HUMAN CAPITAL

Major Human Capital

Challenges at the

Departments of Defense

and State

Statement of Henry L. Hinton, Jr, Managing Director,

Defense Capabilities and Management

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Oversight of Government

Management, Restructuring and the District of Columbia,

Senate Committee on Governmental Affairs and the

Subcommittee on Civil Service and Agency Organization,

House Committee on Government Reform

For Release on Delivery

Expected at

10:00 a.m.

Thursday

March 29, 2001

GAO-01-565T
1 GAO-01-565T

Chairman Voinovich, Chairman Scarborough, and Members of the Subcommittees:

I appreciate the opportunity to appear before this joint hearing to discuss the human

capital challenges confronting two key agencies in the national security establishment.

As you are aware, GAO has been a leading promoter of more systematic attention toward

human capital issues. I am particularly gratified to come before your Subcommittees as

you have been committed advocates of our efforts, sponsoring much of our work in this

area. The leadership provided by your Subcommittees has been especially important in

focusing attention on the federal governmentís human capital challenges and in helping

to lay the foundation for eventual human capital legislative reform. Senator Voinovich,

your recent report, entitled ìReport to the President: The Crisis in Human Capital,î

captures in compelling terms both the urgency of the governmentís human capital

problems and the opportunity that now exists to make the federal governmentís ìpeople

managementî a top priority for both Congress and the new administration.1

As you know, the U.S. Commission on National Security in the 21st Century has focused

a key part of its analysis on human capital issues. The magnitude of the federal

governmentís challenge in the human capital arena will take the dedicated efforts of

many to catalog all the problems and correct the past neglect of ìpeople management.î

The Congress, the Office of Management and Budget (OMB) and the Office of Personnel

Management (OPM), special commissions and advisory groups, oversight agencies such

as GAO and the inspector general offices, and the individual agencies themselves all have

a role to play.

Over the past two years, our work on the major management challenges and program

risks across the government has identified human capital as a primary factor affecting

current and future agency performance. My statement today will address (1) the general

issue of human capital issues in the federal government and (2) specific human capital

challenges in the Departments of Defense and State.

SUMMARY

The human capital issues facing the Department of Defense and the Department of State

are not fundamentally different from those facing other federal agencies today. In the

wake of extensive downsizing over the last decade, agency workforces are experiencing

significant imbalances in terms of shape, skills, and retirement eligibility, with the

likelihood of a huge loss of personnel to retirement over the next few years and a

resulting decline in the ability to accomplish agency missions. Yet, until recently, there

has been very little action taken to address this problem.

While both the Department of Defense and the Department of State are beginning to

address their human capital issues, each has a considerable way to go. Our review of

their most recent performance reports and performance plans identified several areas

 

1 Report to the President: The Crisis in Human Capital, report prepared by Senator George V. Voinovich,

Chairman, Subcommittee on Oversight of Government Management, Restructuring, and the District of

Columbia, Committee on Governmental Affairs, United States Senate, December 2000.
2 GAO-01-565T

where additional efforts are needed. Although the specific problems in each agency are

somewhat different, they all have a common originóthe lack of an overall strategic

approach to the management of the workforce. Agencies must step up their efforts to

identify current and future workforce needs, assess where they are relative to those needs,

and develop strategies for addressing any related gaps. Such efforts should address

workforce shape, skills, knowledge, and succession planning.

HUMAN CAPITAL: A GOVERNMENTWIDE HIGH RISK AREA

Strategic human capital management is a pervasive challenge throughout the federal

government. The human capital problems of the Department of Defense and the

Department of State can be seen as part of a broader pattern of human capital weaknesses

that have eroded mission capabilities across the federal government. As you know, we

recently designated human capital as a governmentwide high-risk area.2 After a decade

of government downsizing and curtailed investments in our vital ìpeopleî assets, it has

become increasingly clear that todayís federal human capital strategies are not

appropriately constituted to adequately meet current and emerging needs of government

and its citizens in the most effective, efficient, and economical manner possible. While

legislation and other actions have been put in place over the last decade to address most

of the major management areas, such as financial management, information technology,

and results-oriented management, human capital remains as the critical link to reforming

and modernizing the federal governmentís management practices. While my focus today

will be on specific human capital issues, it is important to note that human capital has a

pervasive impact on the organization, affecting virtually every aspect of operations. To a

certain extent, any problem or management challenge that exists in an organization is

likely to have some connection to human capital. Simply stated, human capital problems

often lead to programmatic problems and increased risks.

Our work has found human capital challenges across the government in four key areas:

• Strategic human capital planning and organizational alignment,

• Leadership continuity and succession planning,

• Acquiring and developing staffs whose size, skills, and deployment meet agency

needs, and

• Creating results-oriented organizational cultures.

Both State and Defense are facing significant challenges in each of these areas.

