Background

The National Defense Authorization Act for Fiscal Year 2004 provided  DOD with authority to establish (1) a pay and performance management  system, (2) an appeals process, and (3) a labor relations system—which  together comprise NSPS. The legislation permits significant flexibility for  designing NSPS, allowing for a new framework of rules, regulations, and  processes to govern how defense civilian employees are hired,  compensated, promoted, and disciplined. The law granted DOD certain  exemptions from laws governing federal civilian personnel management  found in Title 5 of the U.S. Code. The Congress provided these flexibilities  in response to DOD’s position that the inflexibility of federal personnel  systems was one of the most important constraints to the department’s  ability to attract, retain, reward, and develop a civilian workforce to meet  the national security mission of the 21st century.

		Initial NSPS Design Process

The initial proposals for NSPS were developed by DOD and were based on  a 2002 compilation of best practices generated by demonstration projects  that experimented with different personnel management concepts. After  these proposals were sent to OPM for review, OPM identified a broad range  of legal, policy, and technical concerns, and also noted that the labor- management relations proposal was developed without any prior OPM  involvement or union input. OPM also indicated that the initial proposals  had been crafted with only token employee involvement, and it noted a  high level of concern expressed by congressional oversight committees,  stakeholders, and constituent groups. In addition to OPM, assistant  secretaries for the military services’ manpower organizations also  expressed concerns that NSPS as designed would not work.
Subsequently, the Secretary of Defense established a 3-week reassessment  of system requirements, process issues, personnel and communication  strategies, and program schedules and milestones. The Overarching  Integrated Product Team (OIPT), an advisory group co-chaired by the  Principal Deputy Under Secretary of Defense for Personnel and Readiness  and OPM, and including the military services’ assistant secretaries for  manpower and reserve affairs, oversaw this reassessment.

		Employees Covered by NSPS

NSPS labor relations provisions will be implemented across the entire  department once final NSPS regulations are issued and effective, and they  will apply to all DOD employees currently covered by the labor relations  provisions of Title 5, U.S. Code, Chapter 71. In contrast, NSPS regulations  governing the new pay and performance management system and appeals  process will be phased in and will not apply to some employees, as  stipulated by law (e.g., intelligence personnel and employees in DOD’s  laboratory demonstration organizations). The authorizing legislation  stipulates that these latter regulations may not apply to organizations with  more than 300,000 employees until the Secretary of Defense determines  and certifies that the department has a performance management system in  place that meets the statutory criteria established for NSPS.
The first phase of implementation—Spiral One—will provide the basis for  this certification prior to the deployment of Spiral Two. Spiral One includes  approximately 300,000 general schedule defense civilian employees, who  will be converted to the new system over a period of 18 months. DOD  currently plans to initiate Spiral One, beginning in early fiscal year 2006.  Spiral Two will include the remainder of DOD’s eligible workforce,  including wage-grade employees.  Spiral Three will apply to demonstration  laboratory employees no earlier than October 1, 2008, and then only to the  extent the Secretary of Defense determines that NSPS provides greater  personnel management flexibilities to the laboratories than those currently  implemented.

		DOD’s Employee Unions

According to DOD, almost two-thirds of its more than 700,000 civilian  employees are represented by 43 labor unions, including over 1,500  separate bargaining units. Table 1 in appendix II lists current DOD labor  unions, the estimated number of employees represented by each union, and  which unions belong to the United Defense Workers Coalition. According  to a DOD official, since 2000, defense civilian employee membership in  DOD’s labor unions has remained about the same; however, the number of  unions has dropped from about 60 unions to the current 43 unions,  primarily the result of mergers and consolidation among the unions.

		Practices and Implementation Steps for Mergers and Transformations

In our prior work, we identified key practices and lessons learned from  major public and private sector organizational mergers, acquisitions, and  transformations. This work was undertaken to help federal agencies  implement successful cultural transformations in response to governance  challenges. While no two mergers or transformation efforts are exactly  alike and the "best" approach depends on a variety of factors specific to  each context, there was general agreement on a number of key practices,  which are as follows: 1. Ensure top leadership drives the transformation. Leadership must set  the direction, pace, and tone and provide a clear, consistent rationale  that brings everyone together behind a single mission. 2. Focus on a key set of principles and priorities at the outset of the  transformation. A clear set of principles and priorities serves as a  framework to help the organization create a new culture and drive  employee behaviors. 3. Set implementation goals and a timeline to build momentum and  show progress from day one. Goals and a timeline are essential  because the transformation could take years to complete. 4. Dedicate an implementation team to manage the transformation  process. A strong and stable team is important to ensure that the  transformation receives the needed attention to be sustained and  successful. 5. Establish a communication strategy to create shared expectations  and report related progress. The strategy must reach out to employees,  customers, and stakeholders and engage them in a two-way exchange.
6.
Involve employees to obtain their ideas and gain their ownership for  the transformation. Employee involvement strengthens the process  and allows them to share their experiences and shape policies.

