Bush’s Domestic Legacy

The future of Government HRO

by Glenn Davidson

Of all the domestic policy initiatives of President George W. Bush, one that has received very little public attention may go down as the most meaningful long-term reform of his administration.

The ongoing e-Government initiative of the Office of Personnel Management has significantly modernized the federal governments use of information technology and modern business practices in the delivery of HR services. But the biggest step has yet to be taken.

The second phase of e-Government is OPMs implementation of the HR Lines of Business (HR LOB) program, which is exactly what it sounds like–installing honest-to-goodness, competitive shared-services organizations in place to manage a wide variety of HR activities in 23 federal agencies.

Readers of this magazine know the benefits of such a program: Improved management of human capital, increased operational efficiencies, significant cost savings, capital outlay avoidance, and vastly improved customer service can be expected. But the revolutionary part of
this program is that it will–for the first time–create something akin to a profit motive into the delivery of a
government service. That element is starting to make some people nervous.

Under the HR LOB plan, agencies will be required to pay for their HR services out of budget. If they decide not to purchase the services, funding for new initiatives will be cut. Five Federal agencies–Defense, Health and Human Services, Treasury, Interior, and Agriculture–have been certified to compete against one another as HR shared-services providers, creating internal competition and a further incentive to find new efficiencies. Any corporation that has adopted a shared-services model will understand the rationale for such an approach immediately–but Congress is not made up of Americas top business leaders.

While the U.S. Senate has appropriated funds in the 2006 budget for adoption of the HR LOB plan, the House is balking. House Appropriations Committee spokesman John Scofield said recently that the White Houses Office of Management and Budget … has gone around the congressional funding process and tried to tap agencies for participation, which is not something that
we will tolerate.

Naturally, Congress will not stand for any proposal that circumvents their constitutional power to control the federal purse strings. Its members also seem skeptical of the plans ability to control costs. The notion of standardizing these processes, it sounds like a nice thing, but the thing is, agencies have different missions and different structures, and the one-side approach might not be the best idea, Scofield said. The vaunted millions in savings … we haven’t seen any evidence that they’ll save any money.

Clearly, Congress needs to be educated about the HR LOBs great potential and reassured that the program wont be used to circumvent congressional appropriations authority.

This visionary approach to government service provision draws upon more than a decade of global business experience implementing and expanding shared-services organizations. In business, a shared-services unit is treated much like an independent entity with its own profit and loss imperatives. It sells integrated business process services to discrete business units, creating financial incentives both for the provider and consumer of these services to find the most cost-efficient means of implementation.

Making the shared-services model work at the government level requires breaking through several levels of misunderstanding and institutional resistance. For one, Congress needs to be informed of the carrot and stick nature of shared services. Yes, agencies have to come up with the funding themselves for shared services, but this is a cost that is usually highest in its first year.

As the shared-services economies of scale improve, these costs will go down. Couple the long-term savings with the upfront cuts realized in employing shared services, and you get leaner government agencies. Furthermore, once Congress appropriates funds for the project, federal agencies will then have no reason to hold back on buying the shared services, and the risk of funding cuts will end.

In other words, Congress continues to hold the cards for now, and if the shared-services model works as expected, they’ll be able to get more bang for the buck for any future appropriations they approve.

Surpassing these political hurdles is a challenge–and perhaps a topic for a future column. But one thing is certain–the Bush administration has taken a bold, innovative approach to HR that has drawn on our experiences, and anything we can do to help inform this debate will serve the nation well.

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