The Comptroller General recently testified before the Subcommittee on National

Security, Veterans Affairs, and International Relations of the House Committee on

Government Reform.3

 He noted there were several areas where action was needed to

shape an efficient and effective federal government for the 21st century, and help us meet

the challenges to the well-being and financial security of the American people, address

 

2 High Risk Series: An Update (GAO-01-263, January 2001). 3 Major Management Challenges and Program Risks: Departments of Defense, State, and Veterans Affairs

(GAO-01-492T, March 7, 2001).
3 GAO-01-565T

security threats facing our nation, and deal with the issues raised by global

interdependence. One of the primary actions he cited was the urgent need to revamp the

federal governmentís entire strategic approach to human capital (people) management

before the erosion of governmentís capacity to perform more dramatically undermines

agenciesí abilities to efficiently and effectively serve the American people. In Senator

Voinovichís Report to the President, he noted that the federal government was in dire

need of a unified strategy to build and maintain a world-class civil service. These

challenges, many of which have been long-standing in scope, also underscore the critical

role that the principles of performance-based management, as embraced in the

Government Performance and Results Act (GPRA), can play in successfully providing

the products, services, and results that taxpayers expect.

HUMAN CAPITAL ISSUES IN THE DEPARTMENT OF DEFENSE

The last few decades of the 1900s have seen a dramatic shift in the position occupied by

the Department of Defense vis-‡-vis the rest of the government. Defense spending

currently represents about 16 percent of the federal budget, down from about 50 percent

in 1962. The DOD military and civilian workforce has been reduced by more than 1

million personnel from a high of 4.1 million in 1987 to about 3 million today. While it

has come down considerably in size and proportion of the budget, it is still by far the

largest employer in the government. Because it is the largest employer of federal

employees in the competitive civil service, how DOD approaches human capital

management sends important signals about trends and expectations for federal

employment across government. Moreover, the role that DODís workforce plays in

support of our national security makes DODís approach to managing its people a matter

of fundamental public interest.

DOD uses the term ìtotal forceî to refer to the different categories of workers that it uses

to accomplish its mission. The total force includes military personnel, both active duty

and reserve, federal civilian personnel, and private-sector contract personnel. Each plays

a vital role in our national defense, and each has undergone considerable change in roles

over the last part of the 20th century. Since the end of the Cold War, the nation has

become increasingly reliant upon the reserves and National Guard for performing various

defense missions. The roles of the civilian and contractor workforce have also expanded,

now including participation in combat functions. For example, available DOD reports

show that over 5,000 DOD civilian employees and nearly 9,200 contractor personnel

voluntarily deployed to the Persian Gulf area to support the military forces during the

Gulf War.4

 

4 DOD Force Mix Issues: Greater Reliance on Civilians in Support Roles Could Provide Significant

Benefits (GAO/NSIAD-95-5, October 19, 1994).
4 GAO-01-565T

Internal Department of Defense Studies Identify

Human Capital Practices That Need to Be Updated

A number of recent DOD studies have identified some fundamental problems regarding

the Departmentís management of its human capital. In 1997, the 8th Quadrennial Review

of Military Compensation noted that personnel costs represent nearly 50 percent of the

defense budget, yet leaders in the Department of Defense have no institution-wide

process for systematically examining future human resource needs or for translating those

needs into a coherent strategy that supports DODís overall strategic plan.5 In contrast,

the Departmentís research, development, and procurement communityóreflecting only

30 percent of the budgetóuses a formal process and structure to present leaders with

acquisition issues and solutions to support future operational needs.

Last year, the Defense Science Board task force reported a similar conclusion.6

The task force report stated that:

ìToday there is no overarching framework within which the future DOD

workforce is being planned aside from the planning conducted within the

military services and ad hoc fora in the Office of the Secretary of Defense.

An overarching strategic vision is needed that identifies the kind of

capabilities, and the changes in human resources planning and programs

that will be required. In short, the Departmentís force conceptóembodied

in Joint Vision 2010óneeds to be linked to manpower requirements for

the total force, military and civilian, public and private. (p. viii)î

The task force voiced a concern that todayís force is merely what was ìleft overî from

the drawdown, and states that more deliberate civilian and military force shaping is

needed. It went on to warn that unless the Department makes changes in its personnel and

compensation systems, the force will be unprepared for 21st century needs; quality

people will not stay in sufficient numbers, and those who do will lack necessary skills

and experience.

The task force identified key issues now evident across the total defense force. Within

the civilian workforce, they cited:

• The insufficient number of properly trained candidates in the pipeline, an aging

workforce with little turnover and limited professional development opportunities;

• The lack of a continuing professional development program for career civilian

employees;

• The need for an integrated personnel management plan that includes accounting for

the increasing use of private sector personnel; and

• The long confirmation cycle for political appointees.

 

5

 Rewarding, Organizing and Managing People in the 21st Century: Time for a Strategic Approach (Report

of the 8th Quadrennial Review of Military Compensation, June 30, 1997).

6 Final Report of the Defense Science Board Task Force on Human Resources Strategy (Office

of the Under Secretary of Defense for Acquisition, Technology, and Logistics, February 28,

2000).
5 GAO-01-565T

Within the military, they identified:

• Recruiting challenges and training and first-term attrition in enlisted grades;

• Retention of experienced individuals to fill key leadership, specialty, and technical

positions in the non-commissioned officer corps;

• Improving job satisfaction, retention, and commitment to service within the junior

officer grades; and

• Retention and professional development of the ìbest and brightestî within the senior

officer grades, including flag rank.