	NSPS Design Process Evolved Into a Phased Approach

DOD’s current process to design NSPS is divided into four stages:  (1) development of options for the personnel system, (2) assessment of the  options and translation into recommended proposals, (3) issuance of  proposed regulations, and (4) a statutory public comment period, a meet  and confer period with employee representatives, and a congressional  notification period. As discussed earlier, DOD’s initial process to design  NSPS was unrealistic and inappropriate. However, after a 3-week  reassessment, DOD adjusted its approach and attempted to create a more  cautious and deliberate process that would involve all of the key  stakeholders, including OPM. At this time, DOD adopted a management  framework to guide the design of NSPS based on DOD’s acquisition  management model and adopted an analytical framework to identify  system requirements as well as a phased approach to implementing the  new system, also based on the acquisition management model. Figure 1  presents the four stages in DOD’s current process in terms of the key  organizational elements, inputs, and outputs.
In the first stage, the NSPS PEO convened six multidisciplinary design  teams—called working groups—that were functionally aligned to cover the  following personnel program areas: (1) compensation (classification and  pay banding); (2) performance management; (3) hiring, assignment, pay  setting, and workforce shaping; (4) employee engagement; (5) adverse  action and appeals; and (6) labor relations. The working groups were co- chaired by DOD and OPM, and they were largely staffed from the defense  components. The working groups reviewed and analyzed data from  alternative federal personnel systems and laboratory and acquisition  demonstration projects, research materials from the Department of  Homeland Security’s personnel system design process, and private industry  practices. According to DOD, the working groups also received input and  participation from DOD human resources practitioners, attorneys, financial  management experts, and equal employment opportunity specialists. The  working groups also reviewed input gathered from DOD employee and  employee representatives. The PEO was responsible for conducting  outreach to employees and employee representatives, in conjunction with  NSPS program managers in the DOD components; their efforts included  106 focus groups, more than 50 town hall meetings worldwide, and 10  meetings with DOD employee representatives. The working groups  provided a broad range of options for the OIPT in September and October  2004; they did not prioritize the design options.
In the second stage of the design process, OIPT assessed the design  options, and then submitted them to the NSPS Senior Executive in  November 2004. The Senior Executiveappointed by the Secretary of  Defense to design and implement NSPS on his behalf—reviewed and  approved the design options and presented them as proposed enabling  regulations to submit to the Secretary of Defense and the Director of OPM  for a decision. Throughout this period, the OIPT, PEO, and working group  members continued to participate, both in drafting and reviewing the  proposed regulations.
In the third stage, the Secretary of Defense and Director of OPM reviewed  the proposals submitted by the NSPS Senior Executive. After finalizing the  proposed regulations, the Secretary and Director jointly released them for  public comment in the Federal Register on February 14, 2005.
In the fourth stage, the NSPS proposed regulations were subjected to a  statutory 30-day public comment period, after which DOD held a 30-day  meet and confer period (which began on April 18, 2005), with employee  representatives to discuss their views; the meetings were facilitated by the  Federal Mediation and Conciliation Service. As allowed by statute, DOD  extended the meet and confer process. Lastly, DOD is to engage in a 30-day  congressional notification period. As called for in the authorizing  legislation, the proposed regulations are subject to change based on  consideration of formal comments received during the 30-day public  comment period and the results of a 30-day meet and confer process with  employee representatives. As provided for in the authorizing legislation,  DOD can immediately implement those parts of the regulations upon which  they have reached agreement with employee representatives. DOD can  implement those parts of the proposed regulations not agreed to only after  another 30 calendar days have elapsed after (1) notifying the Congress of  the decision to proceed with implementation and (2) explaining why  implementation is appropriate.

	DOD’s NSPS Design Process Generally Reflects Practices of Successful Transformations, but Some Key Practices Are Lacking

DOD’s NSPS design process generally reflects four of six key practices we  identified that have consistently been found at the center of successful  transformations. The design process generally reflects the following four  practices. First, DOD and OPM have developed a process to design the new  personnel system that is supported by top leadership in both organizations.  Second, from the outset, a set of guiding principles have guided the NSPS  design process. Third, DOD has a dedicated team in place to design and  implement NSPS and manage the transformation process, to include  program managers from DOD components. Fourth, DOD has established a  timeline, albeit ambitious, and implementation goals for implementing its  new personnel system. The design process, however, does not fully reflect  two other key practices. First, DOD developed and implemented a written  communication strategy document, but it is not comprehensive. Second,  while the NSPS design has involved employees through town hall meetings  and other mechanisms, it has not included employee representatives on the  working groups that drafted the design options for the new system.

		Top DOD and OPM Leadership Drives Human Capital Transformation

DOD and OPM have developed a process to design DOD’s new human  capital resources management system that is supported by top leadership  in both organizations. As previously discussed, DOD’s initial process to  design NSPS was unrealistic and inappropriate; however, after a strategic  reassessment, DOD adjusted its approach to reflect a more cautious,  deliberative process that involved top DOD and OPM leadership. In our  report on key practices for successful transformations, we noted that top  leadership that is clearly and personally involved in transformations  provides stability and an identifiable source for employees to rally around  during tumultuous times. In addition, we noted that leadership should set  the direction, pace, and tone for the transformation. In our prior reports  and testimonies, we observed that top leadership must play a critical role in  creating and sustaining high-performing organizations.
Senior leaders from DOD and OPM are directly involved in the NSPS design  process. For example, the Secretary of Defense tasked the Secretary of the  Navy to be the NSPS Senior Executive overseeing the implementation of  NSPS. Also, the Under Secretary of Defense for Personnel and Readiness  and the NSPS Senior Executive provided an open letter to all DOD civilian  employees stating that DOD is tasked to design a transformation system for  the department’s civilian employees that supports its national security  mission while treating workers fairly and protecting their rights. In  addition, the Principal Deputy Under Secretary of Defense for Personnel  and Readiness, the Assistant Secretaries for Manpower and Reserve Affairs  from each military service, and the OPM Senior Advisor to the Director for  the Department of Defense are members of an integrated executive  management teamthe OIPTthat, among other things, provides overall  policy and strategic advice on the implementation of NSPS. Similarly,  senior-level executives from DOD and OPM are members of a group,  known as the Senior Advisory Group, that provides advice on general NSPS  conceptual, strategic, and implementation issues. Finally, senior leaders  from DOD and the military components participated in town hall meetings  at DOD installations worldwide to discuss the concept and design elements  of NSPS.
Experience shows that successful major change management initiatives in  large private and public sector organizations can often take at least 5 to 7  years. This length of time and the frequent turnover of political leadership  in the federal government have often made it difficult to obtain the  sustained and inspired attention to make needed changes. The  development of the position of Deputy Secretary of Defense for  Management, who would act as DOD’s Chief Management Officer, is  essential to elevate, integrate, and institutionalize responsibility for the  success of DOD’s overall business transformation efforts, including its new  personnel management system.
As DOD embarks on a large-scale change initiative, such as DOD’s new  personnel management system, ensuring sustained and committed  leadership is crucial in developing a vision, initiating organizational change,  maintaining open communications, and creating an environment that is  receptive to innovation. Without the clear and demonstrated commitment  of agency top leadership, organizational cultures will not be transformed  and new visions and ways of doing business will not take root.

