a

GAO

United States General Accounting Office

Report to Congressional Requesters

October 2003 SMALL BUSINESS 

ADMINISTRATION

Progress Made, but 

Transformation Could 

Benefit from Practices 

Emphasizing 

Transparency and 

Communication

GAO-04-76
www.gao.gov/cgi-bin/getrpt?GAO-04-76.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Davi D'Agostino 

at (202) 512-8678 or d'agostinod@gao.gov. 

Highlights of GAO-04-76, a report to 

congressional requesters 

October 2003

SMALL BUSINESS ADMINISTRATION 

Progress Made, but Transformation 

Could Benefit from Practices 

Emphasizing Transparency and 

Communication 

SBA has made some progress in transforming its organization, although 

efforts could be impeded by budgetary and staffing challenges. SBA started 

three district office pilots to test marketing and outreach techniques and two 

pilots to centralize loan processes. However, SBA officials told us that their 

plans for expanding the pilots and implementing additional initiatives have 

changed because the agency did not receive any funding for transformation 

in fiscal year 2003 and may not receive any in fiscal year 2004. GAO found 

that SBA did not provide consistent, clear budget requests with a detailed 

plan for transformation results. The challenge of staffing its centralization 

initiatives, including relocating employees and avoiding undue disruptions to 

operations, could further complicate SBA’s progress. 

When SBA initially planned and began implementing transformation, it gave 

some attention to practices important to successful organizational change. 

SBA drafted a plan and created an implementation team to manage the 

transformation. However, significant weaknesses in implementation could 

impede further progress and exacerbate the challenges noted above. The 

transformation could fail if practices and implementation steps focusing on 

transparency and communication are not given more attention. 

Key Practices and Examples of Weaknesses in SBA’s Actions and Plans 

Practice Weaknesses in SBA’s actions and plans 

Ensure top leadership drives 

the transformation and 

dedicate an implementation 

team. 

SBA’s leadership and implementation team has experienced 

changes, but those changes were not made evident to employees 

and stakeholders. 

Set implementation goals and 

a timeline to build momentum 

and show progress from day 

one. 

SBA created a transformation plan with implementation goals and a 

timeline, but the plan remained in draft and was never shared with 

employees and stakeholders. 

Establish a coherent mission 

and integrated strategic goals 

to guide the transformation. 

SBA needs to develop and link performance goals to support SBA’s

strategic goals for transformation, such as expanding outreach to 

small businesses. 

Use the performance 

management system to define 

responsibility. 

SBA’s new performance management system is at risk if 

employees’ understanding of performance goals and individual 

responsibility remains unclear. 

Establish a communication 

strategy to create shared 

expectations and report 

related progress. 

SBA communicated through managers and a newsletter, but did not

allow for two-way communication to obtain feedback from 

employees and stakeholders. 

Involve employees to obtain 

their ideas and gain their 

ownership for the 

transformation. 

SBA did not benefit from employee perspectives or gain employee 

support because employee and union involvement was limited. 

Source: GAO. 

The Small Business Administration 

(SBA) has recognized that it needs 

to realign its current organizational 

structure and processes to improve 

its ability to fulfill its primary 

mission—supporting the nation’s 

small businesses. In July 2002, SBA

announced that it was initiating a 

transformation effort to increase 

the public’s awareness of SBA’s 

services and products and make its 

processes more efficient. GAO 

evaluated SBA’s progress in 

implementing its transformation 

initiatives and challenges that have 

impeded or could impede 

implementation and whether SBA’s 

transformation incorporates 

practices GAO has identified in 

previous work that are important 

to successful organizational 

change. 

SBA should (1) ensure that 

implementation leadership is 

clearly identified to employees and 

stakeholders, (2) finalize its 

transformation plan and share it 

with employees and stakeholders, 

(3) develop performance goals, (4) 

use the performance management 

system to define responsibility, (5) 

develop a communication strategy 

that promotes two-way 

communication, and (6) solicit 

ideas of employees and the union 

and ensure that their concerns are 

considered. SBA said it would 

consider our recommendations but 

disagreed with some of our 

findings related to its budget 

requests and employee 

communication and involvement. 
Page i GAO-04-76 Small Business Administration Transformation

Contents

Letter 1

Results in Brief 3

Background 5

SBA Has Made Some Progress in Implementing Transformation, but 

Budget Constraints and Staffing Challenges Could Continue to 

Impede Progress 8

SBA Applied Some but Not Many Aspects of Practices and 

Implementation Steps Important to Successful 

Transformation 21

Conclusions 33

Recommendations for Agency Action 34

Agency Comments 35

Objectives, Scope, and Methodology 37

Appendix

Appendix I: Comments from the Small Business Administration 40

Table Table 1: Key Practices and Implementation Steps for 

Organizational Transformations 22

Figures Figure 1: Timeline of Major Organizational and Operational 

Changes by Fiscal Year 7

Figure 2: Phoenix, Arizona, District Office Organizational 

Structure “Before and After” Transformation 12

Figure 3: SBA’s Available Operating Funds Have Declined Since 

Fiscal Year 2001 16

Figure 4: Comparison of SBA’s Fiscal Years 2003 and 2004 Budget 

Requests for Transformation 18
Contents

Page ii GAO-04-76 Small Business Administration Transformation

Abbreviations

IRS Internal Revenue Service

SBA Small Business Administration

SCORE Service Corps of Retired Executives

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Page 1 GAO-04-76 Small Business Administration Transformation

United States General Accounting Office

Washington, D.C. 20548

A

October 31, 2003 Letr

The Honorable Olympia J. Snowe

Chair, Committee on Small Business

 and Entrepreneurship

United States Senate

The Honorable Donald A. Manzullo

Chairman, Committee on Small Business

House of Representatives

The Honorable Christopher S. Bond

Member, Committee on Small Business

 and Entrepreneurship

United States Senate

Like many federal agencies, the Small Business Administration (SBA) has 

recognized it needs to realign its current organizational structure and 

processes. In doing so, SBA aims to improve its ability to fulfill its primary 

mission—supporting the nation’s small businesses and protecting their 

interests—by increasing the public’s awareness of SBA’s services and 

products and making its business and loan processes more efficient. For 

over a decade, SBA has been centralizing some functions of its many 

district offices to improve efficiency and has been moving more toward 

partnering with outside entities such as private sector lenders to provide 

direct services. SBA’s district offices were initially created to be the local 

delivery system for SBA’s programs, but as SBA has centralized functions 

and placed more responsibilities on its lending partners, the district offices’ 

responsibilities have also changed. In a previous report, we found that past 

realignment efforts during the 1990s had changed SBA’s organization but 

had also left parts of the previous structure intact, contributing to 

complicated organizational relationships and a field structure that was not 

consistently matched with mission requirements.1

 For example, we found 

confusion over the mission of the district offices, with SBA headquarters 

officials believing the district office’s key customer was small businesses 

and district office staff believing that their key customer was the lender 

who makes the loans to small businesses.

1

U.S. General Accounting Office, Small Business Administration: Current Structure 

Presents Challenges for Service Delivery, GAO-02-17 (Washington, D.C.: Oct. 26, 2001).
Page 2 GAO-04-76 Small Business Administration Transformation

SBA transformation efforts have not been a reaction to any change in SBA’s 

mission. Rather, SBA’s intent has been to transform the agency so that it 

can more effectively and efficiently achieve its mission. In its current 

transformation effort, SBA intends to expand centralization to additional 

loan functions and some of its other small business programs to improve 

efficiency. As centralization frees up employees in the district offices, SBA 

intends to better define the district office role to focus on marketing and 

outreach to small businesses and managing SBA’s relationships with 

lenders and other resource partners.2

Following SBA’s testimony in July 2002,3 which stated that SBA was 

initiating a 5-year workforce transformation plan, you requested that we (1) 

review SBA’s progress in implementing its transformation initiatives and 

discuss any challenges that have impeded or could impede implementation 

and (2) determine whether SBA’s transformation incorporates practices 

that are important to successful organizational change and effective human 

capital management in the federal government. This report contains the 

results of our review of SBA’s implementation of the first phase—

approximately 6 months—of the transformation effort. As part of phase 

one, SBA planned to implement pilot initiatives to test a new marketing 

focus for its district offices and centralize some of its loan functions. 

To conduct this review, we analyzed planning, budget, and implementation 

documents related to SBA’s transformation and interviewed key officials at 

SBA headquarters. We also conducted site visits at each of the pilot offices 

involved in the first phase—three district office pilots in Phoenix, Arizona; 

Miami, Florida; and Charlotte, North Carolina; and two center pilots in 

Santa Ana and Sacramento, California. At these locations, we interviewed 

all employees who were directly affected by the pilot. To ensure open 

communication, we met with directors, supervisors, and employees 

separately. We compared SBA’s implementation process for 

transformation with practices important to successful transformations, 

using practices we identified in literature and our previous work on 

2

SBA’s resource partners include organizations such as Small Business Development 

Centers and Women’s Business Centers that provide management and technical assistance 

and the Service Corps of Retired Executives (SCORE) chapters in which volunteer business 

executives counsel small businesses and potential entrepreneurs.

3

House Committee on Small Business, Subcommittee on Workforce, Empowerment, and 

Government Programs, Maximizing Organization and Leadership in a Federal Agency to 

Fulfill Its Statutory Mission: Restructuring of the Small Business Administration, 107th

Cong., 2nd sess., 2002.
Page 3 GAO-04-76 Small Business Administration Transformation

reorganizations, organizational change, and human capital management.4 

We performed our review from February through September 2003 in 

accordance with generally accepted government auditing standards. 