The task force went on to recommend that the Department of Defense establish a

strategic human resources plan encompassing all elements of the total force: military,

civilian, and private sector personnel.

Defense Beginning to Address Human Capital Challenges,

But Has a Long Way To Go

Given the large number of military and civilian personnel within the Department, human

capital management represents a huge challenge that impacts virtually every major

activity. Human capital challenges are involved to some extent in each of the six high

risk areas we identifiedófinancial management, information technology, acquisition,

contracting, support infrastructure, and logistics. For example, in testimony last year

before the Subcommittee on Government Management, Information, and Technology,

House Committee on Government Reform, I noted that the government now spends more

for services than any other acquisition category.7

 This shift toward greater reliance on

the private sector for professional, administrative, technical, and information

management support will have a strong impact on the way in which human capital is used

throughout the government, but particularly in DOD which is still the dominant purchaser

in the federal community.

DOD is dealing with a variety of military personnel issues, such as shortages of junior

officers for the career force, problems in retaining certain skills (such as intelligence

analysts, computer programmers, aircraft mechanics, and pilots), and the military

servicesí failure to meet recruiting goals. The Department also faces significant

challenges in managing its civilian workforce. The sizable reduction in civilian personnel

since the end of the Cold War has led to an imbalance in shape, skills, experience, and

retirement eligibility that is jeopardizing certain acquisition and logistics capabilities

within DOD.

Many of the human capital problems that DOD is dealing with today are the result of its

approach to downsizing in the early 1990s. While DODís approach to civilian force

reductions was less oriented toward shaping the makeup of the workforce than was the

approach it used to manage its military downsizing, it missed strategic planning

opportunities in both arenas to move closer to a workforce that was balanced in terms of

 

7 Federal Acquisition: Trends, Reforms, and Challenges (GAO/T-OCG-00-7, March 16, 2000).
6 GAO-01-565T

composition (active military, reserves, civilian employees, and contract personnel), skills,

and experience.

Military Personnel

DOD has encountered considerable difficulties in recent years in achieving its desired

military strength. The military services have struggled to meet recruiting goals, with 3 out

of 4 services having missed their recruiting goals in the last several years due to factors

such as the robust economy, lower propensity to join the military, low civilian

unemployment, and high college attendance. With its attrition rate at an all-time high,

DOD continues to lose more than one-third of its enlistees before they successfully

complete their first-term of service. The services face shortages among junior officers,

and problems in retaining intelligence analysts, computer programmers, and pilots.

Reduced accessions during the drawdown have resulted in smaller year-groups from

which to retain personnel for the career force. While overall retention rates have

continued to be adequate, retention in certain skills and grade levels has been

problematic.

To improve the results of its recruiting efforts, DOD has added more recruiters, increased

advertising budgets, and increased enlistment bonuses. Notwithstanding these efforts, it

is not clear what aspects of military service can be improved in order to increase retention

in areas that are having problems. Additionally, DOD does not have a mechanism for

determining which of its actions in the recruiting arena are responsible for its recent

improvement in achieving its goals.

Much of DODís force shape problems in the active duty military stem from the way in

which it chose to absorb the force reductions at the end of the Cold War. DOD gave

priority to achieving voluntary reductions and reducing new accessions. Between 1987

and 1992, active duty military end-strength levels decreased by 17 percent, while over the

same period, the number of new recruits decreased by 35 percent.8

 Our work at the

beginning of the drawdown found that the services tended to use cut-backs on new

recruits as a preferred downsizing tool because such actions could be implemented

quickly and were seen as less disruptive to those members already in the force.9

However, over time, this approach can create significant distortions in the shape and

experience of the force.

We recently reviewed DOD retention data and found that aggregate retention and

continuation rates in 1996-98 (after the drawdown) were not significantly different from

those before the drawdown (1988-90).10 Aggregate measures of retention, however,

mask significant reductions that occurred among specific groups of military personnel in

 

8

 Military Downsizing: Balancing Accessions and Losses is Key to Shaping the Future Force

(GAO/NSIAD-93-241, September 30, 1993).

9

 Enlisted Force Management: Past Practices and Future Challenges (GAO/NSIAD-91-48, January 22,

1991).

10 Military Personnel: Systematic Analyses Needed to Monitor Retention in Key Careers and Occupations

(GAO/NSIAD-00-60, March 8, 2000).
7 GAO-01-565T

different career stages and occupational specialties. Retention rates at the occupational

level showed reductions in retention rates of 10 percent or more occurred among certain

segments of the enlisted population. Two occupational areas involving technical skillsó

communications and intelligence and electrical and mechanical equipment repairó

accounted for the majority of occupations with substantial enlisted retention rate

reductions. The services have recently reported growing retention problems among

pilots. The Air Force reported that the cumulative continuation rate among pilots (the

likelihood that pilots who complete 6 years of service would go on to complete 11 years)

dropped 41 percent from 1995 through 1998 (from 87 to 46 percent). Similarly, the Navy

reported that cumulative aviation continuation rates decreased from about 50 percent in

1996 to about 32 percent in 1998. We are in the process of reviewing data from the 1999

DOD Survey of Active Duty Personnel to determine how the views, experiences, and

retention intent of personnel in critical occupations differ from that of the rest of the

force.

