,
which represents 36 DOD employee unions, as well as employee
representatives for the Fraternal Order of Police and National Association
of Independent Labor, which are not members of the Coalition. We contacted
the other non-Coalition unions, but their representatives told us that
they had not been actively involved in the NSPS design process and,
therefore, declined our offer to meet with them. Finally, we met in
Washington, D.C., with key officials in other federal agencies that are
statutorily involved in the NSPS design process: Federal Labor Relations
Authority, Federal Mediation and Conciliation Service, and U.S. Merit
Systems Protection Board.

To describe DOD's design process, we examined the authorizing legislation
and other applicable laws and regulations and collected and analyzed
documentary and testimonial information from key sources. We met with the
Director and Deputy Director of the NSPS PEO and the DOD and OPM co-chairs
of all six working groups; members of the OIPT, including the OPM
co-chair, and Senior Advisory Group; DOD employee representatives; and
experts in federal labor relations and federal adverse actions and
personnel appeals systems. We also examined NSPS policy guidance,
directives, draft regulations, instructions, manuals, and memorandums

Appendix I Scope and Methodology

related to the design process and NSPS charters outlining the roles and
responsibilities of the OIPT and PEO.

To evaluate the extent to which DOD's process reflects elements of
successful transformations, we reviewed prior GAO reports, testimonies,
and forums on mergers and organizational transformations to identify
assessment criteria, and we applied those criteria to the descriptive
information collected for the first objective. Although there are a total
of nine key practices of successful transformations, our evaluation
focused on six key practices: (1) ensure top leadership drives the
transformation, (2) focus on a key set of principles and priorities at the
outset of the transformation, (3) set implementation goals and a timeline
to build momentum and show progress from day one, (4) dedicate an
implementation team to manage the transformation process, (5) establish a
communication strategy to create shared expectations and report related
progress, and (6) involve employees to obtain their ideas and gain their
ownership for the transformation.

We did not evaluate the key practice "establishes a coherent mission and
integrated strategic goals to guide the transformation" because we have
previously reported on the department's strategic planning efforts for
civilian personnel and assessed whether DOD and selected defense
components' goals and objectives contained in strategic plans for civilian
personnel were aligned with overarching missions of the organizations. We
did not apply two other key practices, "uses a performance management
system to define responsibility and assure accountability for change" and
"builds a world-class organization" because it would be premature to apply
them to the NSPS design process given that DOD has considerable work ahead
to design and implement NSPS and assess the overall system.

To identify the most significant challenges DOD faced in developing NSPS,
we interviewed officials from DOD, OPM, and other federal agencies as well
as representatives from DOD unions. We also examined related
documentation, previously identified, and reviewed prior GAO reports,
testimonies, and observations related to these challenges.

Data on DOD labor unions and the number of employees associated with each
union were compiled by DOD from three sources: (1) the OPM book, entitled
Union Recognition in the Federal Government, (2) data from the Defense
Civilian Personnel Data System, and (3) a DOD survey of the military
departments and defense agencies. The data are current as of June 2005. To
assess the reliability of these data, we interviewed the DOD

Appendix I Scope and Methodology

official responsible for compiling the data and performed some basic
reasonableness checks of the data against other sources of information
(e.g., previous DOD reports that identified DOD labor unions in past years
and information directly from unions). However, we were unable to
determine the reliability of the precise numbers of employees represented
by each union. Because of this, and since some of the data are not
current, these data are only sufficiently reliable for use as estimates
rather than precise numbers of union employees. We use these data in
appendix II to identify current DOD labor unions, an estimate of the
number of employees represented by each union, and which unions belong to
the United Defense Workers Coalition.

We conducted our review from October 2004 through June 2005 in accordance
with generally accepted government auditing standards. We include a
comprehensive list of related GAO products on DOD's civilian personnel
management at the end of this report.

Appendix II

DOD Labor Unions, Estimated Number of Employees Represented, and Membership in
the United Defense Workers Coalition

Table 1 lists current DOD labor unions, the estimated number of employees
represented by each union, and which unions belong to the United Defense
Workers Coalition.

Table 1: DOD Labor Unions, Estimated Number of Employees Represented, and
Membership in the United Defense Workers Coalition (as of June 2005).

Estimated number of DOD labor unionsa employees represented

                Members of the United Defense Workers Coalition

1. American Federation of Government Employees (AFGE) 260,521

2. American Federation of Teachers (AFT)

3. American Federation of State, County and Municipal Employees (AFSCME) b

4. American Nurses Association (ANA)

5. Antilles Consolidated Education Association (ACEA)

6. Association of Civilian Technicians (ACT) 22,173

7. Communications Workers of America (CWA)c

8. Fairchild Federal Employees Union (FFEU)

9. Federal Education Association, Inc. (FEA) 7,240

10. Hawaii Council of Defense Commissary Unions (HCDCU)

11. International Association of Firefighters (IAFF)

12. International Association of Machinists and Aerospace Workers (IAMAW)
16,875

13. International Association of Tool Craftsman (IATC)

14. International Brotherhood of Boilermakers (IBB)d Information not
available

15. International Brotherhood of Electrical Workers (IBEW) 3,066

16. International Brotherhood of Teamsters, Chauffeurs, Warehousemen and
Helpers of America (IBT) 2,960 17 International Federation of Professional
and Technical Engineers (IFPTE) 13,131