Results in Brief SBA has made some progress in implementing the first phase of its 

transformation, but further progress could be hampered by budget and 

staff realignment challenges. To meet its objectives for phase one, SBA (1) 

implemented a pilot initiative at three district offices to test a new 

marketing focus and (2) centralized a number of loan functions from these 

offices to two centers to assess ways to improve the efficiency and 

consistency of its loan functions. SBA is currently nearing completion of 

phase one, and to prepare for its new marketing focus, it has provided 

marketing-related training to staff at the three district offices and also 

conducted an analysis to identify staffs' developmental needs in marketing. 

In addition, SBA transferred most of the loan processing and liquidation 

cases from the three district office pilots to the two centralization pilots. 

However, SBA officials told us that they delayed the start-up of the district 

office and centralization pilots in phase one due to the requirement in their 

appropriations that they notify the appropriations committees prior to 

going forward with any organizational restructuring, the government’s 

fiscal year 2003 continuing resolution, and a shrinking operating budget. 

As of our report date, phase two has not yet begun; however, SBA officials 

told us that plans for this phase have been scaled back because the agency 

did not receive any of the funds specifically requested for the 

transformation in its fiscal year 2003 budget, and officials believe that SBA 

may not receive any requested transformation funds in its fiscal year 2004 

budget request. Thus, SBA would have to rely on any available operating 

funds to carry out the transformation. Given the current situation, officials 

said the focus is now on creating a new center for centralizing all of its loan 

liquidation and loan guaranty purchase activities. While SBA’s 

implementation efforts have been and could continue to be impeded by 

budget constraints, we found that the agency’s budget requests for 

transformation were inconsistent and lacked a detailed plan that showed 

priorities and linked resources to desired results. SBA’s centralization 

efforts could also be impeded by the challenge of realigning staff from 

4

The main document we relied on in identifying key practices was our recent report, 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).
Page 4 GAO-04-76 Small Business Administration Transformation

multiple field offices so that SBA can operate its central locations with 

experienced employees.

When SBA initially planned and implemented its transformation it gave 

some attention to practices important to successful organizational 

transformation. However, over time SBA began to overlook key aspects of 

these practices involving leadership, setting implementation goals and a 

timeline, establishing an integrated mission and strategic goals, using the 

performance management system, communication, and employee 

involvement that are important to successful organizational change. SBA’s 

top leadership, the Administrator and Deputy Administrator, has 

demonstrated support for the transformation. However, after SBA’s Chief 

Operating Officer left the agency shortly after initiating the pilots, it was 

not evident to employees and stakeholders who was responsible for 

implementing the transformation. Although SBA had developed a sound 

draft transformation plan explaining the purpose, implementation goals 

and a timeline, it did not make the draft plan public or provide the reasons 

for upcoming steps. As a result, it appeared to many district office 

employees and stakeholders that headquarters lacked a plan and direction. 

In its fiscal year 2004 performance plan, SBA reported strategic goals to 

guide the transformation, but it has not linked transformation to existing 

performance goals or developed new goals against which to measure its 

marketing and outreach efforts. In addition, in the human capital area, 

although SBA has taken steps toward creating a performance management 

system that would define responsibility and set expectations for 

employees, it too is at risk because the agency has not yet created a clear 

and defined linkage between the employees’ roles and the goals of the 

transformation. Also, SBA has not established an effective strategy for 

communicating with employees and stakeholders to engage them in the 

transformation process, encourage two-way communication, and 

communicate early and often to build trust. Many district office employees 

and stakeholders told us that they generally heard about transformationrelated actions through rumors. Finally, district office employees and 

union officials told us that they have not been actively involved in planning 

or implementing the transformation.

This report includes recommendations to SBA’s Administrator. To improve 

implementation of its transformation, we are recommending that SBA (1) 

ensure that implementation leadership is clearly identified to employees 

and stakeholders, (2) finalize its draft transformation plan and share it with 

employees and stakeholders, (3) develop and link performance goals to its 

strategic goals, (4) use the new performance management system to define 
Page 5 GAO-04-76 Small Business Administration Transformation

responsibility, (5) develop a communication strategy that promotes twoway communication, and (6) involve employees and the union to solicit 

ideas and ensure that their concerns are considered.

We obtained written comments on a draft of this report from SBA’s Chief 

Financial Officer. SBA’s comments and our response are discussed near 

the end of this report, and SBA’s letter is reprinted in appendix I. In 

commenting on the draft, SBA did not state whether it concurred with our 

recommendations but said it would consider them as it continues to plan 

for and implement its transformation efforts. SBA specifically noted that it 

had already addressed recommendations related to developing 

performance goals and using the performance management system to 

define responsibility as a result of a new strategic plan issued after the 

completion of our audit work and implementing its new performance 

management system for employees on October 1, 2003. SBA disagreed 

with our finding that its budget requests for transformation were unclear. 

SBA also disagreed with our characterization of the extent to which it had 

communicated with and involved employees.

Background In pursuing its mission of aiding small businesses, SBA provides small 

businesses with access to credit, primarily by guaranteeing loans through 

its 7(a) and other loan programs, and provides entrepreneurial assistance 

through partnerships with private entities that offer small business 

counseling and technical assistance. SBA also administers various small 

business procurement programs, which are designed to assist small and 

small disadvantaged businesses in obtaining federal contracts and 

subcontracts. In addition, SBA makes loans to businesses and individuals 

trying to recover from a disaster.

As figure 1 shows, SBA has experienced many organizational changes over 

the past 20 years partly due to changing the way it delivers its services and 

partly due to budget cuts. Perhaps the largest change to SBA’s service 

delivery has occurred in its lending programs, where the agency went from 

making loans directly to guaranteeing loans made by commercial lenders. 

SBA provides small businesses with access to credit, primarily by 

guaranteeing loans through its 7(a) and 504 programs. For the 7(a) 

program, SBA can guarantee up to 85 percent of the loan amount made by 

private lenders to small businesses. Within the 7(a) program, for smaller 

loans, SBA offers SBA Express as an option to lenders who will use their 

own applications and underwriting procedures by agreeing to a lower 

guaranty of 50 percent. Within the 7(a) program, there are three 
Page 6 GAO-04-76 Small Business Administration Transformation

classifications of lenders—regular, certified, and preferred lenders—that 

illustrate the various range of responsibilities handed over to lenders. SBA 

continues to provide final approval of loans made by its regular lenders 

through the district offices. Certified lenders have the authority to process, 

close, service, and may liquidate SBA guaranteed loans, and SBA provides 

expedited loan processing and servicing. Preferred lenders are given full 

authority to make loans without prior SBA approval. However, these 

lender-approved preferred loans are submitted to SBA’s Sacramento 

Processing Center, which, among other things, verifies that the lender has 

documented eligibility requirements, issues a loan number, and processes 

the loan guaranty. Under the 504 program, SBA provides its guaranty 

through certified development companies—private nonprofit 

corporations—that sell debentures that are fully guaranteed by SBA to 

private investors and lend the proceeds to qualified small businesses for 

acquiring real estate, machinery, and equipment, and for building or 

improving facilities. When a 7(a) or 504 loan defaults, SBA reviews the 

lender’s request for SBA to purchase the guaranty, and if the lender met 

SBA’s program requirements, SBA pays the claim. SBA usually relies on the 

lender to recover as much as it can by liquidating collateral or SBA takes 

over the loan servicing and liquidation.5

5

Liquidation is the act of enforcing collection on a debt that has defaulted by selling 

underlying securities that the borrower has pledged as collateral. If collateral proceeds are 

insufficient to cover the outstanding balance, lenders may pursue personal guarantees or 

obligations provided by business owners or others in support of the loan.
Page 7 GAO-04-76 Small Business Administration Transformation

Figure 1: Timeline of Major Organizational and Operational Changes by Fiscal Year

SBA’s loan programs have also been the focus of a major organizational 

change with the creation of centers to process and service the majority of 

SBA’s loans—work once handled largely by district office staff. (See fig. 1.) 

About 92 percent of the processing and servicing of SBA-guaranteed loans 

are handled in centers instead of district offices. Among other things, these 

centers process the loan guaranty and review servicing requests submitted 

by lenders and borrowers.

In response to budget reductions, SBA streamlined its field structure 

during the 1990s, downsizing the 10 regional offices, moving the workload 

to either district offices or headquarters offices, and eliminating most of 

the regions’ role as an intermediate management layer between 

headquarters and the field. SBA created the Office of Field Operations to 

take over the role of intermediary. SBA’s overall workforce has decreased 

by over 20 percent since 1992 and as of 2002 includes about 4,075 

employees, including 956 for the Office of Disaster Assistance and 102 

employees for the Office of the Inspector General. 

When SBA embarked on this current transformation effort, it planned its 

implementation in three phases. The key pilot initiatives SBA undertook in 

Preferred Lender

Program established

Created commercial

loan servicing center

in Fresno, CA

Reduced

headquarters

and regional

office staffing

Funding ended for

7(a) direct loans

Created second

commercial loan

servicing center

in Little Rock, AR

Consolidated five regional personnel

offices into one center in Denver

Created two LowDoc loan

processing centers in Hazard,

KY, and Sacramento, CA

Created Lender 

Oversight Program

Required that lenders

service and liquidate

7(a) loans

Began district

office and

centralization

pilots

Source: GAO.

Centralized Preferred Lender

Program loan processing

in a center in Sacramento, CA

Created liquidation center in

Santa Ana, CA, due to increased

workload from 1994 Northridge Quake

1983 1988 1994 1995 1996 1997 1998 2000 2003

Reduced headquarters and regional staff

Centralized government contracting

field staff in six area offices
Page 8 GAO-04-76 Small Business Administration Transformation

phase 1 that began on March 10, 2003, focuses on (1) transforming the role 

of the district office to focus on outreach to small businesses about SBA’s 

products and services and linking these businesses to the appropriate 

resources, including lenders and (2) centralizing its loan functions to 

improve efficiency and consistency of its loan approval, servicing, and 

liquidation processes. Later phases will include expanding these pilots to 

the remaining district offices. As SBA proceeds in transforming the district 

offices and centralizing many of its processes, it will analyze its business 

processes to identify opportunities for improvement and reduce its office 

space to achieve some cost savings. Finally, SBA’s plan included initiatives 

to apply technology and use the Internet to reach out to more small 

businesses.