Civilian Personnel

DOD has undergone a sizeable reduction in its civilian workforce since the end of the

Cold War, and additional reductions are expected at least through fiscal year 2005.

Between fiscal years 1989 and 1999, DOD reduced its civilian workforce by about

400,000 positions, from approximately 1,117,000 to 714,000óa 36-percent reduction.

President Clintonís fiscal year 2001 budget request projected additional reductions in

DODís civilian workforce down to a level of 637,500 by fiscal year 2005óa cumulative

reduction of nearly 43 percent from the fiscal year 1989 level.

DODís approach to civilian downsizing in the early years relied primarily on voluntary

turnover and retirements and varying freezes on hiring authority to achieve force

reductions. DOD also used existing authority for early retirements to encourage

voluntary separations at activities facing major reductions-in-force. The fiscal year 1993

National Defense Authorization Act authorized a number of transition assistance

programs for civilian employees, including financial separation incentivesóìbuyoutsî, to

induce the voluntary separation of civilian employees. DOD has credited the use of these

separation incentives, early retirement authority, and various job placement opportunities

for enabling it to avoid nearly 200,000 involuntary demotions and separations.

While the tools available to DOD to manage its civilian downsizing helped mitigate the

adverse effects of force reductions, DODís approach to civilian force reductions was not

really oriented toward shaping the makeup of the workforce. During our work on the

early phases of the DOD downsizing, some DOD officials voiced concerns about what

was perceived to be a lack of attention to identifying and maintaining a balanced basic

level of skills needed to maintain in-house capabilities as part of the defense industrial

base.11 ìInstitutional memoryî provided by career civilians is particularly important in

 

11 Defense Force Management: Expanded Focus in Monitoring Civilian Force Reductions Is Needed

(GAO/T-NSIAD-92-19, March 18, 1992) and Defense Force Management: Challenges Facing DOD As It

Continues to Downsize Its Civilian Work Force (GAO/NSIAD-93-123, February 12, 1993).
8 GAO-01-565T

DOD because of the frequent rotation of military personnel and the short tenure of the

average political appointee.

The consequences of the lack of attention to force shaping can be seen in the current age

distribution of the DOD civilian workforce in comparison to the distribution at the start of

the drawdown. There has been a strong shift toward an older workforce. Todayís

workforce is older and more experienced, but, not surprisingly, 58 percent of the

workforce will be eligible for early or regular retirement in the next five years. Since

1989, there has been a 69 percent drop in the number of civilians with less than five years

of service, but only a 4 percent drop in the number of civilians with 11-30 years of

service. As of September 1999, only 6.4 percent of DODís civilian workforce was under

the age of 31, compared to about 17 percent in 1989.

The net effect is a workforce that is not balanced by age or experience and that puts at

risk the orderly transfer of institutional knowledge. Although we cannot say what the

appropriate balance between younger and older employees should be, the continuing

increase in the number of retirement-age employees could make it difficult for DOD to

infuse its workforce with new and creative ideas and develop the skilled civilian workers,

managers, and leaders it will need to meet future mission requirements.

The problems I just described are even more severe in certain areas, such as acquisition.

This is a part of the workforce that the United States has relied upon to maintain the

technological superiority that plays an essential role in our national security strategy. Our

nationís warfighters will continue to depend on technologically superior weapon systems

provided by the acquisition system. Congress has also been concerned with the human

capital issues in the acquisition workforce. For example, the Defense Authorization Act

for Fiscal Year 1996 (P.L. 104-106), among other requirements, required DOD to submit

a plan for a 25 percent reduction in the number of acquisition personnel employed at

DODís acquisition organizations by the beginning of fiscal year 2001. That plan fell short

of what was needed in that it did not clearly define what constitutes the acquisition

workforce and it did not ensure that organizations and functions were appropriately

adjusted to achieve better program outcomes and not just ìhollowed out.î12

According to the Acquisition 2005 task force, the rate of reduction in the civilian

Acquisition Workforce has substantially exceeded that of the rest of the DOD

workforce.13 From September 1989 to September 1999, the civilian Acquisition

Workforce has been reduced by almost 47 percent. This compares to a 37 percent

decrease in the total DOD civilian workforce and a nearly 17 percent in the total federal

civilian workforce. Eleven consecutive years of downsizing have produced serious

imbalances in the skills and experience of the highly talented and specialized civilian

acquisition workforce, putting DOD on the verge of a retirement-driven talent drain.

 

12 Defense Acquisition Organizations: Linking Workforce Reductions With Better Program Outcomes

(GAO/T-NSIAD-97-140, April 8, 1997).

13 Shaping the Civilian Acquisition Workforce of the Future (Final Report of the Acquisition 2005 Task

Force to the Under Secretary of Defense, Acquisition, Technology, and Logistics and the Under Secretary

of Defense, Personnel and Readiness, October 2000).
9 GAO-01-565T

More than 50 percent of DODís civilian Acquisition Workforce will be eligible to retire

by 2005, and in some occupations, half the current employees will actually be gone by

2006.