18. International Guard Union of America (IGUA) 34

19. International Organization of Masters, Mates and Pilots (IOMMP) 433

20. International Union of Operating Engineers (IUOE) 99

21. International Union of Painters and Allied Trades (BPAT) 33

22. Laborers International Union of North America (LIUNA) 7,381

23. Marine Engineers Beneficial Association (MEBA) 611

24. Metal Trades Department/Council (MTD/MTC) 18,260

25. National Air Traffic Controllers Association (NATCA) 36

26. National Association of Aeronautical Examiners (NAAE) 242

27. National Association of Government Employees (NAGE) 22,614

28. National Association of Government Inspectors (NAGI) 161

  Appendix II DOD Labor Unions, Estimated Number of Employees Represented, and
               Membership in the United Defense Workers Coalition

                         (Continued From Previous Page)

Estimated number of DOD labor unionsa employees represented

          Members of the United Defense Workers Coalition (continued)

29. National Federation of Federal Employees (NFFE) 8,449

30. Professional Airways Systems Specialists (PASS)

31. Retail, Wholesale and Department Store Union (RWDSU)

32. Seafarers International Union of North America (SIUNA) 3,675

33. Service Employees International Union (SEIU) 3,875

34. Sport Air Traffic Controllers (SPORT)

35. United Association of Plumbing and Pipe Fitting Industry of the United
States and Canada (UA)

36. United Power Trades Organization (UPTO)

                             Non-Coalition members

37. Fraternal Order of Police (FOP)

38. Graphic Communications International Union (GCIU)

39. Hotel Employees and Restaurant Employees International Union (HERE)

40. International Chemical Worker's Union (ICWU)

41. National Association of Independent Labor (NAIL) 2,500

42. National Conference of Firemen and Oilers (SEIU) (Formerly
International Brotherhood of Firemen and Oilers (IBFO)

43. United Food Commercial Workers Union (UFCW) 24,376

Total 424,605

Source: DOD.

aData on DOD labor unions and the number of employees associated with each
union was compiled by DOD from the Office of Personnel Management (OPM)
book entitled Union Recognition in the Federal Government, data from the
Defense Civilian Personnel Data System, and a DOD survey of the military
departments and defense agencies. The data are current as of June 2005 and
the numbers of employees should be considered as estimates rather than
precise numbers.

bThe American Federation of State, County, and Municipal Employees union
represents two DOD unions. The Federation of Physicians &
Dentists/Alliance of Health Care & Professional Employees represents 269
employees, while the United Nurses Association of California (UNAC) and
Balboa RN Association (BNA) represent 98 employees.

cThis includes the United Telegraph Workers Union (UTWU), which merged
with the Communications Workers of America in 1987.

dThe International Brotherhood of Boilermakers (IBB) is affiliated with
the Metal Trades Department. IBB representatives attended the meetings
between the United Defense Workers Coalition and representatives from DOD
and OPM.

                                  Appendix III

                    Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix IV

                     GAO Contact and Staff Acknowledgments

GAO Contact Derek B. Stewart, (202) 512-5559

Acknowledgments	In addition to the contact named above, Sandra F. Bell,
Renee S. Brown, Rebecca L. Galek, Barbara L. Joyce, Julia C. Matta, Mark
A. Pross, William J. Rigazio, John S. Townes, and Susan K. Woodward made
key contributions to this report.

Related GAO Products

Questions for the Record Related to the Department of Defense's National
Security Personnel System. GAO-05-771R. Washington, D.C.: June 14, 2005.

Questions for the Record Regarding the Department of Defense's National
Security Personnel System. GAO-05-770R. Washington, D.C.: May 31, 2005.

Post-hearing Questions Related to the Department of Defense's National
Security Personnel System. GAO-05-641R. Washington, D.C.: April 29, 2005.

Defense Management: Key Elements Needed to Successfully Transform DOD
Business Operations. GAO-05-629T. Washington, D.C.: April 28, 2005.

Human Capital: Preliminary Observations on Proposed Regulations for DOD's
National Security Personnel System. GAO-05-559T. Washington, D.C.: April
14, 2005.

Human Capital: Preliminary Observations on Proposed Department of Defense
National Security Personnel System Regulations. GAO-05-517T. Washington,
D.C.: April 12, 2005.

Human Capital: Preliminary Observations on Proposed DOD National Security
Personnel System Regulations. GAO-05-432T. Washington, D.C.: March 15,
2005.

Department of Defense: Further Actions Are Needed to Effectively Address
Business Management Problems and Overcome Key Business Transformation
Challenges. GAO-05-140T. Washington, D.C.: November 18, 2004.

DOD Civilian Personnel: Comprehensive Strategic Workforce Plans

Needed. GAO-04-753. Washington, D.C.: June 30, 2004.

Results-Oriented Cultures: Implementation Steps to Assist Mergers and
Organizational Transformations. GAO-03-669. Washington, D.C.: July 2,
2003.

Human Capital: Building on DOD's Reform Efforts to Foster Governmentwide
Improvements. GAO-03-851T. Washington, D.C.: June 4, 2003.

Related GAO Products

Human Capital: DOD's Civilian Personnel Strategic Management and the
Proposed National Security Personnel System. GAO-03-493T. Washington,
D.C.: May 12, 2003.

Defense Transformation: DOD's Proposed Civilian Personnel System and
Governmentwide Human Capital Reform. GAO-03-741T. Washington, D.C.: May 1,
2003.

Defense Transformation: Preliminary Observations on DOD's Proposed
Civilian Personnel Reforms. GAO-03-717T. Washington, D.C.: April 29, 2003.

DOD Personnel: DOD Actions Needed to Strengthen Civilian Human Capital
Strategic Planning and Integration with Military Personnel and Sourcing
Decisions. GAO-03-475. Washington, D.C.: March 28, 2003.

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