SBA Has Made Some 

Progress in 

Implementing 

Transformation, but 

Budget Constraints and 

Staffing Challenges 

Could Continue to 

Impede Progress

As part of the first phase of SBA’s transformation, the agency began 

implementing pilot initiatives to test a new marketing focus for its district 

offices and centralizing some of its loan functions. As the first phase nears 

completion, SBA has made some progress in implementing the pilot 

initiatives at three district offices and two centers. While SBA’s 

implementation efforts have been and could continue to be impeded by 

budget constraints, we found that the agency did not always clearly 

communicate its budget requirements. SBA’s centralization efforts could 

also be impeded by the challenge of realigning staff from multiple field 

offices so that it can operate its central locations with experienced 

employees. 

SBA Made Progress in 

Implementing Initial District 

Office and Centralization 

Pilots

SBA’s purpose for transformation is to realign its organization, operations, 

and workforce to better serve its small business customers. Based on SBA 

transformation documents and agency officials, the agency planned to 

approach its transformation in phases to allow it to test a number of 

initiatives and to make refinements before implementing the initiatives 

agencywide. In our July 2002 testimony on SBA’s workforce 

transformation plan, we noted that SBA had started to develop a sound 

implementation plan for its transformation.6

 As part of phase one, SBA 

intended to test a new marketing and outreach initiative for its district 

offices that would refocus their efforts on becoming more responsible and 

6

U.S. General Accounting Office, Small Business Administration: Workforce 

Transformation Plan Is Evolving, GAO-02-931T (Washington, D.C.: July 16, 2002).
Page 9 GAO-04-76 Small Business Administration Transformation

accountable for promoting small business growth and development as well 

as on providing better oversight and management of its lenders and 

resource partners. Additionally, SBA planned to centralize a number of the 

offices’ loan functions to (1) free up district office staff to reach and 

respond to the needs of local businesses and to do more lender and partner 

management and oversight and (2) improve the efficiency and consistency 

of its loan processing, servicing, and liquidation functions. To accomplish 

these initiatives, in March 2003, SBA began its initial pilot initiative at three 

district offices and two centers and based on its initial transformation plan, 

it expected to run the pilots for 6 months before moving to the second 

phase of its transformation. As of our report date, SBA is nearing the 

completion of phase one of its district office and centralization pilots and 

plans to expand the results of phase one to all of its other district offices. 

Based on our site visits to the pilot offices and discussions with SBA 

headquarters officials, we identified a number of transformation-related 

activities that SBA has made progress in since implementing its initial pilot 

initiative. Specifically, for its district office initiative to

• prepare staff in carrying out their new marketing and outreach roles, 

during March through June 2003, SBA provided training at the three 

district office pilots on topics such as marketing and outreach, 

presentation skills, and customer/partner relationships; 

• develop the competencies necessary for staff to carry out their new 

roles and to evaluate gaps in the existing skill sets of its staff, SBA has 

hired a contractor to conduct a skills analysis. In July 2003, the 

contractor completed the analysis for the three pilot district offices and 

according to SBA officials, district office management will use the 

results to identify its employees’ developmental needs in the marketing 

and outreach areas; 

• update and clarify the specific duties that SBA expects its district office 

staff to perform in their new marketing roles, the agency developed new 

job descriptions for its marketing and outreach specialist positions at 

the district office level; and 

• allow staff at the three pilot district offices more time to conduct 

marketing and outreach functions, in March 2003, these offices had 

stopped processing any new 7(a) liquidations and guaranty purchase 

cases and 504 loan origination applications. In addition, the offices had 

also transferred most of their outstanding 7(a) liquidation cases to SBA’s 

liquidation center in Santa Ana, California.
Page 10 GAO-04-76 Small Business Administration Transformation

Additionally, a key component of SBA’s transformation is to make 

fundamental changes over the next 5 years at its district office level to 

reflect the change in the agency’s vision for its district offices from making 

and servicing loans to primarily reaching out to new markets and 

overseeing its private-sector partners. Based on our site visits to the three 

pilot district offices, we found that the offices have begun to move toward 

SBA’s new vision for its district offices. Specifically, SBA’s Phoenix, 

Arizona, office has officially changed its organization structure to allow its 

staff to focus mainly on marketing and outreach-related activities. As 

shown in figure 2, the office has replaced its portfolio management division 

with divisions for lender development and marketing and outreach, and it 

also moved some staff formerly in portfolio management to its business 

development division. The Miami and Charlotte district pilots have also 

started to expand their marketing and outreach efforts. For example, a 

Charlotte official told us that it plans to use “SBA Days” as a way to reach 

out to small businesses in its district. SBA Days are events conducted at 

local chambers of commerce around the district’s state where SBA staff 

along with chamber members and other firms in the area conduct one-onone counseling sessions with business owners and potential entrepreneurs. 

To reach small businesses in the Miami area, officials told us that the office 

is using one of its resource partners to work with a national chain of office 

supply stores to provide on-site counseling to small business customers 

when they are in the stores.

SBA headquarters officials provided us with briefing slides that show that 

the three district office pilots have submitted proposals for establishing 

alternative customer service sites so that SBA employees can provide 

direct customer service in areas outside the physical location of the district 

offices. For example, the Phoenix district office already has one marketing 

specialist located in Tucson and is proposing two additional positions to 

support lender relations. Officials also told us they are working with local 

governments and resource partners to identify free office space for these 

new sites, but in some cases there may be some rental expenses.
Page 11 GAO-04-76 Small Business Administration Transformation

[This page intentionally left blank]
Page 12 GAO-04-76 Small Business Administration Transformation

Figure 2: Phoenix, Arizona, District Office Organizational Structure “Before and After” Transformation

District Director

Attorney

Attorney

Team Leader

Team Leader Team Leader

Loan Specialist Loan Specialist

Loan Specialist

Loan Specialist

Legal Assistant

Information

Technology Specialist

Administrative Clerk

(receptionist)

Loan Processing

Assistant

Loan Servicing

Assistant

Business Opportunity

Specialist

Economic

Development

Specialist

Economic

Development

Specialist

Economic

Development

Assistant

Administrative

Support Assistant

Assistant D.D.

Economic

Development

Administrative

Support Assistant

Administrative Division Legal Division

Capital Access/

Entrepreneurial

Development

Division

Portfolio

Management

Business

Development - 8(a)

Source: GAO.

Public Affairs 

Specialist and

Administrative Officer

Before
Page 13 GAO-04-76 Small Business Administration Transformation

General Attorney Team Leader Team Leader Team Leader

Loan Specialist

Loan Specialist

Administrative Clerk

(receptionist)

Marketing and

Outreach Specialist

Procurement Center

Representative

Marketing and

Outreach Specialist

Marketing and

Outreach Assistant

Marketing and

Outreach Specialist

Marketing and

Outreach Assistant

Loan Servicing

Assistant

Business Opportunity

Specialist

Administrative

Support Assistant

Administrative

Support Assistant

Administrative Legal

Marketing

and

Outreach

Lender

Development

Business

Development - 8(a)

Government

Procurement

Lead Marketing and

Outreach Specialist

Tucson

Public Affairs 

Specialist and

Administrative Officer

District Director

Deputy

District Director

Information

Technology Specialist

Changes made to district office organizational structure

After
Page 14 GAO-04-76 Small Business Administration Transformation

Finally, as part of its centralization initiative to improve the efficiency and 

consistency of its loan approval, servicing, and liquidation processes, in 

March 2003, SBA’s two pilot centers assumed their new roles and 

responsibilities. The liquidation center in Santa Ana, California, began 

processing new 7(a) liquidations and guaranty purchase cases from the 

three pilot district offices, and the loan processing center in Sacramento, 

California started processing new 504 loan origination applications from 

these offices. In May 2003, the Santa Ana center also started working on 

1,275 outstanding 7(a) liquidation cases from the three pilot district offices. 

Based on SBA’s benchmark reporting data for its centralization pilot, as of 

October 2003, the Santa Ana center had processed 185 of 227 new 7(a) 

guaranty purchase cases it had received and closed 55 of 450 7(a) 

liquidation cases. The Sacramento center had processed 582 new 504 

applications that it had received since beginning the pilot initiative.

According to SBA and representatives from two lender trade associations, 

the centralization pilot has resulted in a more efficient and consistent 

processing of SBA’s 7(a) liquidation and guaranty purchases and 504 loan 

approvals. SBA headquarters officials told us that the agency would be 

able to perform these functions with far fewer resources than it has to date. 

According to the officials, based on results from a workload analysis SBA 

did of the Santa Ana centralization initiative, it found that the 7(a) 

liquidation and purchase guaranty process could be done by 40 employees 

in a center, as opposed to the 266 employees that now process the cases in 

its district offices. SBA officials also told us that centralization results in 

faster processing times. SBA data indicate that the average turnaround 

time for processing 7(a) guaranty purchases has decreased from 129 days 

to 32 days and, for 504 applications, it has gone from about 14 days on 

average to about 2 days. We reviewed about 450 cases of the 504 

application approvals from the pilot and found that most applications were 

processed and returned to the certified development companies in about 2 

days. We did not review data for any of the other measures. When we 

visited the two centers participating in the pilots, center officials showed 

us documentation they were using to make the process more efficient and 

consistent. For example, for the 504 pilot, the Sacramento center 

developed standardized letters to send to certified development companies 

in situations where the center receives an incomplete application package 

from a company. According to a center official, some district offices spend 

a lot of time making telephone calls to the development companies 

requesting the necessary data to complete the processing. However, by 

using the letters, the official said the center is saving time because it stops 

processing the application until it receives the needed information, and in 
Page 15 GAO-04-76 Small Business Administration Transformation

the meantime it can continue processing applications that are complete. 

