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entitled 'The Chief Operating Officer Concept and its Potential Use as 
a Strategy to Improve Management at the Department of Homeland 
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June 28, 2004:

The Honorable Christopher Cox:

Chairman:

Select Committee on Homeland Security:

House of Representatives:

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

Dear Mr. Chairman:

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

On September 9, 2002, GAO also convened a roundtable of government 
leaders and management experts to discuss the COO concept and how it 
might apply within selected federal departments and agencies.[Footnote 
1] The intent of the roundtable was to generate ideas and to engage in 
an open dialogue on the possible application of the COO concept to 
selected federal departments and agencies. There was general agreement 
on a number of overall themes concerning the need for agencies to 
elevate, integrate, and institutionalize attention on key management 
challenges. Our prior work presented in issued reports on DHS's 
management and transformation challenges was done in accordance with 
generally accepted government auditing standards. Because this response 
is based primarily on our previously issued work and the non-audit work 
performed for the roundtable, we did not obtain agency comments on a 
draft of this letter. However, we are sending a copy of this letter to 
the Secretary of the Department of Homeland Security.

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

DHS Faces Management and Organizational Transformation Challenges:

DHS faces enormous management and organizational transformation 
challenges as it works to simultaneously establish itself, integrate 
numerous entities and systems, and protect the nation from terrorism. 
To achieve success, the result should not simply be a collection of 
components in a new department, but the transformation of the various 
programs and missions into a high-performing, focused 
organization.[Footnote 2] However, the size, complexity, and importance 
of DHS's mission make the challenges involved especially daunting. As a 
reflection of this, in January 2003 we designated the implementation 
and transformation of DHS as high risk.[Footnote 3] This determination 
reflected the fact that DHS was formed from diverse components with a 
wide array of existing major management challenges and program risks. 
For example, one DHS directorate's responsibility includes the 
protection of critical information systems that we already considered a 
high-risk area. Also, many of the originating components--including the 
Immigration and Naturalization Service, the Transportation Security 
Administration, the U.S. Customs Service, the Federal Emergency 
Management Agency, and the U.S. Coast Guard--individually faced one or 
more major management challenge, such as strategic human capital risks, 
critical information technology management challenges, or financial 
management vulnerabilities.[Footnote 4]

The high-risk designation also reflected DHS's daunting management 
challenge associated with the process of organizational integration and 
transformation itself. During its first year of operations, nearly 
180,000 employees from 22 different agencies with a combined budget of 
over $30 billion became part of the new department. Moreover, we have 
previously noted that successful merger and transformation efforts can 
be much more difficult to achieve in the public sector than in the 
private sector.[Footnote 5] Public sector transformation efforts, such 
as that under way at DHS, must contend with more stakeholders and power 
centers, less management flexibility, and greater transparency than in 
the private sector. Organizational mergers of this magnitude carry 
significant risks, including lost productivity and inefficiencies. 
Furthermore, top officials in the public sector are typically political 
appointees who do not stay in their positions long enough to 
effectively address key transformation initiatives. Indeed, major 
mergers and acquisitions in the private sector often do not live up to 
their expectations, and in the short term, the experience of major 
private sector mergers and acquisitions has been that productivity and 
effectiveness actually decline.[Footnote 6] This can happen for a 
number of reasons. For example, attention is concentrated on critical 
and immediate integration issues and diverted from longer-term mission 
issues. In addition, employees and managers inevitably worry about 
their place in the new organization. The key is to adopt practices that 
minimize the duration and the significance of factors that reduce 
productivity and effectiveness.

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

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

Elevate Attention on Management Issues and Transformational Change:

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

Integrate Various Key Management and Transformation Efforts:

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

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

To take advantage of the added status and visibility a COO position 
would provide and in order to be successful, the COO will need to be 
among an agency's top leadership (for example, a new level two position 
with the title of deputy secretary for management or principal under 
secretary for management). However, consistent with the desire to 
integrate responsibilities, the creation of a senior management 
position needs to be considered carefully with regard to existing 
positions and responsibilities so that it does not result in 
unnecessary "layering" at an agency.