		Guiding Principles and Key Performance Parameters Steer Design Process

During the strategic reassessment of the NSPS design process, DOD and  OPM senior leadership developed a set of guiding principles to direct  efforts throughout all phases of NSPS development. We have reported that  in bringing together the originating components, the new organization must  have a clear set of principles and priorities that serve as a framework to  help the organization create a new culture and drive employee behaviors.  Principles are the core values of the new organization and can serve as an  anchor that remain valid and enduring while organizations, personnel,  programs, and processes may change. Focusing on these principles and  priorities helps the organization maintain its drive towards achieving the  goals of the new transformation.
According to DOD, its guiding principles translate and communicate the  broad requirements and priorities outlined in the legislation into concise,  understandable requirements that underscore the department’s purpose  and intent in creating NSPS. The NSPS guiding principles are  put mission first—support national security goals and strategic   respect the individual—protect rights guaranteed by law,  value talent, performance, leadership and commitment to public service,  be flexible, understandable, credible, responsive, and executable,  ensure accountability at all levels,  balance personnel interoperability with unique mission requirements,   be competitive and cost effective.
Senior DOD and OPM leadership also approved a set of key performance  parameters, which define the minimum requirements or attributes of NSPS.  The key performance parameters are  high-performing workforce and management: employees and  supervisors are compensated and retained based on performance and  contribution to mission,  agile and responsive workforce management: workforce can be easily  sized, shaped, and deployed to meet changing mission requirements,  credible and trusted: system assures openness, clarity, accountability,   fiscally sound: aggregate increases in civilian payroll, at the  appropriations level, will conform to Office of Management and Budget  fiscal guidance, and managers will have flexibility to manage to budget,  supporting infrastructure: information technology support, and training  and change management plans are available and funded, and  schedule: NSPS will be operational and demonstrate success prior to  November 2009.
These principles and key performance parameters can serve as core values  for human capital management at DODvalues that define the attributes  that are intrinsically important to what the organization does and how it  will do it. Furthermore, they represent the institutional beliefs and  boundaries that are essential to building a new culture for the organization.  Finally, they appropriately identify the need to support the mission and  employees of the department, protect basic civil service principles, and  hold employees accountable for performance.

		Team Established to Manage the NSPS Design and Implementation Process

As previously discussed, DOD established a team to design and implement  NSPS and manage the transformation process. Dedicating a strong and  stable design and implementation team that will be responsible for the  transformation’s day-to-day management is important to ensuring that it  receives the focused, full-time attention needed to be sustained and  successful. Specifically, the design and implementation team is important  to ensuring that various change initiatives are sequenced and implemented  in a coherent and integrated way. Because a transformation process is a  massive undertaking, the implementation team must have a “cadre of  champions” to ensure that changes are thoroughly implemented and  sustained over time. Establishing networks can help the design and  implementation team conduct the day-to-day activities of the merger or  transformation and help ensure that efforts are coordinated and integrated.  To be most effective, establishing clearly defined roles and responsibilities  within this network assigns accountability for parts of the implementation  process, helps reach agreement on work priorities, and builds a code of  conduct that will help all teams to work effectively.
The Secretary of Defense appointed a NSPS Senior Executive to, among  other things, design, develop, and establish NSPS. Under the Senior  Executive’s authority, the PEO was established as the central policy and  program office to conduct the design, planning and development,  deployment, assessment, and full implementation of NSPS. Specifically, its  responsibilities include designing the labor relations, appeals, and human  resource/pay for performance systems; developing a communication  strategy and training strategy; modifying personnel information  technology; and drafting joint enabling regulations and internal DOD  implementing regulations. As the central DOD-wide program office, the  PEO provides direction and oversight of the components’ NSPS program  managers who are dual-hatted under their parent component and the NSPS  PEO. These program managers also serve as their components’ action  officers and participate in the development of NSPS and plan and  implement the deployment of NSPS. Figure 2 shows the organization of the  NSPS design and implementation team.

		Ambitious Timeline and Implementation Goals Established

DOD established an ambitious 18-month timeline and implementation goals  for completing the design process and beginning the phased  implementation of NSPS. We have reported that successful practices of  mergers and transformations have noted that the establishment of a  timeline with specific milestones allows stakeholders to track the  organization’s progress towards its goals. Figure 3 shows the current  timeline and implementation goals for designing and implementing NSPS.
Although DOD established a clear timeline with specific implementation  goals, they have allotted about 6 months for completing the design process  and beginning implementation of NSPS (as shown in the shaded area of  figure 3). Specifically, the authorizing legislation provides for a meet and  confer process for not less than 30 calendar days with the employee  representatives in order to attempt to reach agreement. However, as  allowed by statute, DOD extended the 30-day meet and confer period with  employee representatives. After the meet and confer process is concluded,  the Secretary of Defense must notify the Congress of DOD’s intent to  implement any portions of the proposal where agreement has not been  reached, but only after 30 calendar days have elapsed after notifying the  Congress of the decision to implement those provisions. In addition, DOD  and OPM must jointly develop and issue the final NSPS regulations, which  must go through an interagency coordination process before they are  published in the Federal Register. Also, DOD must develop and conduct in- depth and varied training for its civilian employees, military and civilian  supervisors, and managers. Moreover, DOD must modify its existing  automated human resource information systems, including personnel and  payroll transaction process systems departmentwide, before NSPS can  become operational. Finally, DOD plans to roll out the NSPS labor relations  system and establish the National Security Labor Relations Board before  the initial roll out of the NSPS performance management system in early  fiscal year 2006. The board must be staffed with both board members as  well as about 100 professional staff, which will support the board.
A large-scale organizational change initiative, such as DOD’s new personnel  management system, is a substantial commitment that will take years  before it is completed, and therefore must be carefully and closely  managed. As a result, it is essential to establish and track implementation  goals and establish a timeline to pinpoint performance shortfalls and gaps  and suggest midcourse corrections. While it is appropriate to develop and  integrate personnel management systems within the department in a quick  and seamless manner, moving too quickly or prematurely can significantly  raise the risk of doing it wrong. Having an ambitious timeline is reasonable  only insofar as it does not impact the quality of the human capital  management system that is created. In recent hearings on the NSPS  proposed regulations, we testified that DOD’s new personnel management  system will have far-reaching implications for the management of the department and for civil service reform across the federal government.  We further testified that NSPS could, if designed and implemented  properly, serve as a model for governmentwide transformation. However, if  not properly designed and implemented, NSPS could impede progress  toward a more performance- and results-based system for the federal  government as a whole.