One official representing certified development companies told us that the 

companies participating in the pilot initiative for SBA’s 504 program are 

pleased with the results of the pilot. Officials representing 7(a) lenders 

said that some lenders might not be in favor of centralization because they 

have good working relationships with the local SBA district office and 

would prefer to continue working directly with them. 

Budget Uncertainties and 

Constraints Affected 

Transformation, but SBA 

Needs to Better 

Communicate Budget 

Requirements

SBA transformation efforts have been impeded and could continue to be 

impeded by budget uncertainties and constraints. SBA officials stated that 

due to inflation and increases in employee compensation and benefits, 

available operating funds had been declining since 2001 as shown in figure 

3. Therefore, SBA requested specific funding for its transformation. 

According to SBA officials, the agency expected to start its pilot initiative 

in July 2002 with funds from its 2002 operating budget and then expand the 

initiative in phase two of its transformation, 6 months later, with funds 

specifically requested for transformation in its 2003 budget. But SBA 

delayed the start of the pilot until March 2003 due to a number of 

uncertainties about its budget. SBA officials explained that language in its 

appropriations bills requires that SBA notify the appropriations committees 

15 days prior to reprogramming its funds for relocating an office or 

employees, or reorganizing offices.7

 In the summer of 2002, SBA notified 

the appropriations committees about its intent to go forward with the 

pilots. However, SBA was told that it should first negotiate with its union 

before moving forward. Although SBA reached agreement with its union, 

starting the initiative still remained an issue for SBA because, according to 

officials, it was too late to use 2002 operating funds as it initially planned. 

While SBA then planned to use 2003 operating funds to start the pilot 

initiative, officials said that the government’s 2003 continuing resolution8

further delayed the start because without an approved operating budget, 

7

Consolidated Appropriations Resolution FY 2003, (H.J. Res. 2) Pub. L. 108-7, Div. B, Title VI, 

§ 605 (2003).

8

If Congress has not enacted an annual appropriations for an agency by the beginning of a 

fiscal year the agency must begin an orderly shutdown of most of its activities and 

operations due to the funding gap, unless Congress passes a continuing resolution. A 

continuing resolution is a temporary appropriations authorizing an agency to incur 

obligations during an interim period at a fixed rate until Congress enacts the annual 

appropriations for the agency. 
Page 16 GAO-04-76 Small Business Administration Transformation

SBA did not know the portion of its operating budget that would be 

available for transformation.

Figure 3: SBA’s Available Operating Funds Have Declined Since Fiscal Year 2001

For its 2003 budget, Congress did not approve any of the $15 million that 

SBA specifically requested for transformation activities planned for phase 

two, and SBA officials told us they do not believe the agency will receive 

any of the $21.1 million for transformation in its 2004 budget request. 

According to officials, SBA has had to change its transformation plans and 

the level of funding associated with these plans because of its shrinking 

operating budget and the lack of specific appropriations for 

transformation. Specifically, officials stated that SBA actually spent $96,000 

in 2003 operating funds on the first phase of its transformation for activities 

associated with its pilot initiative, including shipping files, training, travel, 

and pilot office evaluations. Officials could not tell us how much money 

SBA initially planned to spend in phase one when it was going to use 2002 

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Compensation & benefits

Agencywide costs ("fixed" costs, such as rent, telecommunications, etc.)

Available operating funds

(includes travel, operating funds for district offices, training, office supplies, IT support, etc.)

FY2001 FY2002 FY2003

Dollars in thousands

53,175 43,396 36,225

Source: GAO depiction of SBA data.

Salaries and Expenses budget

Available operating funds
Page 17 GAO-04-76 Small Business Administration Transformation

operating funds or whether any of the activities associated with this phase 

had to be cut back due to the lack of funds. However, many employees in 

the district offices we visited told us that they had not received the level of 

funding needed to support marketing and outreach functions including 

money for travel, laptops, and cell phones that would allow them to cover a 

wider geographic area in the districts and to test telecommuting and 

alternative work sites. 

Although SBA struggled with budget uncertainties and constraints as it 

began implementation of its transformation, SBA could have provided 

better information about its budget requirements. Based on our analysis of 

SBA budget request data for fiscal years 2003 and 2004, SBA has not clearly 

defined its budgetary needs for transformation. As shown in figure 4, the 

labeling of specific transformation initiatives varies between SBA’s fiscal 

years 2003 and 2004 Budget Request and Performance Plans, making it 

difficult to compare and align its transformation activities from year to 

year. Also, as shown in figure 4, in its fiscal year 2004 budget request, SBA 

requested $21.1 million for a number of investment initiatives, of which 

$8.8 million was for transformation. The $8.8 million figure was also the 

amount cited by SBA’s Administrator during two congressional hearings.9

 

When we met with SBA headquarters officials to discuss the variances in its 

budget request data, the officials told us that SBA’s 2004 budget request for 

transformation is the entire $21.1 million, and not the $8.8 million. In 

response to our questions about the budget data inconsistencies, SBA 

officials attributed the differences to the agency’s changing environment. 

However, the inconsistencies we found in SBA budget request data and the 

lack of a detailed plan make it difficult for outsiders, including 

congressional stakeholders, to understand the direction SBA wants to take 

with transformation and the resources it needs to achieve results. 

9

During his statements on June 4 and February 26, 2003, regarding SBA’s fiscal year 2004 

budget request, before the Senate Committee on Small Business & Entrepreneurship and 

the House Committee on Small Business, SBA’s Administrator, Hector V. Barreto, indicated 

that its budget request included $8.8 million for its transformation effort in fiscal year 2004.
Page 18 GAO-04-76 Small Business Administration Transformation

Figure 4: Comparison of SBA’s Fiscal Years 2003 and 2004 Budget Requests for Transformation

Dollars in millions

Note: In SBA’s fiscal year 2004 budget request for transformation, SBA listed $2,000,000 for space 

restructuring. This amount should have been $2,750,000, which SBA had listed in another location of 

the document.

Investment Initiatives

FY 2004 SBA Budget Request

and Performance Plan

February 3, 2003

Investment initiatives Request

Source: GAO.

A A

A

B

C

C C

B

Both FY 2004 figures have 

been referred to as the

budget request for 

SBA's "Transformation"

Transformation line items

and dollar requests cannot

be compared between

requests

Program evaluation is

listed under

"Transformation" in the

FY 2004 budget request,

but was not listed there

in the FY 2003

budget request

B

Presidential Initiatives

FY 2003 SBA Budget Request

and Performance Plan

March 12, 2002

SBA's 50th Anniversary $1,500,000

E-Government Initiatives 5,000,000

Native American Business Needs 1,000,000

Program Evaluation 850,000

 Subtotal 8,350,000

Transformation

Increased use of technology 2,000,000

Reconfiguration and movement

 of office locations 2,500,000

Files 1,000,000

Personnel 5,000,000

Skills training 2,000,000

Contracting out of

 commercial activities 2,500,000

 Subtotal 15,000,000

Infrastructure support 

 and computer security 3,550,000

 Subtotal 3,550,000

 Total $26,900,000

Presidential initiatives Request

Transformation

Human Capital Planning

Training and Development of Workforce $1,325,500

Pilot programs 600,000

Improving Business Processes

Modernize and streamline processes 2,300,000

IT support for new processes and pilots 1,720,000

Space Restructuring 2,000,000

Program Evaluation 850,000

 Subtotal 8,795,000

Assisting Business Compliance

 with Government Regulations 5,000,000

Information Technology Security 4,300,000

Electronic Grants System 600,000

Competitive Sourcing 500,000

E-Tran Gateway for Loan Applications 330,000

E-Business Institute 260,000

8(a) Business Development Program

 Internet Application 200,000

 Subtotal 11,530,000

 Total $21,075,000
Page 19 GAO-04-76 Small Business Administration Transformation

Staffing Challenges Could 

Impact Centralization 

Efforts

To staff its centralization initiatives, SBA will have to relocate employees 

from its 68 district offices scattered throughout the country.10 Realigning 

staff from multiple field offices to central locations is and will be an 

ongoing challenge for SBA. Relocations could not only prove potentially 

disruptive for employees but can also have an effect on SBA’s operations by 

negatively impacting morale and productivity. As part of phase one of its 

transformation, SBA centralized a number of loan functions from the three 

pilot district offices to two of its existing loan processing and servicing 

centers. In phases two and three of its transformation, SBA had planned to 

expand its centralization initiative until all of its loan functions performed 

by its remaining 65 district offices were centralized. In addition, SBA had 

planned to have fewer centers by consolidating some of its existing ones. 

Based on our discussions with SBA staff in the pilot offices, the staffing of 

any centralization initiative with experienced staff could be potentially 

challenging for SBA. Specifically, some staff believed that the two pilot 

centers would not have a sufficient number of staff to handle the increased 

workloads when SBA expands its centralization initiative to include more 

district offices. According to one district office employee, unless the two 

pilot centers or any other center have enough staff with the right skill mix, 

they will be unable to adequately respond to lenders, which the employee 

believed could potentially affect relationships between SBA and the 

lending community. One center official characterized the problem as 

fundamental because in his view staff are not all equally adept and SBA is 

faced with matching jobs with people who do not have the skills to do the 

work. An official representing one of SBA’s lender trade associations also 

expressed concern that if SBA forced employees to move, that the 

centralization initiatives will be staffed with employees with low morale 

that could hurt productivity. 

