View From a Height

Modern Management

Last week, the Bush Administration began implementing the new, non civil-service rules for the Department of Homeland Security.

The Bush administration unveiled a new personnel system for the Department of Homeland Security yesterday that will dramatically change the way workers are paid, promoted, deployed and disciplined -- and soon the White House will ask Congress to grant all federal agencies similar authority to rewrite civil service rules governing their employees.

The new system will replace the half-century-old General Schedule, with its familiar 15 pay grades and raises based on time in a job, and install a system that more directly bases pay on occupation and annual performance evaluations, officials said. The new system has taken two years to develop and will require at least four more to implement, they said....

A raise or promotion -- moving up in a pay range or rising to the next one -- will depend on receiving a satisfactory performance rating from a supervisor, said officials with homeland security and the Office of Personnel Management.

"We really have created a system that rewards performance, not longevity," OPM Director Kay Coles James said in a briefing for reporters. "It can truly serve as a model for the rest of the federal government."

And soon it might. The White House will propose legislation within a month to allow all agencies to restructure their personnel systems in a similar way, said Clay Johnson III, deputy director for management at the Office of Management and Budget.

Naturally, the government employees' unions aren't happy about this change, and its proposed extension. After all, using actual evaluations instead of a clock-punching, time-marking system for grade and pay-scale threatens the very core of the civil service.

"They are encouraging a management of coercion and intimidation," said John Gage, president of the American Federation of Government Employees. He added: "This is not a modern system. This is a step backward."

Actually, it's a quantum leap forward, the very definition of modern management, fraught with the perils and promising the rewards that business managers have been dealing with for generations:

Smaller-scale experiments with changing pay systems at the Internal Revenue Service and the Federal Aviation Administration have produced mixed results. Managers at both agencies have said that it is easier to recruit talented workers at higher salaries than before, but it has also been difficult to create new pay systems that rank-and-file employees view as fair.

The current civil service system dates to the Pendleton Act of 1883, which replaced the "spoils system" of distributing jobs through political patronage with a merit-based system.

The proposed system appears to be based on an evaluation practice called the Balanced Scorecard, a means of aligning and evaluating employee and unit performance and activities with the organization's broader mission. In this sense, there's no reason why public sector organizations, or non-profit and government agencies can't apply it just as effectively as businesses. And there's absolutely no reason why it should only apply to agencies with a national security interest. The Balanced Scorecard Institute has been helping the Feddle Gummint do just that for a while now.

Initially developed in a series of Harvard Business Review articles, the Balanced Scorecard develops four sets of metrics for any organization: 1) financial, 2) customer-based, 3) internal processes, and 4) learning and growth.

Developing a balanced scorecard for an organization can be a very strenuous and time-consuming approach. It requires clear definitions of missions at all levels of the organization, and for all units. It requires a clear vision of the strategy to accomplish those missions. Established companies that may have strayed can spend months or years figuring this stuff out, all the while still having to conduct business.

Defining the measurable results is probably the next-hardest goal, and it's one that many companies have punted on, using traditional metrics like profit margin and ROA. Those measurements are derivable from public sources, so they're ones favored by analysts. And if a company is interested in pleasing analysts, those are the metrics it may focus on in the short- to mid-term.

But public information is decidedly and intentionally limited. The Balanced Scorecard approach is intended to make more sophisticated use of managerial accounting which uses internal numbers. To take an example from Jim Collins, Walgreen's measures its store performance in profit-per-customer-visit, something an outside analyst could only guess at, and even then only at a company-wide level.

According to Gallup, 60% of Fortune 500 companies now used the Balanced Scorecard in whole or in part. That number will probably grow as companies adopt it earlier in their lives.