		Communication Strategy Not Comprehensive

DOD developed and implemented a written communication strategy  document that provides a structured and planned approach to  communicate timely and consistent information about NSPS, but this  strategy is not comprehensive. It does not contain some elements that we  have identified as important to successful communication during  transformations. As a result, the written communication strategy document  may not facilitate two-way communication between employees, employee  representatives, and management, which is central to forming effective  partnerships that are vital to the success of any organization.
Specifically, the strategy does not identify all key internal stakeholders and  their concerns. For example, the strategy acknowledges that employee  representatives play an important role in the design and implementation of  NSPS, but it does not identify them as a key stakeholder. Instead, DOD’s  written communication strategy document characterizes union leadership  as a “detractor,” in part due to their criticism of NSPS. Consequently, DOD  identified the following four objectives as its most urgent communications  priorities, which are to (1) demonstrate the rationale for and the benefits of  NSPS, (2) express DOD’s commitment to ensuring that NSPS is applied  fairly and equitably throughout the organization, (3) demonstrate openness  and transparency in the design and process of converting to NSPS, and  (4) mitigate and counter any potential criticism of NSPS from such  detractors as unions and their support groups. Experience shows that  failure to adequately consider a wide variety of people and cultural issues  can lead to unsuccessful transformations.
Furthermore, although the written communication strategy document  identified key messages for those internal and external stakeholders that  are identified, it does not tailor these messages to specific stakeholder  groups. For example, the strategy does not tailor key messages to such  groups of employees as human resource personnel, DOD executives and  flag officers, supervisors, and managers, even though these employees may  have divergent interests and information needs. Tailoring information helps  employees to feel that their concerns are specifically addressed. We have  reported that organizations undergoing a transformation should develop a  comprehensive communications strategy that reaches out to employees,  customers, and stakeholders and seeks to genuinely engage them in the  transformation process and facilitate a two-way honest exchange with and  allow for feedback from employees, customers, and stakeholders.

		NSPS Design Process has Involved Employees

While the design process has involved employees through many  mechanisms, including focus groups, town hall meetings, a NSPS Web site  for employee comments, and meetings with employee representatives, it  has not included employee representatives on the working groups that  drafted the design options. The composition of the team is important  because it helps employees see that they are being represented and that  their views are being considered in the decision-making process. A  successful transformation must provide for meaningful involvement by  employees and their representatives to, among other things, gain their  input into and understanding of the changes that are occurring in the  organization. Employee involvement strengthens the transformation  process by including frontline perspectives and experiences. Further,  employee involvement helps increase employee’s understanding and  acceptance of organizational goals and objectives, and gain ownership for  new policies and procedures. Involving employees in planning helps to  develop agency goals and objectives that incorporate insights about  operations from a front-line perspective. It can also serve to increase  employees’ understanding and acceptance of organizational goals and  improve motivation and morale.
The PEO sponsored a number of focus group sessions and town hall  meetings at various sites across DOD and around the world to provide  employees and managers an opportunity to participate in the development  of NSPS. During a 3-week period beginning in July 2004, over 100 focus  groups were held throughout DOD, including overseas locations. The  purpose of the focus groups was to elicit perceptions and concerns about  current personnel policies and practices as well as new ideas from the DOD  workforce to inform the NSPS design process. Separate focus groups were  held for employees, civilian and military supervisors, and managers and  practitioners from the personnel, legal, and equal employment opportunity  communities. According to DOD officials, bargaining unit employees and  employee representatives were invited to participate. DOD officials stated  that over 10,000 comments, ideas, and suggestions were received during  the focus group sessions and were summarized and provided to NSPS  working groups for use in developing options for the labor relations,  appeals, adverse actions, and personnel design elements of NSPS.
In addition, town hall meetings were held and, according to DOD, are still  being conducted at DOD facilities around the world. According to DOD  officials, these town hall meetings have provided an opportunity to  communicate with the workforce, provide the status of the design and  development of NSPS, and solicit thoughts and ideas. The format for town  hall meetings included an introductory presentation by a senior leader  followed by a question and answer session where any employee in the  audience was free to ask a question or make a comment. To facilitate the  widest possible dissemination, some of the town hall meetings were  broadcast live, as well as videotaped and rebroadcast on military television  channels and Web sites.
DOD’s NSPS Web site was available for DOD employees as well as  interested parties to view and comment on the proposed regulations as  well as for the most recent information and announcements regarding  NSPS. After the proposed NSPS regulations were published in the Federal  Register, there was a 30-day public comment period, providing all  interested parties the opportunity to submit comments and  recommendations on the content of the proposal. The proposed  regulations were published on February 14, 2005, and the 30-day comment  period ended on March 16, 2005. During this time period, according to  DOD, it received more than 58,000 comments.
Prior to the publication of the proposed NSPS regulations, DOD and OPM  conducted 10 joint meetings with officials of DOD’s 43 labor unions to  discuss NSPS design elements. According to DOD officials, these meetings  involved as many as 80 union leaders at any one time, addressed a variety  of topics, including (1) the reasons change is needed and the department’s  interests; (2) the results of departmentwide focus group sessions held with  a broad cross-section of DOD employees; (3) the proposed NSPS  implementation schedule; (4) employee communications; and (5) proposed  design options in the areas of labor relations and collective bargaining,  adverse actions and appeals, and pay and performance management.  According to DOD officials, these meetings provided the opportunity to  discuss the design elements, proposals under consideration for NSPS, and  solicit employee representative feedback.
According to DOD, the focus group sessions and town hall meetings, as  well as the working groups and union meetings, assured that DOD  employees, managers, supervisors, employee representatives, and other  stakeholders were involved in and given ample opportunity to provide  input into the design and implementation of NSPS.
Opportunities for employee involvement were limited between the  conclusion of the town hall meetings and focus groups in July 2004 and the  publishing of the proposed NSPS regulations in February 2005; the primary  means for employees to provide feedback during this time was through the  NSPS Web site.