Perhaps one of the more serious cases is the example that Senator Voinovich cited in his

recent Report to the President. That case involved Wright-Patterson Air Force Base in

Dayton, Ohio, headquarters of the Air Force Materiel Command, which employs over

10,000 civilian federal workers. It is an excellent example of the aging and skills

imbalance currently affecting the defense workforce. Demographically, 60 percent of

Wright-Pattersonís civilian employees will be eligible for either early or regular

retirement by 2005. Over and above the problem of continuity and succession, the

Wright-Patterson example also demonstrates a growing skill imbalance among DODís

engineering workforce as the need for new skills emerge in areas such as space

operations, lasers, optics, advanced materials, and directed energy fields.

GPRA Reports Identify Human Capital Issues at Defense

The strategic planning requirements of the Government Performance and Results Act

provide a useful framework for agencies to integrate their human capital strategies with

their strategic and programmatic planningóand in particular, to identify the workforce

size, skills mix, and deployment needed for mission accomplishment and to create

strategies to fill the gaps. However, while the agenciesí fiscal year 2001 annual

performance plans all included at least some discussion of human capital, the discussions

varied widely in scope and specificity. In reviewing DODís fiscal year 1999 GPRA

performance report and fiscal year 2001 performance plan, we found several management

challenges associated with human capital that were not adequately addressed.14

• One of DODís key agency outcomes is to obtain military forces that are adequate in

number, well qualified, and highly motivated. However, DODís performance

measures do not fully address the extent to which U.S. military forces are highly

motivated or DODís efforts to develop military personnel.

• The performance indicators used to assess tempoóthe pace of operations for people

and equipmentóvary by service. However, they do not present a complete picture of

tempo from the standpoint of the individual service member. Tempo is relevant to

maintaining trained and ready forces because it has been cited as a reason for

personnel leaving the military. Consequently, what is most relevant to service

personnel and their families is the extent to which the individual is required to be

away from home, rather than the more indirect measure of the extent to which units

are deployed.

• DODís stated combat readiness objective is aimed at being ready to fight and win two

major theater wars or to conduct multiple operations other than war. However, its

performance report and plan do not provide a complete picture of the forces and

 

14 Observations on the Department of Defenseís Fiscal Year 1999 Performance Report and Fiscal

Year 2001 Performance Plan (GAO/NSIAD-00-188R, June 30, 2000).
10 GAO-01-565T

performance required to accomplish this and whether the desired objective is being

achieved. For example, in its performance report and plan, DOD included measures

for the level of combat forces, but not for support forces, although the report

recognizes the existence of support force shortfalls and discusses Army plans for

correcting them. As another example, the report does not discuss the long-standing

training and readiness problems of the Army National Guardís 15 Enhanced

Brigades.

• DOD has identified specific recruiting goals representing the projected number of

new personnel needed each year to maintain statutorily defined military end-strengths

and the proper distribution of grade levels. But because retention varies monthly,

recruitment goals are adjusted over the year. That process yields a revised DOD-wide

annual goal against which recruiting is evaluated. However, because DOD only

reports a composite recruitment goal, the measures can mask significant differences

in performance across the services.

• Over the last several years we have identified early attrition of first-term active duty

personnel as a key problem. About one-third of new recruits fail to complete their

obligated tour of duty. However, the DOD performance plan has still not incorporated

any goals dealing with the early attrition problem.

• DOD goals for enlisted retention provide a picture of overall retention by service and

term of enlistment. However, such aggregate measures may mask variations in

retention by occupational area (e.g., pilots, mechanics, intelligence analysts, and

computer programmers) and skill levels (e.g., mid-career non-commissioned officers

and junior officers). As such, their goals provide only a partial measure of the

militaryís ability to retain adequate numbers of qualified personnel.

We view these shortcomings in DODís performance report and plans as a result of the

lack of an overall, strategic approach to human capital planning. Considering the

enormous changes that the DOD total workforce has undergone and continues to

undergo, and the external pressures and demands that virtually all federal departments

and agencies are experiencing, taking a strategic view of human capital becomes ever

more crucial to organizational results. DOD will need to build a solid foundation in

strategic planning and organizational alignment, leadership and succession planning,

recruiting and training the best possible talent, and establishing a performance culture.

HUMAN CAPITAL ISSUES IN THE DEPARTMENT OF STATE

As the lead agency representing U.S. interests overseas, the Department of State is vested

with a wide range of responsibilities. The successful practice of U.S. diplomacy is

essential to ensuring security at home, laying the groundwork for better jobs and a higher

standard of living, providing a healthier environment, and assuring safe travel and the

ongoing conduct of business abroad. To help manage these responsibilities, State

maintains an international network of operations through a cadre of about 28,000

employees deployed across 260 diplomatic and consular posts worldwide. The Secretary
11 GAO-01-565T

of State has stated that that the core of our overseas presence is a talented, highly trained,

dedicated, and motivated staff. Yet, over the last few years, a number of studies and

reviews have identified a range of human capital challenges and problems within the

State Department that raise concerns about how effectively State is managing its people.

Although State has traditionally attracted some of the nationís most talented people, a

1999 Department-wide study by McKinsey and Company concluded that an increasingly

competitive job market and expanded private sector opportunities for geographic mobility

have drawn potential Foreign Service Officers into other professions.15 According to the

study, the challenges that State faces in recruiting and retaining top-quality employees

fall into several areas. These include the need for State to (1) establish a strong link

between current performance and promotions, (2) improve the quality of life at overseas

posts, and (3) improve the quality of its management.

