10/13/1996
The Washington Post

A year ago, Vice President Gore unveiled a proposal to turn many federal agencies into “performance-based organizations,” or PBOs. A few weeks ago the President repeated it on the campaign trail. The idea is to give these agencies far greater flexibility to manage their own budgets, personnel and purchasing, but in return to make them accountable for their performance.

Congress, which would need to grant PBOs these new freedoms, has not paid much attention. This is unfortunate and a bit odd, because the Gore PBO proposals are modeled on one of conservative heroine Margaret Thatcher’s most successful initiatives to reinvent British government.

Thatcher spent her first two terms privatizing and downsizing. But after eight years, she still hadn’t figured out how to shake her remaining bureaucracies out of their doldrums. Finally, in 1986, she asked her Efficiency Unit to recommend the next steps.

For 150 years, British leaders had commissioned study after study on improving the civil service. But Thatcher’s team did something no one had ever done: It asked the civil servants what they thought.

The answer came back loud and clear: If you want better management, untie the managers’ hands and let them manage. Hold them accountable for results — not for following silly rules.

STEPPING UP

The proposed reform became known as the Next Steps initiative.

• It separated departments’ service delivery and regulatory functions into discreet chunks, each one called an Executive Agency.
• It gave those agencies much more control over their budgets, personnel systems and other management practices.
• It paid agency chief executives whatever it took to get the talent needed, including performance bonuses of up to 20 percent of their salaries — but forced them to reapply for their jobs every three years.
• It required agency CEOs to negotiate a three-year performance contract with their department, specifying the results they would achieve and the management freedoms they would be given.
• It set annual performance targets for each agency.
• And it put agencies on trial for their lives every three years.

The government later extended the time frame for performance contracts and agency reviews from three to five years. But the basic reform now firmly in place. At 126 Executive Agencies, which employ almost 75 percent of all civil servants, CEOs now have the freedom they need to manage effectively. But both their pay and their job security depends on their agencies’ performance against quantifiable standards.

And every employee knows that if his agency doesn’t perform, it may be abolished, privatized or restructured at its five-year review.  Since 1988, the British have privatized about a dozen of these agencies.

MORE WITH LESS

Even the largest agencies have increased their operating efficiency by at least 2 percent a year. On average, agencies got by on 4.7 percent less operating money last year than they had the year before.

Overall, the British have shrunk their civil service by 15 percent through the Next Steps process. Meanwhile, performance has steadily improved.

Agencies have used almost every tool in the reinventors’ kit: contracting out, public vs. private competition, performance bonuses, group bonuses, total quality management, customer surveys, business process reengineering, internal markets, “onestop shopping” and more.

In 1991, the Labor Party pledged to keep Next Steps in place if it won power. And in November 1994, Parliament’s Treasury and Civil Service Committee called it “the single most successful Civil Service reform program of recent decades.”

THE IDEA SPREADS

New Zealand’s Labor Party did the same thing with almost every department. Brian Mulroney’s conservative government in Canada did a pilot program with about 15 “special operating agencies,” but never gave them enough flexibility to make a real difference.

To get permission to go beyond the kind of token effort Canada made, Clinton probably needs to tie the reform to something Congress wants. A Democratic Congress voted to downsize the civil service by 13 percent, for example, because it needed the money to finance Clinton’s 100,000 cops on the beat.

Perhaps the president can get the next Congress to pass a sweeping performance-based organizations bill by offering the lawmakers something equally irresistible. If PBOs are required to cut their operating costs 2 percent a year, the savings will gradually mount up to something real. Clinton could wrap his education and training proposals (several of which are tax cuts) into one big initiative, then ask Congress to fund them by passing a PBO bill.

Then again, it might be easier to just get Margaret Thatcher, John Major, Trent Lott, and Newt Gingrich together for a quiet chat.