	DOD Faces Multiple Challenges in Implementing NSPS

As DOD implements its new personnel management system, it will face  multiple implementation challenges in both the early and later stages of  implementation. At recent hearings on the proposed NSPS regulations, we  highlighted multiple challenges: (1) establishing an overall  communications strategy, (2) providing adequate resources for the new  system, (3) involving employees and other stakeholders in implementing  the system, (4) ensuring sustained and committed leadership, and  (5) evaluating the new personnel management system after it has been  implemented.

		Early Implementation Challenges

Establishing an overall communications strategy. A significant  challenge for DOD is to ensure an effective and ongoing two-way  communications strategy, given its size, geographically and culturally  diverse audiences, and different command structures across DOD  organizations. We have reported that a communications strategy that  creates shared expectations about, and reports related progress on, the  implementation of the new system is a key practice of a change  management initiative. The communications strategy must include the  active and visible involvement of a number of key players, including the  Secretary of Defense, and a variety of communication means and  mediums for successful implementation of the system. DOD  acknowledges that a comprehensive outreach and communications  strategy is essential for designing and implementing its new personnel  management system, but the proposed regulations do not identify a  process for continuing involvement of employees in the planning,  development, and implementation of NSPS.
Providing adequate resources for implementing the new system.
Experience has shown that additional resources are necessary to ensure  sufficient planning, implementation, training, and evaluation for human  capital reform. According to DOD, the implementation of NSPS will  result in costs for, among other things, developing and delivering  training, modifying automated personnel information systems, and  starting up and sustaining the National Security Labor Relations Board.  Major cost drivers in implementing pay-for-performance systems are the  direct costs associated with salaries and training. DOD estimates that  the overall cost associated with implementing NSPS will be  approximately $158 million through fiscal year 2008. However, it has not  completed an implementation plan for NSPS, including an information  technology plan and a training plan; thus, the full extent of the resources  needed to implement NSPS may not be well understood at this time.
Involving employees and other stakeholders in implementing the  system. DOD faces a significant challenge in involvingand continuing  to involveits employees, employee representatives, and other  stakeholders in implementing NSPS. DOD’s proposed NSPS regulations,  while providing for continuing collaboration with employee  representatives, do not identify a process for the continuing  involvement of employees and other stakeholders in the planning,  development, and implementation of NSPS. The active involvement of  all stakeholders will be critical to the success of NSPS. The involvement  of employees and their representatives both directly and indirectly is  crucial to the success of new initiatives, including implementing a pay- for-performance system. High-performing organizations have found that  actively involving employees and stakeholders, such as unions or other  employee associations, when developing results-oriented performance  management systems helps improve employees’ confidence and belief  in the fairness of the system and increases their understanding and  ownership of organizational goals and objectives. This involvement  must be early, active, and continuing if employees are to gain a sense of  understanding and ownership of the changes that are being made.

		Later Implementation Challenges

Ensuring sustained and committed leadership. As DOD implements  this massive human capital reform, its challenge will be to elevate,  integrate, and institutionalize leadership responsibility for NSPS to  ensure its success. DOD may face a future leadership challenge when  the NSPS Senior Executive and the PEO transition out of existence once  NSPS is fully implemented. According to a PEO official, at that time,  ongoing implementation responsibility for NSPS would come under the  Civilian Personnel Management Service, which is part of the Office of  the Under Secretary of Defense for Personnel and Readiness. In recent  testimony on the transformation of DOD business operations, we stated  that as DOD embarks on large-scale business transformation efforts,  such as NSPS, the complexity and long-term nature of these efforts  requires the development of an executive position capable of providing  strong and sustained change management leadership across the  department—and over a number of years and various administrations.  One way to ensure such leadership would be to create by legislation a  full-time executive-level II position for a chief management official, who  would serve as the Deputy Secretary of Defense for Management. This  position would elevate, integrate, and institutionalize the high-level  attention essential for ensuring that a strategic business transformation  plan—as well as the business policies, procedures, systems, and  processes that are necessary for successfully implementing and  sustaining overall business transformation efforts, like NSPS, within  DOD—are implemented and sustained. In previous testimony on DOD’s  business transformation efforts, we identified the lack of clear and  sustained leadership for overall business transformations as one of the  underlying causes that has impeded prior DOD reform efforts.
Evaluating the new personnel management system. Evaluating the  impact of NSPS will be an ongoing challenge for DOD. This is especially  important because NSPS would give managers more authority and  responsibility for managing the new personnel system. High-performing  organizations continually review and revise their human capital  management systems based on data-driven lessons learned and  changing needs in the work environment. Collecting and analyzing data  will be the fundamental building block for measuring the effectiveness  of these approaches in support of the mission and goals of the  department.
According to DOD, the department is planning to establish procedures  to evaluate the implementation of its new personnel management  system. During testimony on the proposed NSPS regulations, we stated  that DOD should consider conducting evaluations that are broadly  modeled on demonstration projects. Under the demonstration project  authority, agencies must evaluate and periodically report on results,  implementation of the demonstration project, costs and benefits,  impacts on veterans and other equal employment opportunity groups,  adherence to merit system principles, and the extent to which the  lessons learned from the project can be applied governmentwide. We  further testified that a set of balanced measures addressing a range of  results, and customer, employee, and external partner issues may also  prove beneficial. An evaluation such as this would facilitate  congressional oversight; allow for any midcourse corrections; assist  DOD in benchmarking its progress with other efforts; and provide for  documenting best practices and lessons learned with employees,  stakeholders, other federal agencies, and the public.