SBA’s first attempt to realign staff with one of its centralization initiatives 

was to establish a new 7(a) liquidation and guaranty purchase center near 

Washington, D.C., beginning in early October 2003 and operate it with 40 

liquidation staff relocated to the center from its district offices. Based on 

SBA transformation documents, SBA plans to relocate those staff with the 

greatest experience into the center to take advantage of their expertise. 

10Prior to February 2003, SBA had 70 district offices. In February 2003, SBA notified 

Congress of its intent to designate two of its district offices--Spokane, Washington; and 

Cedar Rapids, Iowa—as branch offices and this change was formally made in September 

2003.
Page 20 GAO-04-76 Small Business Administration Transformation

According to SBA officials, to identify experienced staff the agency used 

results from a cost allocation survey that provided information on the 

amount of time district office staff spend on loan liquidation functions. On 

September 10, 2003, SBA sent notification letters to certain district office 

employees identified as having worked on liquidations, informing them that 

they were eligible for a monetary buy-out if they separated from federal 

service not later than September 30, 2003. While the letter also states that 

the employee has 7 calendar days to accept the buy-out offer, it is unclear 

how SBA would handle reassigning those staff who do not accept the buyout offer. Specifically, the letter does not mention where staff are being 

assigned, or what relocation costs SBA would pay. 

According to the memorandum of understanding between SBA and its 

employees’ union signed September 9, 2003, the two parties agreed that 

current district office staff at the GS-9 level and above who reported 

spending at least 25 percent of their time performing liquidations on SBA’s 

most recent cost allocation study would be directly reassigned to the new 

liquidation center in the Washington, D.C., metropolitan area, or to one of 

the six most severely understaffed SBA district offices in New York, New 

York; Newark, New Jersey; Atlanta, Georgia; Chicago, Illinois; and San 

Francisco and Los Angeles, California. The memorandum indicates that 

SBA identified the six offices based on staffing levels for those district 

offices with the lowest ratio of SBA staff to small businesses in their 

service area, as of August 1, 2003. Also, the memorandum states that SBA 

plans to begin relocating staff 30 days from the time it notifies them about 

their reassignment to the center and that it will pay all of an employee’s 

relocation cost in accordance with the law. While SBA has indicated that it 

will make reassignments as minimally disruptive for its employees as 

possible, depending on where the 40 staff being reassigned to the center 

currently work, logistical factors associated with moving, such as finding a 

new home, could pose a challenge for these staff. As of our review date, 

SBA had not informed us about when it expects to begin the reassignments 

or the number of and office locations for the employees that it intends to 

relocate.
Page 21 GAO-04-76 Small Business Administration Transformation

SBA Applied Some but 

Not Many Aspects of 

Practices and 

Implementation Steps 

Important to 

Successful 

Transformation

We compared SBA’s implementation process to practices that have been 

identified in major private and public sector organizational transformations 

as key for a successful transformation. Building on lessons learned from 

the experiences of large private and public sector organizations, these 

practices can help agencies successfully transform their cultures so that 

they can be more results oriented, customer focused, and collaborative.

While SBA applied some key practices, such as involving top leadership, 

dedicating an implementation team and developing an implementation 

plan, it also overlooked key aspects that emphasize transparency and 

communication. For example, although it developed a draft transformation 

plan with implementation goals and a timeline, it did not share the plan 

with employees and stakeholders. SBA developed strategic goals for 

transformation but still needs to link those goals with performance goals 

and its performance management system. Finally, a lack of communication 

and employee involvement in SBA’s communication approach did not 

encourage two-way communication to obtain feedback from employees 

and stakeholders and involve employees to obtain their ideas and gain their 

ownership for the transformation.

Practices Important to 

Successful Transformation

According to key transformation practices, people are at the center of any 

change management initiative—people define the organization’s culture, 

drive its performance, and embody its knowledge base. Experience shows 

that failure to adequately address—and often even consider—a wide 

variety of people and cultural issues are at the heart of unsuccessful 

transformations. Recognizing the “people” element in these initiatives and 

implementing strategies to help individuals maximize their full potential in 

the new organization, while simultaneously managing the risk of reduced 

productivity and effectiveness that often occurs as a result of the changes, 

is the key to a successful transformation. Thus, transformations that 

incorporate strategic human capital management approaches will help to 

sustain agency efforts to improve efficiency, effectiveness, and 

accountability in the federal government.
Page 22 GAO-04-76 Small Business Administration Transformation

We convened a forum on September 24, 2002, to identify and discuss useful 

practices and lessons learned from major private and public sector 

mergers, acquisitions, and transformations.11 The invited participants were 

a cross section of leaders who have had experience managing large-scale 

organizational mergers, acquisitions, and transformations, as well as 

academics and others who have studied these efforts. The forum neither 

sought nor achieved consensus on all of the issues identified through the 

discussion. Nevertheless, there was general agreement on a number of key 

practices that have consistently been found at the center of successful 

mergers, acquisitions, and transformations. In a follow-up report issued on 

July 2, 2003, we identified specific implementation steps for these key 

practices.12 These practices and implementation steps are shown in table 1. 

Table 1: Key Practices and Implementation Steps for Organizational 

Transformations

11U.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).

12U.S. General Accounting Office, Results-Oriented Cultures: Implementation Steps to 

Assist Mergers and Organizational Transformations, GAO-03-669 (Washington, D.C.: July 

2, 2003).

Practice Implementation step

Ensure top leadership drives the 

transformation.

• Define and articulate a succinct and 

compelling reason for change.

• Balance continued delivery of services with 

merger and transformation activities.

Establish a coherent mission and 

integrated strategic goals to guide the 

transformation.

• Adopt leading practices for results-oriented 

strategic planning and reporting.

Focus on a key set of principles and 

priorities at the outset of the 

transformation.

• Embed core values in every aspect of the 

organization to reinforce the new culture.
Page 23 GAO-04-76 Small Business Administration Transformation

Source: GAO.

SBA Transformation Has 

Top Leadership Support and 

a Designated 

Implementation Team, but 

Senior Officials’ Roles Were 

Not Always Transparent

One of the key practices important to a successful transformation is for the 

agency to ensure that top leadership drives the transformation. SBA has 

followed this practice, with both the Administrator and the Deputy 

Administrator demonstrating support for the transformation. The SBA 

Administrator has provided a rationale behind the purpose of the agency 

and the goals of the transformation by addressing district directors and 

visiting field offices to discuss the importance and goals of 

Set implementation goals and a timeline to 

build momentum and show progress from 

day one. 

• Make public implementation goals and 

timeline.

• Seek and monitor employee attitudes and 

take appropriate follow-up actions.

• Identify cultural features of merging 

organizations to increase understanding of 

former work environments.

• Attract and retain key talent.

• Establish an organizationwide knowledge 

and skills inventory to exchange knowledge 

among merging organizations.

Dedicate an implementation team to 

manage the transformation process.

• Establish networks to support 

implementation team.

• Select high-performing team members.

Use the performance management system 

to define the responsibility and assure 

accountability for change.

• Adopt leading practices to implement 

effective performance management 

systems with adequate safeguards.

Establish a communication strategy to 

create shared expectations and report 

related progress.

• Communicate early and often to build trust.

• Ensure consistency of message.

• Encourage two-way communication.

• Provide information to meet specific needs 

of employees.

Involve employees to obtain their ideas 

and gain ownership for the transformation.

• Use employee teams.

• Involve employees in planning and sharing 

performance information.

• Incorporate employee feedback into new 

policies and procedures.

• Delegate authority to appropriate 

organizational levels.

Build a world-class organization. • Adopt leading practices to build a worldclass organization.

(Continued From Previous Page)

Practice Implementation step
Page 24 GAO-04-76 Small Business Administration Transformation

transformation—to increase awareness of SBA’s services and to make SBA 

a better trained, better equipped, and more efficient organization. SBA 

officials told us that the Deputy Administrator has also visited many field 

offices to discuss the transformation. 

Designating a strong and stable implementation team that will be 

responsible for the transformation’s day-to-day management is also 

important to ensuring that transformation receives the focused, full-time 

attention needed to be sustained and successful. SBA has dedicated an 

implementation team to manage the transformation process, but it has 

experienced leadership changes that were not made apparent to employees 

and stakeholders. The composition of the team is important because of 

the visual sign it communicates regarding which organizational 

components are dominant and subordinate or whether the transformation 

team involves a team of equals. Prior to the Deputy Administrator 

assuming the lead for implementing the transformation, the Chief 

Operating Officer was responsible. The Chief Operating Officer, along with 

SBA’s Associate Administrator for the Office of Field Operations, visited 

the pilot district offices during the kick off to promote the transformation 

and to address questions and concerns of the pilot district office staff. 

However, the Chief Operating Officer left SBA shortly after the first pilot 

phase was initiated.13 Similarly, the person who was initially the Associate 

Administrator for the Office of Field Operations, who was responsible for 

overseeing the district office pilots,was no longer involved in the 

transformation shortly after implementation. SBA officials told us that it 

was not productive for its Chief Operating Officer to be in charge of the 

transformation because the Chief Operating Officer position was equal in 

terms of authority to the other key positions on the implementation team. 

Since the Chief Operating Officer left the agency, SBA has not publicly 

designated a day-to-day manager for the transformation effort. Based on 

our discussions with stakeholders and field and union officials, the 

Counselor to the Administrator appeared to be the manager. However, SBA 

has not issued any announcement or otherwise clarified the leadership or 

implementation team to employees and stakeholders. SBA officials told us 

that the person now serving as the Associate Administrator for the Office of 

Field Operations leads the weekly conference calls with the district and 

center directors involved in the pilots and is the person most involved in 

the day-to-day management of the transformation.