In a November 1999 report, the Overseas Presence Advisory Panel also concluded that

State needed to reform its human resource practices because it does not currently have the

flexibility, resources, or strategic organization required to support its mission.16 The panel

visited 23 overseas posts in conducting its work and found that personnel matters topped

the list of issues discussed. The panel reported that employees were dissatisfied with

evaluation processes, career advancement opportunities, sensitivity to lifestyle issues, the

degree of autonomy and responsibility offered by their positions, and the quality of

management. Employees wanted, among other things, more training in languages,

leadership, and management. The panel recommended that State develop a

comprehensive human resource strategy based on a detailed statement of its mission,

definition of the work to be done, and identification of personnel requirements; and, that

State develop and implement a recruitment strategy designed to fulfill these needs. This

approach of strategically aligning human capital with organizational goals and objectives

is consistent with our studies of best practices used by high performance organizations,

and similar studies done by other organizations.

Yet another recent assessment comes from the Independent Task Force on State

Department Reform, chaired by Frank Carlucci.17 The task force reported that

resignations of foreign service generalists have doubled between 1994 and 2000, while

resignations of foreign service specialists have quadrupled over the same period. They

also note that declining applicant pools and rising attrition rates have left the State

Department with workforce shortfalls, including a deficit of about 700 Foreign Service

Officers, or nearly 15 percent of the requirement.

Failure to address human capital weaknesses in the Department of State could have a

significant negative impact on U.S. interests. On June 15, 2000 Stateís Under Secretary

for Management testified before the House Committee on International Relations. She

 

15 The War for Talent: Maintaining a Strong Talent Pool (McKinsey and Company report to the State

Department, 1999).

16 Americaís Overseas Presence in the 21st Century (Overseas Presence Advisory Panel, 1999). 17 State Department Reform (Report to the President by the Independent Task Force on State Department

Reform, co-sponsored by the Council on Foreign Relations and the Center for Strategic and International

Studies, January 2001).
12 GAO-01-565T

noted that the Overseas Presence Advisory Panelís report cited a number of serious

problems, including outmoded human resources practices and competition from the

private sector for talented staff, that threatened the effectiveness of our overseas presence.

She stated that the U.S. was face to face with a crisis of ìdiplomatic readinessî and that

the country risked relying on an ineffective, ìhollowî diplomatic force to defend

Americaís interests. She cited serious potential consequences:

• less effective representation and advocacy of U.S. interests abroad;

• a loss of U.S. exports, investments, and jobs;

• inadequate political and economic information, leading to unexpected crises;

• less effectiveness in promoting democracy and the rule of law;

• a weakening of the fight against international terrorism and drug trafficking; and

• a failure to provide U. S. citizens traveling abroad with the assistance they need.

State is Beginning to Address its Human Capital Problems,

But More Still Needs to be Done

We have not performed a comprehensive review of human capital issues at the State

Department. However, according to State, it has begun to implement many of the

recommendations stemming from the various studies. For example, it has started to

develop a new, unified human resources strategy for the Department. The strategy will

include a domestic and overseas staffing picture along with a 5-year projection based on

Stateís overseas staffing model and bureau budget presentation documents. To improve

the quality of life at its overseas posts, State has negotiated bilateral work agreements

with 126 nations and is reviewing Department rules restricting employment opportunities

for spouses of employees working overseas. It has also developed a pilot, 360-degree

review process that will allow employees to give meaningful feedback on how their

supervisors performed as leaders, managers, and mentorsóin a nonthreatening and

constructive fashion designed for personal and professional development. The

Department also plans to expand leadership and management training, increase security

training, reshape the reporting and policy functions, and examine ways of making the

assignment process more responsive to management and employee needs. While these

efforts indicate that State recognizes the importance of addressing human capital issues,

much more still needs to be done.

According to the Office of Personnel Management, the State Department is using existing

pay flexibilities to create incentives for learning.18 It pays retention allowances ranging

from 5 to 15 percent to certain information technology workers who obtain job-related

degrees and certifications. OPM reported that after 1 year of operation, this program has

helped to significantly reduce turnover and increase the skills base of Stateís information

technology workforce.

Like other federal agencies, Stateís staffing situation is likely to be exacerbated by a

significant increase in civil service retirements over the next decade. In testimony in

1999 before the Subcommittee on International Operations, Senate Foreign Relations

 

18 Letter from OPM to GAO dated December 11, 2000.
13 GAO-01-565T

Committee, the Under Secretary of State for Management projected that between 1998

and 2010, over 1,200 (24 percent) out of 5,000 Civil Service employees at State will

become eligible to retire. This could undermine the continuity in Stateís senior level civil

service management and policy positions. State officials are working on this continuity

and succession problem and recently reported meeting their target for training employees

in leadership and management to handle the expected increase in ìbaby boomerî

retirements.

Issues related to the quality of life at overseas posts, career development opportunities,

and talent management are hampering recruitment and retention of Foreign Service

Officers. Efforts to determine the right size and composition of overseas posts have

begun, but State faces challenges in aligning its workforce with new economic, political,

security, and technological requirements. Also, staffing shortfalls are hampering

counternarcotics programs and efforts to combat visa fraud.