	Conclusions

DOD’s efforts to design and implement a new personnel management  system represent a huge undertaking. However, if not properly designed  and implemented, the new system could severely impede DOD’s progress  toward a more performance- and results-based system that it is striving to  achieve. Although DOD’s process to design its new personnel management  system represents a phased, deliberative process, it does not fully reflect  some key practices of successful transformations. Because DOD has not  fully addressed all of these practices, it does not have a comprehensive  written communication strategy document that effectively addresses  employee concerns and their information needs, and facilitates two-way  communication between employees, employee representatives, and  management. Without a comprehensive written communication strategy  document, DOD may be hampered in achieving employee buy-in, which  could lead to an unsuccessful implementation of the system.
In addition, evaluating the impact of NSPS will be an ongoing challenge for  DOD. Although DOD has plans to establish procedures to evaluate NSPS, it  is critical that these procedures be adequate to fully measure the  effectiveness of the program. Specifically, adequately designed evaluation  procedures include results-oriented performance measures and reporting  requirements that facilitate DOD’s ability to effectively evaluate and report  on NSPS’s results. Without procedures that include outcome measures and  reporting requirements, DOD will lack the visibility and oversight needed  to benchmark progress, make system improvements, and provide the  Congress with the assessments needed to determine whether NSPS is truly  the model for governmentwide transformation in human capital  management.

	Recommendations for Executive Action

To improve the comprehensiveness of the NSPS communication strategy,  we recommend that the Secretary of Defense direct the NSPS Senior  Executive and NSPS Program Executive Office to take the following two  actions:  Identify all internal stakeholders and their concerns.
Tailor and customize key messages to be delivered to groups of  employees to meet their divergent interests and information needs.
To evaluate the impact of DOD’s new personnel management system, we  recommend that the Secretary of Defense direct the NSPS Senior  Executive and NSPS Program Executive Office to take the following  action:  Develop procedures for evaluating NSPS that contain results-oriented  performance measures and reporting requirements. These evaluation  procedures could be broadly modeled on the evaluation requirements of  the OPM demonstration projects.

	Agency Comments and Our Evaluation

DOD provided written comments on a draft of this report. The department  did not concur with our recommendation to identify all key internal  stakeholders and their concerns. The department partially concurred with  our recommendation to tailor and customize key messages to be delivered  to groups of employees to meet their divergent interests and information  needs. Also, the department partially concurred with our recommendation  to develop procedures for evaluating NSPS that contain results-oriented  performance measures and reporting requirements.
DOD did not concur with our recommendation that the department identify  all key internal stakeholders and their concerns. The department stated  that, among other things, it adopted a broad-based, event-driven approach  to the design and implementation of NSPS that included a multifaceted  communications outreach strategy to inform and involve key stakeholders,  and that it took great care to ensure that materials and messages addressed  stakeholders’ concerns, both known and anticipated. However, our review  of DOD’s written communication strategy document showed that not all  key internal stakeholders and their concerns were identified. For example,  the written communication strategy document does not identify employee  representatives as a key stakeholder but, instead, characterizes union  leadership as “NSPS’ biggest detractor.” Since the development and  implementation of the written communication strategy document, DOD  notes that specific plans were developed to identify key internal and  external stakeholders and provided key messages and communications  products to inform those groups. DOD provided us with these plans after  we provided the department with our draft report for comment. Our review  of these plans shows that they are not comprehensive. For example, the  plans for the most part do not identify employee representatives as a key  stakeholder or identify their concerns. Consequently, we continue to  believe that our recommendation has merit and should be implemented.
DOD partially concurred with our recommendation that the department  tailor and customize key messages to be delivered to groups of employees  to meet their divergent interest and information needs. The department  stated that it believes that it has been successful so far in developing,  customizing, and delivering key messages to employees and provided us  with several examples to illustrate its efforts. Although DOD’s written  communication strategy document contained key messages for some  employee groups, the messages were general in content and not tailored to  specific employee groups. DOD acknowledges that each stakeholder group  has a unique focus and recently released NSPS brochures tailored to such  groups of employees as human resource personnel, senior leaders,  supervisors and managers, and employees. DOD provided us with these  brochures after we provided the department with our draft report for  comment. Our review of these brochures shows that they do in fact tailor  and customize key messages for some, but not all, employee groups.  Furthermore, we believe that DOD’s written communication strategy  document should serve as the single, comprehensive source of DOD’s key  messages, which are tailored to and customized for groups of employees.  Consequently, we continue to believe that this recommendation has merit  and should be implemented.
DOD partially concurred with our recommendation to develop procedures  for evaluating NSPS that contain results-oriented performance measures  and reporting requirements that could be broadly modeled on the  evaluation requirements of the OPM demonstration projects. The  department stated that it has begun developing an evaluation plan and will  ensure that the plan contains results-oriented performance measures and  reporting mechanisms. If the department follows through with this effort,  we believe that it will be responsive to our recommendation.
DOD’s comments are reprinted in appendix III. DOD also provided  technical comments, which we have incorporated in the final report where  appropriate.
We are sending copies of this report to the Chairman and Ranking Member,  Senate Committee on Armed Services; the Chairman and Ranking Member,  Senate Committee on Homeland Security and Governmental Affairs; the  Chairman and Ranking Member, Subcommittee on Oversight of  Government Management, the Federal Workforce, and the District of  Columbia, Senate Committee on Homeland Security and Governmental  Affairs; the Chairman and Ranking Member, House Committee on Armed  Services; the Chairman and Ranking Member, Subcommittee on the  Federal Workforce and Agency Organization, House Committee on  Government Reform; and other interested congressional parties. We also  are sending copies to the Secretary of Defense and Director of the Office of  Personnel Management. We will make copies available to other interested  parties upon request. This report also will be made available at no charge  on GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-5559 or by e-mail at stewartd@gao.gov. For further information  on governmentwide human capital issues, please contact Eileen R.  Larence, Director, Strategic Issues, at (202) 512-6512 or larencee@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of the report. GAO staff who made  major contributions to this report are listed in appendix IV.