Institutionalize Accountability for Addressing Management Issues and 
Leading Transformational Change:

Management weaknesses in some agencies are deeply entrenched and long-
standing and will take years of sustained attention and continuity to 
resolve. This is especially important since private sector experience 
with mergers and acquisitions suggests that over 40 percent of 
executives in acquired companies leave within the first year and 75 
percent within the first 3 years.[Footnote 8] In addition, making 
fundamental changes in agencies' cultures will also require a long-term 
effort. In our previous work, we have noted that the experiences of 
successful transformation initiatives in large private and public 
sector organizations suggest that it can often take at least 5 to 7 
years until such initiatives are fully implemented and the related 
cultures are transformed in a sustainable manner.[Footnote 9] In the 
federal government, the frequent turnover of the political leadership 
has often made it extremely difficult to obtain the sustained attention 
required to make needed changes. The creation of a COO position can 
provide one way for institutionalizing accountability over the long 
term.

Certain Mechanisms Can Augment the COO Position:

In the context of providing agencies with a tool to elevate, integrate, 
and institutionalize responsibility for certain key management 
functions and transformational efforts within federal agencies, 
Congress can further enhance the importance and authority of the COO 
position, and thus strengthen and streamline management functions 
within a department. For example, Congress could articulate the COO's 
broad responsibilities in statute. In 2003, Congress created the 
position of Deputy Architect of the Capitol/COO; this official is 
responsible for the overall direction, operation, and management of 
that organization. Under the statute, besides developing and 
implementing a long-term strategic plan, including a comprehensive 
mission statement and an annual performance plan, the Deputy Architect/
COO is to propose organizational changes and new positions needed to 
carry out the organization's mission and strategic and annual 
performance goals.[Footnote 10]

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

Another potentially important accountability mechanism to augment the 
COO role is to use clearly defined, results-oriented performance 
agreements accompanied by appropriate incentives, rewards, and 
accountability mechanisms.[Footnote 13] Performance agreements for 
senior leaders provide a potentially important mechanism for clarifying 
expectations, monitoring progress, and assessing accountability. In 
addition, we have reported on a number of benefits of performance 
agreements.[Footnote 14] Performance agreements can:

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

* foster collaboration across organizational boundaries,

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

* provide a results-oriented basis for individual accountability, and:

* maintain continuity of program goals during leadership transitions.

While performance agreements can be implemented administratively as was 
done in the Department of Transportation since the mid-1990s, Congress 
has also required performance agreements in statute as well as provided 
for performance assessments with consequences.[Footnote 15] For 
example, in 1998 Congress established a COO position at the Department 
of Education's Office of Student Financial Assistance.[Footnote 16] In 
2000 we reported that the COO is to complete an annual performance 
agreement with measurable organizational and individual goals that the 
COO would be accountable for achieving. Further, the COO's progress in 
meeting these goals is to form the basis of a possible performance 
bonus of up to 50 percent of base pay, as well as any decisions to 
remove or reappoint him or her. The COO is to enter into subsequent 
performance agreements with the Office of Student Financial 
Assistance's senior managers. Similarly, Congress made it clear in 
statute that the Deputy Architect/COO may be removed from office for 
failure to meet performance goals. Congress also required in statute 
that annual performance reports contain an evaluation of the extent to 
which the Office of the Architect of the Capitol met its goals and 
objectives.

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

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

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

Sincerely yours,

Signed by: 

David M. Walker:

Comptroller General of the United States:

(450333):

FOOTNOTES

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

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

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

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

[5] U.S. General Accounting Office, Highlights of a GAO Forum: Mergers 
and Transformation: Lessons Learned for a Department of Homeland 
Security and Other Federal Agencies, GAO-03-293SP (Washington, D.C.: 
Nov. 14, 2002).

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

[7] GAO-03-102. 

[8] GAO-03-669.

[9] GAO-03-293SP.

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

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

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

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

[14] U.S. General Accounting Office, Managing for Results: Emerging 
Benefits From Selected Agencies' Use of Performance Agreements, GAO-01-
115 (Washington, D.C.: Oct. 30, 2000). 

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

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