Transforming Organizational Structure

Executive Summary

Management expert Tom Peters says that well-performing organizations should operate with 25 to 75 workers for every one supervisor. Some high-performance organizations have exceeded 100:1. Others, such as General Motors' Saturn, have abolished management positions as we traditionally know them. And the federal government? It has seven workers for every supervisor.

This 7:1 ratio reflects the outdated nature of federal management practices as well as its organization of departments and agencies. Other examples of outdated practices abound. Consider this: while the needs of Americans have changed dramatically in the last half- century, the federal government's structure of 30,000 field, district, and regional offices has changed little since its creation during the New Deal.

Within that structure, outdated practices and relationships remain. In Washington and in the field, offices are burdened by many who are far removed from delivering services to customers (e.g., oversized head-quarters staffs, multiple layers of supervision, and many specialists in the arcane rules of federal personnel, procurement, budget, and finance). The Department of Housing and Urban Development (HUD), for instance, has 13,000 employees--4,000 of them in Washington. In addition, 10 regional offices supervise state and local offices.

Models from an Earlier Era.

In an earlier era, the federal government followed the example of corporate America in building our public institutions. From the 1930's through the 1960's, we built large, top-down, centralized bureaucracies patterned after that day's corporate structures. Within these structures, tasks were broken into simple parts, each the responsibility of a different unit of employees, each defined by specific rules and regulations. As a result, government worked well. But times have changed. Now, at a time of rapid change, high technology, tough global competition, and demanding customers, we must once again follow corporate America's lead. Top-down bureaucracies no longer work very well in either the public or private sectors. As cutting-edge businesses have done, we must streamline our operations, cut management controls, and empower our workers.

"Organizational structure" refers to the formal and informal patterns of relationships by which an institution organizes work and distributes power. The federal government's organizational structure is rigid, hierarchical, and segmented. It also dilutes individual responsibility. The net effect is insufficient responsiveness to citizen concerns and costly inefficiencies arising from excessive controls that ultimately fail to provide accountability to the public for achieving results.

Barriers to Change

Despite a clear need to change the structure within many agencies, barriers exist. Individuals and institutions resist perceived threats to job security and management authority. And internal and external rules and regulations restrict structural changes. For example, the personnel system compartmentalizes work through hundreds of job classifications and discourages teamwork through the way it constructs its individual performance management system. Furthermore, legislation in some cases discourages effective cross-organizational work by imposing constraints, such as not allowing agencies to share the funding of joint efforts.

A combination of institutional and legislative constraints often prevents change. For example, while some agencies, such as the Social Security Administration, have had limited success in reforming their field structures, most have not. The Veterans Affairs Department has tried and failed to close underused hospitals. The Agriculture Department has had problems closing field offices in which the costs of administration exceed those of services delivered.

Guiding Principles.

From private and public sector case studies, we find common guiding principles and strategies for implementing change in an organization's structure. To succeed, the agents of change should:

--- organize work around results that customers consider valuable;

--- shift accountability from the use of rigid, centralized management control systems to a reliance on quasi-market techniques, such as competition among providers, and concentrate on high-quality results;

--- create partnerships within and between agencies, and create flexible relationships to increase the focus on serving customer needs; and

--- empower employees with the authority, skills, and information required to do their jobs, and redefine managers' role to that of team leader, coach, or facilitator.

Strategies for Change.

These four principles underpin, in turn, four strategies that explicitly address organizational structure and have successfully changed large private and public bureaucratic organizations:

Streamline Structures

The first strategy is to delayer headquarters and streamline field structures. This approach targets administrative costs and positions: such as managers, personnel specialists, budget analysts, procurement specialists, and other headquarters staff positions. These central control positions cost about $35 billion a year in salaries and benefits for the more than 660,000 people involved. Some positions, such as inspectors general, personnel, and procurement specialists, have grown in number while overall federal employment has remained steady. In addition to central control structures in headquarters, many agencies have outmoded field structures. While over 34,000 field offices exist, their service delivery patterns differ by agency. Therefore, careful study is needed to ensure closures contribute to improved service delivery, not just cost savings.

Each agency must make its own administrative reduction decisions based on its knowledge of mission and priorities. However, employees affected by the streamlining, many of whom worked with dedication over the years, should be given every opportunity to redirect their careers, elect separation incentives, accept new assignments and training, or receive quality outplacement services.

Reengineer Work Processes

This strategy, which often is referred to as "starting over," calls for beginning with a blank sheet of paper and then designing the optimal way to perform a necessary process, regardless of the pre- existing system. The process often produces radical change, with functions eliminated or redesigned. Private sector experience indicates that reengineering can sharply reduce internal processes and generate significant change. Federal experience, such as at the Defense Department and Internal Revenue Service (IRS), suggests great potential for improving performance and reducing costs.

Create Boundary-Crossing Partnerships

Real life needs do not always conform to the existing bureaucratic design of a program. Citizens often need services from more than one department at a time. Problems such as unemployment, crime, the environment, workforce training, and natural disaster relief demand a multi-department response. Cross-boundary partnerships are essential to helping the government address complex problems in a comprehensive fashion without adding programs or creating agencies.

Create Self-Managing Work Teams

In growing numbers of corporations, work teams have replaced traditional management, often dramatically increasing productivity and enhancing the quality of work life for employees. Not all teams are alike in the responsibility and accountability they possess. But highly developed teams control functions once reserved for management: hiring, firing, and promoting; designing work processes; establishing production schedules; setting goals and performance measures; and maintaining quality control. The Agriculture Department, IRS, and the Defense Logistics Agency have successfully piloted work teams.

Actions to be Taken

To transform itself, the federal government must do no less than change its fundamental culture (i.e., values, beliefs, and practices). Acting on these four strategies for organizational change would serve as a strong foundation for cultural change. Accordingly, NPR recommends the following actions:

--- Cut costs related to central management controls by half over five years. Do this, in part, by increasing the supervisory span of control from seven workers per supervisor to 15:1 over this period. In the process, eliminate at least half of the more than 660,000 positions in personnel, budget, procurement, headquarters, and other management control categories, and shift a portion of these savings to line positions to increase service delivery. The net result will be the elimination of at least 252,000 positions governmentwide, for a total five-year savings of over $40 billion. The federal civilian workforce would fall below two million by the year 2000, a 12 percent reduction.

--- Use multi-year performance agreements between the President and agency heads to guide changes in the federal government through streamlining, reengineering, partnering across established boundaries, and empowering teams with authority, skills, and accountability.

--- Give Congress a list that identifies field offices to be closed due to inadequate use, a need to balance workloads between offices, program changes, or a better matching of resources to needs.

--- Reestablish the President's authority to reorganize agencies. Presidents have had this power periodically since the 1930's. The last authority was granted for one year in 1984 and has not been renewed.

--- Establish high-impact, cross-agency partnerships to address complex service delivery issues.

--- Remove legislative barriers that inhibit cooperation between agencies.

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