Scope and Methodology

In conducting our review of the Department of Defense’s (DOD) National  Security Personnel System (NSPS), we met with officials in key offices  within DOD and the Office of Personnel Management (OPM) that have  responsibility for designing and implementing DOD’s new performance  management system. We also met with DOD employee representatives,  whose members are affected by the transformation. We conducted our  work in Washington, D.C., at DOD, including the NSPS Program Executive  Office (PEO) and NSPS Program Management Offices in the Army, the  Navy, the Marine Corps, the Air Force, and Washington Headquarters  Service. We also met with members of the NSPS Overarching Integrated  Product Team (OIPT) and Senior Advisory Group.
At OPM, we met with the Senior Advisor to the Director for the Department  of Defense and Senior Policy Advisor and Chief Human Capital Officer in  the Office of the Director. We also met with key officials in OPM’s Office of  Congressional Relations, Division for Strategic Human Resources Policy,  Homeland Security and Intelligence Group in the Division for Human  Capital Leadership and Merit System Accountability, and the Office of the  Chief Financial Officer. In addition, we met with the OPM co-chairs of each  of the DOD working groups that designed NSPS.
We met with representatives from the United Defense Workers Coalition,  which represents 36 DOD employee unions, as well as employee  representatives for the Fraternal Order of Police and National Association  of Independent Labor, which are not members of the Coalition. We  contacted the other non-Coalition unions, but their representatives told us  that they had not been actively involved in the NSPS design process and,  therefore, declined our offer to meet with them. Finally, we met in  Washington, D.C., with key officials in other federal agencies that are  statutorily involved in the NSPS design process: Federal Labor Relations  Authority, Federal Mediation and Conciliation Service, and U.S. Merit  Systems Protection Board.
To describe DOD’s design process, we examined the authorizing legislation  and other applicable laws and regulations and collected and analyzed  documentary and testimonial information from key sources. We met with  the Director and Deputy Director of the NSPS PEO and the DOD and OPM  co-chairs of all six working groups; members of the OIPT, including the  OPM co-chair, and Senior Advisory Group; DOD employee representatives;  and experts in federal labor relations and federal adverse actions and  personnel appeals systems. We also examined NSPS policy guidance,  directives, draft regulations, instructions, manuals, and memorandums  related to the design process and NSPS charters outlining the roles and  responsibilities of the OIPT and PEO.
To evaluate the extent to which DOD’s process reflects elements of  successful transformations, we reviewed prior GAO reports, testimonies,  and forums on mergers and organizational transformations to identify  assessment criteria, and we applied those criteria to the descriptive  information collected for the first objective. Although there are a total of  nine key practices of successful transformations, our evaluation focused  on six key practices: (1) ensure top leadership drives the transformation,  (2) focus on a key set of principles and priorities at the outset of the  transformation, (3) set implementation goals and a timeline to build  momentum and show progress from day one, (4) dedicate an  implementation team to manage the transformation process, (5) establish a  communication strategy to create shared expectations and report related  progress, and (6) involve employees to obtain their ideas and gain their  ownership for the transformation.
We did not evaluate the key practice “establishes a coherent mission and  integrated strategic goals to guide the transformation” because we have  previously reported on the department’s strategic planning efforts for  civilian personnel and assessed whether DOD and selected defense  components’ goals and objectives contained in strategic plans for civilian  personnel were aligned with overarching missions of the organizations. We  did not apply two other key practices, “uses a performance management  system to define responsibility and assure accountability for change” and  “builds a world-class organization” because it would be premature to apply  them to the NSPS design process given that DOD has considerable work  ahead to design and implement NSPS and assess the overall system.
To identify the most significant challenges DOD faced in developing NSPS,  we interviewed officials from DOD, OPM, and other federal agencies as  well as representatives from DOD unions. We also examined related  documentation, previously identified, and reviewed prior GAO reports,  testimonies, and observations related to these challenges.
Data on DOD labor unions and the number of employees associated with  each union were compiled by DOD from three sources: (1) the OPM book,  entitled Union Recognition in the Federal Government, (2) data from the  Defense Civilian Personnel Data System, and (3) a DOD survey of the  military departments and defense agencies. The data are current as of June  2005. To assess the reliability of these data, we interviewed the DOD  official responsible for compiling the data and performed some basic  reasonableness checks of the data against other sources of information  (e.g., previous DOD reports that identified DOD labor unions in past years  and information directly from unions). However, we were unable to  determine the reliability of the precise numbers of employees represented  by each union. Because of this, and since some of the data are not current,  these data are only sufficiently reliable for use as estimates rather than  precise numbers of union employees. We use these data in appendix II to  identify current DOD labor unions, an estimate of the number of employees  represented by each union, and which unions belong to the United Defense  Workers Coalition.
We conducted our review from October 2004 through June 2005 in  accordance with generally accepted government auditing standards. We  include a comprehensive list of related GAO products on DOD’s civilian  personnel management at the end of this report.

DOD Labor Unions, Estimated Number of Employees Represented, and Membership in the United Defense Workers Coalition

Table 1 lists current DOD labor unions, the estimated number of employees  represented by each union, and which unions belong to the United Defense  Workers Coalition.