GPRA Reports Identify Human Capital Issues at State

In reviewing Stateís fiscal year 1999 GPRA performance report and fiscal year 2001

performance plan, we found several management challenges associated with the hiring of

staff that were not adequately addressed.19

• One of Stateís key performance goals associated with enhancing the ability of

American citizens to travel and live abroad securely, involved reducing the number of

parental child abduction cases per caseworker. However, Stateís performance report

contained only a brief, generic explanation as to why it was unable to meet its target

of 80 cases per officer. The report said simply that a request for additional full-time

positions was not approved, hampering its ability to reduce caseload. State did not

explain what efforts it made, if any, to reassign staff to work on this activity.

• Stateís performance plan listed improving the visa processing system and

streamlining and developing a reasonable basis for visa workloads as a major

management challenge. This area was also cited by Stateís Inspector General as a

key management challenge. However, its plan did not contain any goals that

specifically addressed issues identified by GAO and the Inspector General, such as

insufficient staffing overseas.

• State noted it had met its target of increasing the number of authorized positions in

selected global bureaus. However, since the Bureau of Personnel was not one of the

six bureaus and offices included in the 2001 plan, there was no discussion of the

Department-wide workforce plan or other agency-wide efforts to hire and retain staff

with the needed skills. Separate submissions from various bureaus and offices will

make it difficult to assess agency-wide progress.

 

19 Observations on the Department of Stateís Fiscal Year 1999 Performance Report and Fiscal Year 2001

Performance Plan (GAO/NSIAD-00-189R, June 30, 2000).
14 GAO-01-565T

A management challenge identified by the State Inspector General involved the adequacy

of training and preparation for both Foreign Service and Civil Service personnel.

Inadequate training can have a strong impact on the ability of the agency to perform its

mission. For example, the Under Secretary of State for Management testified that in

1998, almost 40 percent of language designated positions were filled with officers

lacking the requisite skills.20

Stateís Foreign Service Institute is the federal governmentís primary training institution

for officers and support personnel of the foreign affairs community. In addition to State,

the Institute provides training for employees from more than 40 other government

agencies that have employees stationed abroad. Stateís Diplomatic Security Training

Center also provides specialized training for diplomatic security agents to supplement

training they receive from the Institute.

In recognizing the importance of training, the Under Secretary of State for Management

noted that the Foreign Service Institute was offering more training than ever before. It

was expanding language, area studies, and tradecraft training. They were also expanding

ìdistance learningî allowing employees to receive training in the field as well as at the

Institute.

State Department officials have indicated they are making progress toward identifying

and measuring the knowledge and skills needed to support missions and goals. They told

us that the agency completed a job analysis of its foreign service generalist corps in 1998

to identify the tasks and activities performed by those employees, as well as the human

attributes and foreign language proficiency required for high performance. In addition,

they reported completing an informal update of a baseline needs assessment for its

diplomatic security agents in the mid-1980s. The agency officials also said that State had

adopted OPMís leadership competencies for senior executives. State now measures

employeesí existing knowledge and skills by testing periodically for language

proficiency, requiring certain employees to pass tests to fulfill agency certification

requirements, and providing leaders access to 360-degree self-assessment instruments

that allowed them to identify areas where they may need further development. New

diplomatic security agents are required to achieve certain baseline test scores at the

completion of their training programs. State is also developing competency-based

models for several occupationsóincluding passport agents, information technology

support staff, and human resource management occupationsóthat will identify the

competencies needed for high performance, measurement methods for determining the

extent to which staff have these competencies, and suggested training courses and

developmental activities.

State officials told us that they were also making progress implementing training

programs that develop employeesí knowledge and skills. They said the agency had an

extensive training curriculum, which included profession-specific areas of study (e.g.,

acquisitions) and training on foreign languages, information technology, overseas

 

20 Testimony of Under Secretary of State for Management Bonnie R. Cohen before the Subcommittee on

International Operations, Senate Forecign Relations Committee, March 4, 1999.
15 GAO-01-565T

briefings, leadership and management, and diplomatic security. The agency also required

certain employees to complete specific training courses. For example, new diplomatic

security agents received approximately 24 weeks of training in such areas as firearms,

criminal investigations, and the law.

Department officials indicated that State was working on explicitly linking training to the

agencyís mission and strategic goals. They also reported that they had a variety of

approaches to training evaluation in place or under development, such as feedback from

units, end-of course evaluations, Inspector General reviews, and analysis of post-training

assessment data.

CONCLUSIONóHUMAN CAPITAL

NEEDS TO BE VIEWED FROM A

STRATEGIC STANDPOINT ACROSS THE GOVERNMENT

This brings me back to where I began. Longstanding inattention to the issue of human

capital presents a significant risk across the federal government, not just at State and

Defense. The Departments of State and Defense have each taken some action to begin

addressing the various human capital challenges and problems that have been discussed

here. However, much more needs to be done, not just by these two agencies, but by the

entire federal government.