13 This position was still vacant as of October 23, 2003.
Page 25 GAO-04-76 Small Business Administration Transformation

The Deputy Administrator, who can direct the other members of the 

implementation team, leads the current team, which comprises senior 

executives of the key program areas affected by the transformation such as 

the Associate Deputy Administrator for Capital Access, the Associate 

Administrator for the Office of Field Operations, Chief Human Capital 

Officer, and the three pilot district office directors. The team also includes 

the Counselor to the Administrator and two Regional Administrators. 

Officials on the implementation team told us that they meet on a weekly 

basis with the Deputy Administrator and sometimes the Administrator to 

discuss the status and concerns related to the pilot’s implementation. SBA 

officials also emphasized that the implementation team includes a mix of 

political appointees and senior career officials. For example, the Associate 

Deputy Administrator for Capital Access and the Associate Administrator 

for Office of Field Operations are political appointees. The Chief Human 

Capital Officer and the Counselor to the Administrator are career officials. 

Lack of a Transparent Plan 

and Changing Focus Made 

SBA’s Implementation Goals 

and Progress Reports 

Confusing

A key practice in organizational transformations is to set implementation 

goals and a timeline to build momentum and show progress from day one. 

Although SBA had developed a transformation plan that contains goals, 

anticipated results, and an implementation strategy, it never made the plan 

public. SBA headquarters officials told us that all of its plans provided to 

us were “preliminary” documents because of changes made to the plan; 

therefore, it had not been shared with employees or stakeholders. Making 

the implementation goals and timeline public is important for transparency 

and accountability in a transformation and because employees and 

stakeholders are not only concerned with what results are to be achieved, 

but also how to achieve those results. According to SBA’s draft 

transformation plan, SBA intended to keep its employees apprised of the 

current status of activities, and continuously inform its employees on what 

the agency intended to do. However, SBA has not made much information 

available to its employees and stakeholders regarding the details of 

upcoming steps, measures for success, and reasons for decisions. As a 

result, it appeared to many district office employees and stakeholders that 

headquarters lacked a plan and direction. Stakeholders, including 

representatives from lender trade associations, informed us that SBA has 

not been forthcoming in discussing its transformation plans with them. 

Generally, district office employees told us they thought SBA had no clear 

plan and lacked direction. Specifically, two district office employees told 

us that despite any planning that SBA had done for the transformation, 

headquarters officials kept adding to the plan, and changing goals during 
Page 26 GAO-04-76 Small Business Administration Transformation

mid-year, which left employees in the district office uncertain about what 

to expect. 

SBA officials told us that internal and external factors, such as budget 

uncertainties, caused SBA to alter aspects of the draft transformation plan. 

Initially, phases two and three of its transformation were to expand its 

district office and centralization pilot initiatives to additional district 

offices. SBA had also planned a number of other initiatives as part of the 

later phases, including analyzing its business processes to identify 

opportunities for improvement, restructuring its surety bond program, and 

expanding its technology systems. According to a revised plan dated 

August 1, 2003, and discussions with SBA officials, the focus of SBA’s 

transformation is now on creating a new center for centralizing all of its 

7(a) loan liquidation and loan guaranty cases. Also, the plan and other 

documentation describing SBA’s new centralization initiative indicate that 

SBA’s reason for the initiative is to allow it to correct staffing imbalances at 

its district offices nationwide and will allow these districts to increase the 

number of people in the field offices who are providing direct assistance to 

small businesses, including providing assistance in areas that have not had 

access to SBA services. While SBA officials told us the focus of the 

transformation had changed, we had difficulty in determining the extent of 

changes to the specific initiatives in its initial transformation plan, 

including to what extent SBA would test new marketing and outreach 

approaches, centralize other functions, and improve business processes. 

According to a senior SBA official, although there has not been a formal 

announcement about creating the liquidation center, he expected that staff 

would be aware that SBA was moving toward centralizing loan-related 

functions based on the new marketing and outreach focus in the pilot 

district offices, and because the union had been informed. 

Similarly, although SBA planned for evaluating the progress of its pilot 

initiatives, the SBA evaluations provided to us have been limited to 

measuring the results of its centralization pilots and not the results of the 

district office pilots or lessons learned from the implementation process. 

As a result, employees and stakeholders are uncertain about the results of 

the district office pilots. According to key transformation practices, it is 

essential to establish and track implementation goals to pinpoint 

performance shortfalls and suggest midcourse corrections. According to 

SBA transformation documents and officials, follow-up evaluations of its 

pilot initiatives were to take place after kick off—every 90 days for the 

district office pilots and every 30 days for the center pilots—to evaluate the 

progress of the pilots, and to monitor and validate the information SBA 
Page 27 GAO-04-76 Small Business Administration Transformation

received. In addition, these reviews were intended to identify any 

problems related to the transformation process, as well as best practices, 

which would be documented and shared with the others in the pilot to 

improve efficiency and effectiveness. For its centralization initiative, SBA 

has established some evaluation standards—such as measuring average 

turnaround and processing time for the centers, and has generated a 

benchmark report reflecting the results of these measures. While SBA 

gathered benchmark measurements to monitor progress in the district 

office pilots as part of its quality service reviews conducted in January 

2003, SBA did not provide an evaluation of the results of SBA’s district 

office initiative. As of our report date, it is unclear to us whether SBA has 

completed or begun district office evaluations. SBA officials told us that 

they are working on developing a way to evaluate the impact of the district 

office pilots and to link their marketing and outreach focus with their 

existing performance goals, such as loan volume, so that they would have a 

road map on lessons learned to use when adding more district offices to the 

pilot. 

SBA Has Developed 

Strategic Goals for Its 

Transformation, but Needs 

to Link Performance Goals 

to Its Marketing and 

Outreach Focus 

Establishing a coherent mission and integrated strategic goals is another 

key practice in organizational transformations. Although SBA has 

developed strategic goals to guide its transformation and included these 

goals in its fiscal year 2004 performance plan, SBA has not linked them 

with measurable performance goals that demonstrate the success of the 

agency’s expanded focus on marketing and outreach. According to the 

Government Performance and Results Act, agencies are required to 

develop annual performance plans that use performance measurement to 

reinforce the connection between the long-term strategic goals outlined in 

their strategic plans and the day-to-day activities of their staff, and include 

performance indicators that will be used to measure performance and how 

the performance information will be verified. District office employees we 

interviewed generally indicated an understanding of the strategic goals and 

the purpose of the transformation, and had a sense of what the 

transformation intends to accomplish. However, some district office 

employees told us that they did not know what the measures would be for 

determining whether the new marketing and outreach focus was 

successful, while others told us that they were unclear on how the district 

office staff should conduct marketing and outreach. SBA officials told us 

that the agency was still struggling with how to link its marketing and 

outreach focus with its existing performance goals, such as number of 

loans made by lending partners.
Page 28 GAO-04-76 Small Business Administration Transformation

SBA currently uses quantitative measures, such as the number of jobs 

created, number of loans made, and dollar volume of loans to determine 

how well it is achieving its strategic goals. SBA officials told us that SBA 

uses an Execution Scorecard, which is an Intranet-based system, as the 

internal management tool to track data on each district offices’ 

performance goals, for monthly progress reviews with the Deputy 

Administrator on key initiatives, including transformation. According to an 

SBA official, the scorecard shows that the loan volume in two of the three 

pilot district offices has increased more than in nonpilot district offices 

when compared to last year’s volume. However, we identified other factors 

that could have contributed to an increase in loan volume. For instance, 

the policy changes made to its SBA Express program, which allows the 

lender to use its own documentation and applications, also most likely 

contributed to an increase in loan volume. In fact, other district offices not 

in the pilot have also seen an increase in loan volume. As a result, the 

scorecard may be limited in measuring success that could be directly 

attributed to the pilot efforts for marketing and outreach. 

Lack of Clear Performance 

Goals Puts New 

Performance Management 

System At Risk

Using the performance management system to define responsibility and 

assure accountability for change is a key practice in organizational 

transformations. SBA has taken steps toward creating a performance 

management system that would define responsibility and set expectations 

for the individuals’ role in the transformed SBA. However, since SBA is still 

struggling with how to define measurable outcomes for the new marketing 

and outreach focus, its performance management system may also send a 

confusing or ambiguous message to employees. We previously reported 

that as agencies continued to shift towards a greater focus on results, they 

would need to make progress connecting employee performance with 

agency success.14 An explicit alignment of daily activities with broader 

results helps individuals see the connection between their daily activities 

and organizational goals. According to SBA headquarters officials, SBA’s 

performance management system, modeled after IBM’s, would focus more 

on results and not on activity. SBA officials told us that SBA implemented 

its performance management system for senior executives and supervisory 

staff in fiscal year 2003. SBA is implementing the system for its 

nonsupervisory staff beginning in fiscal year 2004. SBA officials provided 

us with documentation of the new position descriptions for the marketing 

14U.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).
Page 29 GAO-04-76 Small Business Administration Transformation

and outreach positions that explained the duties and expectations. 

However, at the time of our review SBA was still developing the 

performance standards and had not yet implemented them for 

nonsupervisory staff. SBA recognized that it would need to provide training 

to help employees make the transition from their former areas of expertise 

to a new, broader, and in some respects, more complex job. 

It was unclear what the linkage will be between these new job 

responsibilities, performance standards, agency performance goals, and 

the strategic goals for the transformation. District office employees who 

have been conducting new marketing and outreach activities told us that 

they were not sure how their performance will be measured because they 

have not received information on their performance management 

standards, and are unclear as to how their job responsibilities would 

change, or how they would be rated. Specifically, one district office 

employee told us that it was easy to measure loan specialist performance 

prior to the pilot because the standards were clear and concise—he knew 

from his own self-assessment where his performance stood—and that 

under the new performance management system, it will be harder to 

measure results because they are not tangible. In addition, another district 

office employee told us that although many employees see benefits to the 

transformation, they do not know how SBA will measure its progress 

toward reaching more of the public since employees do not understand 

what exactly they need to accomplish, such as number of clients the staff 

should contact or how many marketing events staff should attend, to help 

SBA reach its goals.