Comments from the Department of Defense

GAO Contact and Staff Acknowledgments

	GAO Contact

	Acknowledgments

In addition to the contact named above, Sandra F. Bell, Renee S. Brown,  Rebecca L. Galek, Barbara L. Joyce, Julia C. Matta, Mark A. Pross, William  J. Rigazio, John S. Townes, and Susan K. Woodward made key  contributions to this report.

Related GAO Products

Questions for the Record Related to the Department of Defense’s National  Security Personnel System. GAO-05-771R. Washington, D.C.: June 14, 2005.
Questions for the Record Regarding the Department of Defense’s National  Security Personnel System. GAO-05-770R. Washington, D.C.: May 31, 2005.
Post-hearing Questions Related to the Department of Defense’s National  Security Personnel System. GAO-05-641R. Washington, D.C.: April 29, 2005.
Defense Management: Key Elements Needed to Successfully Transform  DOD Business Operations. GAO-05-629T. Washington, D.C.: April 28, 2005.
Human Capital: Preliminary Observations on Proposed Regulations for  DOD’s National Security Personnel System. GAO-05-559T. Washington,  D.C.: April 14, 2005.
Human Capital: Preliminary Observations on Proposed Department of  Defense National Security Personnel System Regulations. GAO-05-517T.  Washington, D.C.: April 12, 2005.
Human Capital: Preliminary Observations on Proposed DOD National  Security Personnel System Regulations. GAO-05-432T. Washington, D.C.:  March 15, 2005.
Department of Defense: Further Actions Are Needed to Effectively  Address Business Management Problems and Overcome Key Business  Transformation Challenges. GAO-05-140T. Washington, D.C.: November  18, 2004.
DOD Civilian Personnel: Comprehensive Strategic Workforce Plans  Needed. GAO-04-753. Washington, D.C.: June 30, 2004.
Results-Oriented Cultures: Implementation Steps to Assist Mergers and  Organizational Transformations. GAO-03-669. Washington, D.C.: July 2,  2003.
Human Capital: Building on DOD’s Reform Efforts to Foster  Governmentwide Improvements. GAO-03-851T. Washington, D.C.: June 4,  2003.
Human Capital: DOD’s Civilian Personnel Strategic Management and  the Proposed National Security Personnel System. GAO-03-493T.  Washington, D.C.: May 12, 2003.
Defense Transformation: DOD’s Proposed Civilian Personnel System and  Governmentwide Human Capital Reform. GAO-03-741T. Washington,  D.C.: May 1, 2003.
Defense Transformation: Preliminary Observations on DOD’s Proposed  Civilian Personnel Reforms. GAO-03-717T. Washington, D.C.: April 29,  2003.
DOD Personnel: DOD Actions Needed to Strengthen Civilian Human  Capital Strategic Planning and Integration with Military Personnel and  Sourcing Decisions. GAO-03-475. Washington, D.C.: March 28, 2003.

Summary:
Why GAO Did This Study

The Department of Defense's (DOD) new personnel system--the National Security Personnel System (NSPS)--will have far-reaching implications not just for DOD, but for civil service reform across the federal government. The National Defense Authorization Act for Fiscal Year 2004 gave DOD significant authorities to redesign the rules, regulations, and processes that govern the way that more than 700,000 defense civilian employees are hired, compensated, promoted, and disciplined. In addition, NSPS could serve as a model for governmentwide transformation in human capital management. However, if not properly designed and effectively implemented, it could severely impede progress toward a more performance- and results-based system for the federal government as a whole. This report (1) describes DOD's process to design its new personnel management system, (2) analyzes the extent to which DOD's process reflects key practices for successful transformations, and (3) identifies the most significant challenges DOD faces in implementing NSPS.

What GAO Found

DOD's current process to design its new personnel management system consists of four stages: (1) development of design options, (2) assessment of design options, (3) issuance of proposed regulations, and (4) a statutory public comment period, a meet and confer period with employee representatives, and a congressional notification period. DOD's initial design process was unrealistic and inappropriate. However, after a strategic reassessment, DOD adjusted its approach to reflect a more cautious and deliberative process that involved more stakeholders. DOD's NSPS design process generally reflects four of six selected key practices for successful organizational transformations. First, DOD and OPM have developed a process to design the new personnel system that is supported by top leadership in both organizations. Second, from the outset, a set of guiding principles and key performance parameters have guided the NSPS design process. Third, DOD has a dedicated team in place to design and implement NSPS and manage the transformation process. Fourth, DOD has established a timeline, albeit ambitious, and implementation goals. The design process, however, is lacking in two other practices. First, DOD developed and implemented a written communication strategy document, but the strategy is not comprehensive. It does not identify all key internal stakeholders and their concerns, and does not tailor key messages to specific stakeholder groups. Failure to adequately consider a wide variety of people and cultural issues can lead to unsuccessful transformations. Second, while the process has involved employees through town hall meetings and other mechanisms, it has not included employee representatives on the working groups that drafted the design options. It should be noted that 10 federal labor unions have filed suit alleging that DOD failed to abide by the statutory requirements to include employee representatives in the development of DOD's new labor relations system authorized as part of NSPS. A successful transformation must provide for meaningful involvement by employees and their representatives to gain their input into and understanding of the changes that will occur. DOD will face multiple implementation challenges. For example, in addition to the challenges of continuing to involve employees and other stakeholders and providing adequate resources to implement the system, DOD faces the challenges of ensuring an effective, ongoing two-way communication strategy and evaluating the new system. In recent testimony, GAO stated that DOD's communication strategy must include the active and visible involvement of a number of key players, including the Secretary of Defense, for successful implementation of the system. Moreover, DOD must ensure sustained and committed leadership after the system is fully implemented and the NSPS Senior Executive and the Program Executive Office transition out of existence. To provide sustained leadership attention to a range of business transformation initiatives, like NSPS, GAO recently recommended the creation of a chief management official at DOD.