About a year ago, the Comptroller General testified before Senator Voinovichís

Subcommittee.21 In addressing the issue of managing human capital in the 21st century,

he stated that there was no time to wasteóthat changes in the demographics of the

federal workforce, in the education and skills required of its workers, and in basic federal

employment structures and arrangements were all continuing to unfold. None of that has

changed, and in fact we are getting closer to the time when the federal government will

experience an unprecedented loss of experience and talent. While GAO, your two

Subcommittees, and others have sounded the alarm, there is still a long way to go.

Agency management must accelerate the adoption of a strategic perspective with regard

to its workforce.

The Comptroller General also made the point that one of the emerging challenges for new

presidential appointees will be to add an understanding of the importance of human

capital issues to their traditional policy portfolios. Senator Voinovich has taken the lead

in requesting that we develop questions that could assist the Senate in determining

nomineesí views on these vital issues.22 However, as we have noted in other work, the

typical political appointee requiring Senate confirmation serves for only around 2 years.23

Given the customarily high turnover rate among political appointees, it is perhaps not

surprising that most have tended to focus on managing their agencies for today, giving

 

21 Human Capital: Managing Human Capital in the 21st Century (GAO/T-GGD-00-77, March 9, 2000). 22 Confirmation of Political Appointees: Eliciting Nomineesí Views on Leadership and Management Issues

(GAO/GGD-00-174, August 11, 2000); Potential Questions to Elicit Nomineesí Views on Agenciesí

Management Challenges (GAO-01-332R, January 18, 2001). 23 Political Appointees: Turnover Rates in Executive Schedule Positions Requiring Senate Confirmation

(GAO/GGD-94-115FS, April 21, 1994).
16 GAO-01-565T

too little attention to preparing them for tomorrow. Consequently, the solution will not

lie totally in the hands of political appointees. The continuity of effort needed to

transform the governmentís management of its human capital must come from within the

career force.

We developed a human capital self-assessment checklist based on our examination of

current laws and regulations and our work with leading organizations in the private sector

and among governments at the state and local levels as well as abroad.24 This checklist

was designed to help agency leaders conduct their own review of their human capital

programs and provides a means for agency leaders to put the spotlight on improving the

alignment of human capital management with strategic planning and core business

practices. The checklist is not a set of performance criteria or measures. Instead, it is a

framework or ìline of inquiryî for federal agency leaders to follow in examining their

agenciesí human capital approaches and determining if they make sense in light of their

organizationsí missions, goals, and other needs and circumstances.

As we have previously reported, not all barriers to more effective strategic human capital

management in the federal government stem from law or regulation.25 Some arise out of

long-standing perceptions about the limitations placed on agency officialsí managerial

prerogatives or basic philosophies about how people should be managed. In addition to

assessing their human capital programs, agency management needs to be energetic and

innovative in their use of the human capital flexibilities available to them. For example,

potential flexibility in the ìup or outî policies of the military and the foreign service can

be examined as a way of minimizing the loss of personnel in whom a substantial

investment has been made and who still have valuable contributions to make. Agencies

need to use those flexibilities to create a performance culture that empowers and

motivates employees while fostering responsibility, accountability, and fairness.

It is clear that OPM and OMB have substantial roles to play in fostering a more resultsoriented approach to strategic human capital management across government. OPM has

begun stressing to agencies the importance of integrating strategic human capital

management into agency planning.26 One publication that OPM developed, the HR

Innovatorís Tool Kit, includes nearly 100 tools and flexibilities available to agencies,

such as recruiting bonuses and retention allowances.27 To date, OMB has played a much

more limited role in promoting strategic human capital management. However, OMBís

role in setting governmentwide management priorities and defining resource allocations

will be critical in inducing agencies to integrate strategic human capital management into

their core business processes.

In addition, the audit and inspector general communities have a key role to play. In

assessing agency and program performance, audit and inspection staffs should be

 

24 Human Capital: A Self-Assessment Checklist for Agency Leaders (GAO/GGD-99-179, September 1999). 25 Transforming the Civil Service: Building the Workforce of the FutureóResults of a GAO-Sponsored

Symposium (GAO/GGD-96-35, December 20, 1995). 26 See OPMís Strategic Human Resources Management: Aligning With the Mission (U.S. Office of

Personnel Management, September 1999).

27 HR Innovatorsí Tool Kit (U.S. Office of Personnel Management).
17 GAO-01-565T

particularly alert to strategic human capital issues. The direct link that the inspectors

general have to the top management of their respective agencies put them in a good

position to reinforce the need to pay more attention to the ìpeopleî side of the

organization as a primary vehicle for improving effectiveness, efficiency, and economy

of agency operations. Federal agencies need to develop better performance measures and

link them to their incentive and reward systems to foster improved organizational, team,

and individual performance.

The key first step in improving federal agenciesí human capital management is for

agency management to focus on people as a strategic asset. Workforce planning is an

essential step. Agencies need to determine their current and future workforce needs,

assess how their current and anticipated future workforce compares to these needs, and

develop effective strategies to fill the gaps. It will not be easy and it will not be quickó

but it must proceed right away. We are running out of time.

Chairman Voinovich, Chairman Scarborough, this concludes my prepared statement. I

would be pleased to answer any questions you or other Members of the Subcommittees

may have at this time.

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