Communication Strategy Is 

Limited

While establishing a communication strategy is a key practice in 

organizational transformations, SBA has not established an effective and 

on-going communication strategy that would allow the agency to create 

shared expectations and report related progress to its employees and 

stakeholders. Organizations implementing transformations have found 

that communicating information early and often helps build an 

understanding of the purpose of planned changes and builds trust among 

employees and stakeholders. In particular, SBA does not have an effective 

communication strategy that reaches out to its employees and stakeholders 

to engage them in the transformation process, encourages two-way 

communication, and communicates early and often to build trust. A 

comprehensive communication strategy that reaches out to employees and 

stakeholders and seeks to genuinely engage them in the transformation 

process is essential to implementing a transformation. 
Page 30 GAO-04-76 Small Business Administration Transformation

SBA officials acknowledged that it was important for headquarters to 

communicate and address staffs’ concerns. However, when we reviewed 

SBA’s current methods of communication and asked employees in the pilot 

offices how they received information, we determined that communication 

is one-way and through a chain of command model, newsletters, or rumors. 

Communication is not about just “pushing the message out,” but also 

involves facilitating an honest two-way exchange and allows for feedback 

from employees and stakeholders. SBA officials told us that SBA 

headquarters disseminated information to the employees through the 

regional administrators and the district directors—and a newsletter—The 

SBA Times. District office employees told us that they generally hear 

about transformation-related events either through their district director or 

their immediate supervisor, while other employees stated that they get 

most of their information through rumors. In addition, stakeholders also 

told us that they initially hear information through rumors. For instance, a 

representative from a lender association informed us that they get 

information through rumors because SBA did not provide any information 

about the transformation to them. As we noted in an earlier report, it is 

important for stakeholders to be involved because it helps to ensure that 

resources are targeted at the highest priorities, and it creates a basic 

understanding among the stakeholders of the competing demands that 

confront most agencies, such as the limited resources available.15

It is also important to consider and use employee feedback and make any 

appropriate changes to the implementation of a transformation. According 

to union officials, SBA had set up an e-mail address in June 2002 to which 

employees could send their questions regarding the transformation. 

However, despite staff submitting questions, the district office staff told us 

they have yet to see a list of the questions or SBA’s responses. According to 

SBA officials, these emails were provided to senior management officials to 

respond to questions in conference calls held with field staff. The draft 

transformation plan we reviewed included a set of questions and answers 

about the transformation, but they were never made public. SBA officials 

told us that because all the transformation plans were preliminary, SBA has 

not drafted a thorough list of questions and answers and therefore had not 

made them available to employees. 

15U.S. General Accounting Office, Executive Guide: Effectively Implementing the 

Government Performance and Results Act, GAO/GGD-96-118 (Washington, D.C.: June 

1996).
Page 31 GAO-04-76 Small Business Administration Transformation

SBA did not communicate sufficiently with its employees. The information 

on the transformation initiative found in SBA’s monthly newsletters from 

June 2002 through March 2003 reported on the status of the transformation 

effort, described the purpose of transformation, announced when the pilots 

began, and described them. We reviewed all of the newsletters issued after 

the kick off of the pilots in March 2003, to see what kind of information was 

provided to SBA employees. With one exception, the newsletters had no 

information about the transformation or the creation of the new 7(a) 

Liquidation and Purchase Guaranty Center and SBA’s intention to reassign 

staff from overstaffed district offices to understaffed offices. The topic 

related to transformation included in one issue was a brief reference to the 

district office pilot in Phoenix. None of the newsletters mentioned who 

would replace two people who had been key leaders in the 

transformation—the Chief Operating Officer who left the agency or the 

Associate Administrator for Office of Field Operations who had moved to a 

different position within SBA. SBA officials told us that no one has filled 

the position of the Chief Operating Officer and the replacement for the 

Associate Administrator for Office of Field Operations was announced in 

an agencywide e-mail. However, as we stated earlier, after the Chief 

Operating Officer left the agency, SBA had not clarified who was leading 

the implementation team for transformation.

Transformation Has Not 

Adequately Involved 

Employees

Involving employees from the beginning to obtain their ideas and gain 

ownership of the transformation is important to successful 

transformations. It strengthens the process by including frontline 

perspectives and experiences. In addition, a study conducted by the 

National Academy of Public Administration indicates that agencies that 

have effectively restructured have also worked with their unions to 

implement changes. 16 The Academy reported that when Congress 

mandated in 1998 that the Internal Revenue Service (IRS) restructure, IRS 

management worked with the National Treasury Employees Union to 

implement benchmarks and develop alternatives. As a result of this 

collaboration, according to the Academy, IRS facilitated the process of 

moving employees into new jobs and made the transition easier. Although 

SBA officials told us that SBA has involved its union, the American 

Federation of Government Employees, and signed memorandums of 

16National Academy of Public Administration, Equal Employment Opportunity Commission: 

Organizing for the Future (February 2003). This report also includes the Academy’s 

observations on the IRS restructuring.
Page 32 GAO-04-76 Small Business Administration Transformation

understanding with the union on implementation of the pilot and on 

establishing a liquidation center, union officials told us that they had very 

little involvement. A union representative told us that SBA does not 

involve them in any of the planning and only includes the union after it has 

decided what it wants to accomplish. In addition, another union 

representative told us that since signing the memorandum of 

understanding for the first pilot phase in October 2002, SBA has not 

included the union in aspects of the transformation, such as creating SBA’s 

competency models, or following up on training courses. SBA made a 

presentation to the union in July 2003 regarding the second phase of the 

pilot—to create a new liquidation center in the Washington, D.C., 

metropolitan area—prior to signing the second memorandum of 

understanding but did not give the union an opportunity for input on 

planning for the second phase. In September 2003, SBA and the union 

signed a memorandum of understanding on the creation of the new center 

in which SBA agreed to offer an early retirement for all agency personnel 

and a buyout option to those employees who performed the liquidation 

function.

SBA’s transformation has not involved employees in the planning or 

implementation stages. During our field visits, we found that because SBA 

has not actively involved its employees in the transformation process, there 

is often anxiety and apprehension, as well as low morale in the pilot district 

offices. However, based on our field visit, we observed that the Arizona 

District Office’s former Portfolio Management Team appeared to be less 

anxious about the transformation than Portfolio Management teams in the 

other district office pilots, mostly because the team leader and her staff 

were involved early in the transformation by preparing the loan files for the 

Santa Ana 7(a) center, and training the center staff. We found that because 

of this early involvement, they had a better sense of their role and were 

more optimistic about the transformation. An SBA headquarters official 

told us that SBA intends to use its employee feedback from training 

evaluations to modify its training curriculum for the next pilot phase, but 

we were unable to identify any other examples where employee opinions 

and perspectives were sought. During our field visits to the pilot offices, 

we found that the employees had valuable input on lessons learned and on 

ways that SBA could improve its implementation process. For example, 

one employee suggested that SBA create a guidebook for its employees on 

what to expect from the transformation, and that the three district office 

pilots be a resource for the guidebook. In addition, one district office 

employee suggested that SBA change the order of the training curriculum 

so that the course on results management is offered first to help 
Page 33 GAO-04-76 Small Business Administration Transformation

supervisors communicate with their staff regarding the transformation. We 

also observed that employees generally were not opposed to the 

transformation and saw benefits resulting from the transformation; 

however, a few employees expressed frustration with the way the process 

was implemented. If employees had a larger role in implementing and 

planning the transformation, such as through employee teams, they could 

help to facilitate the process by sharing their knowledge and expertise, 

particularly those employees who have had experience in the marketing 

and outreach area.

Conclusions SBA has made some progress in implementing its transformation plan for 

phase one. However, continued success and progress in implementing its 

transformation may be impeded by budget uncertainties and constraints 

and the difficulties in realigning employees to staff centralization efforts. 

To some extent, SBA has compounded the budget challenge by not sharing 

its plan with a key stakeholder—Congress—and not providing clear, 

consistent budget requests with a detailed plan that show priorities and 

link resources to desired results. In addition, as SBA moves forward in 

centralizing its loan and other functions, realigning staff will likely present 

additional challenges, such as problems with employee morale and 

productivity. 

Transforming an organization is not an easy endeavor. It requires a 

comprehensive, strategic approach that takes leadership, time, and 

commitment. Although SBA may achieve progress in the short-term by 

establishing new centers to improve some of its business processes, its 

long-term success in defining and institutionalizing a new role for its 

district offices will take more time and commitment. The practices we 

have identified as being important to successful transformation are 

especially important as SBA moves forward with its transformation and 

could also help mitigate the challenges it faces with its budget and staff 

realignment. However, the weaknesses we identified in SBA’s 

implementation process could derail or negatively impact its 

transformation effort as the agency attempts to expand transformation and 

affect more of its operations and employees. SBA’s leadership changes, 

plans, and rationales for decisions have not been made public and 

therefore have created an environment of confusion about the leadership, 

specific goals, and timeline for transformation. SBA is in the infant stages 

of developing a link between its broad strategic objectives and measurable 

performance goals, which will be important for determining the success of 

transformation. The lack of frequent and two-way communication has 
Page 34 GAO-04-76 Small Business Administration Transformation

exacerbated an environment of confusion, even though many employees 

understand the goals of transformation. Finally, SBA is missing out on one 

of its key strengths—its employees—by not adequately involving 

employees in the transformation process. This lack of employee 

involvement means that SBA does not receive information and 

perspectives that could improve and facilitate the transformation and 

promote employee buy-in.

Recommendations for 

Agency Action

In order to improve and build on transformation efforts under way at SBA, 

we recommend that the Administrator adopt key practices that have helped 

other organizations succeed in transforming their organizations. Based on 

our review of SBA’s initial implementation of phase one of its 

transformation, we specifically recommend that the Administrator

• Clarify for employees, congressional, and other stakeholders the 

leadership and implementation team members who are guiding 

transformation.

• Finalize the draft transformation plan that clearly states SBA’s strategic 

goals for transformation and includes implementation goals, timeline, 

and resource requirements, and share the plan with stakeholders and 

employees.

• Develop performance goals that reflect the strategic goals for 

transformation and more clearly link the strategic goals of 

transformation to existing performance goals. In addition, develop 

budget requests that clearly link resource needs to achieving these 

strategic and performance goals.

• Ensure that the new performance management system is clearly linked 

to well-defined goals to help individuals see the connection of their daily 

activities and organizational goals and encourage individuals to focus on 

their roles and responsibilities to help achieve those goals.

• Develop a communication strategy that facilitates and promotes 

frequent and two-way communication between senior managers and 

employees and between the agency and its stakeholders, such as 

Congress and SBA’s lenders. For example, SBA could electronically 

post frequently asked questions and answers on its Intranet.
Page 35 GAO-04-76 Small Business Administration Transformation

• Facilitate employees’ involvement by soliciting ideas and feedback from 

its union and staff, ensuring that their concerns and ideas are 

considered. For example, SBA could develop employee teams and 

expand employee feedback mechanisms like those it employed in the 

pilot training.

Agency Comments We received written comments on a draft of this report from SBA’s Chief 

Financial Officer, which are reprinted in appendix I. In commenting on the 

draft, SBA did not state whether it concurred with our recommendations 

but said it would consider them as it continues to plan for and implement 

its transformation efforts. SBA specifically noted that it had already 

addressed recommendations regarding developing performance goals and 

using the performance management system to define responsibility as a 

result of issuing a new strategic plan with revised performance goals and 

implementing its new performance management system for employees on 

October 1, 2003. SBA provided us with a draft strategic plan but then told 

us that the plan was being revised significantly and that we should wait 

until the revised plan was completed. Since this revised strategic plan was 

issued after we had completed our work, we did not have time to determine 

whether SBA had sufficiently addressed our recommendations related to 

linking its transformation efforts to strategic and performance goals and 

performance expectations for employees. Therefore, these 

recommendations will remain in the report, and we will determine whether 

SBA has implemented the recommendations as part of our 

recommendation follow-up process.

SBA disagreed with our finding that its budget requests for transformation 

were unclear. SBA stated that it clearly lays out its funding requests for 

transformation in the Fiscal Year 2003 and Fiscal Year 2004 Budget Request 

and Performance Plans. We used these documents to review SBA’s budget 

requests for transformation and as the source for our analysis shown in 

figure 4 of the report. In its comments, SBA said that it had made changes 

to its budget format in fiscal year 2004 to bring it more in line with the 

requirements of the Results Act by integrating budget with performance 

goals. We clarified some language in the final report to better reflect the 

issues we identified with SBA’s transformation budget requests. While the 

fiscal year 2004 budget request may have at some level integrated its budget 

request with performance goals for its programs, it did not make clear 

linkages between its request for transformation funds and its performance 

goals. The budget requests for transformation were not consistent in terms 

of amounts requested or stated purposes nor were they accompanied by a 
Page 36 GAO-04-76 Small Business Administration Transformation

detailed plan that showed priorities and linked resources to desired 

transformation results. Therefore, we still maintain that SBA could 

improve its transformation budget request presentation to better ensure 

that it links the request to transformation performance goals and 

outcomes.

SBA also disagreed with our findings related to communication and 

employee involvement. SBA stated that officials have traveled to the pilot 

district offices to explain the agency’s transformation plans and solicited 

comments from district directors in a May 2002 district director 

conference. However, our draft report did not state that management was 

not involved or was uninformed, but that employees below the district 

director level in the pilot offices were not sufficiently involved and 

informed. Furthermore, SBA cites its efforts to communicate prior to the 

implementation of the pilots, which we recited in our draft report, but 

employees told us that their level of involvement and the amount of 

information they received was lacking after the pilot began. In its 

comments, SBA also stated that it conducts weekly telephone calls with the 

pilot district directors who in turn have regular meetings with their 

employees. Our draft report acknowledged SBA’s use of conference calls 

with the district directors and the expectation that directors would then 

have meetings with their employees. However, we also found that 

notwithstanding communications with district directors, district office 

employees remained confused and lacked avenues for two-way 

communication with headquarters about the transformation. SBA also 

stated that it has worked with its union to gain agreement through 

memorandums of understanding for different parts of the plan, and these 

efforts were reflected in our draft report. However, in more than one 

discussion with us, union officials expressed concerns that SBA had 

approached them after having already decided what it was going to do and 

had not adequately informed the union about new initiatives or changes to 

the plan. We continue to maintain that SBA’s transformation efforts could 

benefit from improved communication and employee involvement. 

SBA also provided technical corrections, which we incorporated as 

appropriate in this report.
Page 37 GAO-04-76 Small Business Administration Transformation

Objectives, Scope, and 

Methodology

In preparing this report, we focused on the district office and centralization 

pilots of phase one of SBA’s transformation effort because (1) they were 

initiatives that had begun at about the same time we began our review and, 

therefore, we could observe the implementation process and (2) these pilot 

initiatives, if expanded, would impact all 68 SBA district offices.

To determine SBA’s progress in implementing its transformation effort and 

challenges that have or could impede progress, we analyzed planning, 

budget, and implementation documents related to SBA’s transformation 

and interviewed key officials at SBA headquarters involved in the 

transformation planning and implementation processes. We also 

conducted site visits at each of the pilot offices involved in the first phase—

three district office pilots in Phoenix, Arizona; Miami, Florida; and 

Charlotte, North Carolina; and two center pilots in Santa Ana and 

Sacramento, California. At the center locations, we reviewed documents 

that were developed to make the process more efficient and consistent (for 

example, checklists and standardized letters). We also reviewed measures 

that SBA is using to assess the centralization pilots. From data SBA 

headquarters uses to track the pilots, we reviewed about 450 approvals for 

the 504 loan program pilot and calculated an average total response and 

processing time using the dates that were included in the data. At each of 

the pilot locations, we interviewed all employees who were directly 

affected by the pilot—in the case of the district offices, we met with 

virtually all employees.17 To ensure open communication, we met with 

directors, supervisors, and employees separately. We asked them to 

describe how their office, role, and job had changed; how information was 

communicated to them about transformation; and whether they had been 

provided training and resources to transition into new roles. We also asked 

them to identify the top five or fewer challenges and benefits of 

transformation and lessons learned from the initial implementation 

process.

17For employees that were not available at the time of our visits, we followed up through 

telephone calls, in most cases. 
Page 38 GAO-04-76 Small Business Administration Transformation

To assess whether SBA applied practices that are important to 

organizational change and human capital management in the federal 

government, we reviewed the literature and our previous work on 

reorganizations, organizational change, and human capital management to 

identify key practices that have been recognized as contributing to 

successful organizational transformation. The main document we relied on 

in identifying key practices was our recent report Results Oriented 

Cultures: Implementation Steps to Assist Mergers and Organizational 

Transformations.

18 We used these criteria as a basis to assess SBA’s 

planning process for transformation, implementation process for the pilots 

for phase one, leadership of the transformation, communication with 

employees and key stakeholders, and level of employee involvement. 

When interviewing SBA employees for objective one, we also asked 

questions to determine their understanding of the transformation effort and 

how they received information and communicated their questions or 

concerns. In addition to talking with employees involved in the pilots, we 

also interviewed representatives of SBA’s union and asked the extent to 

which they were involved in the transformation process. To obtain 

feedback from SBA stakeholders, we interviewed officials representing the 

National Association of Government Guaranteed Lenders and the National 

Association of Development Companies, whose members include SBA 7(a) 

lenders and certified development companies that make 504 loans, 

respectively. We also met with SBA’s congressional stakeholders who 

expressed views about their role in SBA’s transformation process.

We conducted our work in Washington, D.C.; Phoenix, Arizona; 

Sacramento and Santa Ana, California; Miami, Florida; and Charlotte, 

North Carolina, between February and September 2003, in accordance with 

generally accepted government auditing standards.

Unless you publicly announce its contents earlier, we plan no further 

distribution until 30 days after the date of this report. At that time, we will 

send copies of the report to the Ranking Minority Member of the Senate 

Committee on Small Business and Entrepreneurship, the Ranking Minority 

Member of the House Committee on Small Business, other interested 

congressional committees, the Administrator of the Small Business 

Administration, and the Director of the Office of Management and Budget. 

18GAO-03-669, July 2003.
Page 39 GAO-04-76 Small Business Administration Transformation

We will make copies available to others on request. This report will also be 

available at no charge on the GAO Web site at http:/www.gao.gov.

Please contact me at (202) 512-8678, dagostinod@gao.gov or Katie Harris at 

(202) 512-8415, harrism@gao.gov if you or your staff have any questions. 

Major contributors to this report were Patty Hsieh, Kay Kuhlman, and Rose 

Schuville.

Davi M. D’Agostino

Director, Financial Markets

 and Community Investment
Page 40 GAO-04-76 Small Business Administration Transformation

Appendix I

Comments from the Small Business Apendxies

Administration ApendxiI
Appendix I

Comments from the Small Business 

Administration

(250119) Page 41 GAO-04-76 Small Business Administration Transformation
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