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81–576 2002

MAXIMIZING ORGANIZATION AND LEADERSHIP IN A FEDERAL

AGENCY TO FULFILL ITS STATUTORY MISSION: RESTRUCTURING OF THE SMALL BUSINESS ADMINISTRATION

HEARING

BEFORE THE

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, 

AND GOVERNMENT PROGRAMS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC, JULY 16, 2002

Serial No. 107–65

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS 

DONALD MANZULLO, Illinois, Chairman 

LARRY COMBEST, Texas 

JOEL HEFLEY, Colorado 

ROSCOE G. BARTLETT, Maryland 

FRANK A. LOBIONDO, New Jersey 

SUE W. KELLY, New York 

STEVE. CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

JOHN R. THUNE, South Dakota 

MICHAEL PENCE, Indiana 

MIKE FERGUSON, New Jersey 

DARRELL E. ISSA, California 

SAM GRAVES, Missouri 

EDWARD L. SCHROCK, Virginia 

GELIX J. GRUCCI, JR., New York 

TODD W. AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

NYDIA M. VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, Virgin Islands 

ROBERT A. BRADY, Pennsylvania 

TOM UDALL, New Mexico 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

DAVID D. PHELPS, Illinois 

GRACE F. NAPOLITANO, California 

BRIAN BAIRD, Washington 

MARK UDALL, Colorado 

JAMES R. LANGEVIN, Rhode Island 

MIKE ROSS, Arkansas 

BRAD CARSON, Oklahoma 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

DOUG THOMAS, Staff Director 

PHIL ESKELAND, Deputy Staff Director 

MICHAEL DAY, Minority Staff Director 

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT 

PROGRAMS 

JIM DEMINT, South Carolina, Chairman 

FRANK A. LOBIONDO, New Jersey 

MICHAEL FERGUSON, New Jersey 

FELIX J. GRUCCI, JR, New York 

DARRELL E. ISSA, California 

EDWARD L. SCHROCK, Virginia 

SHELLEY MOORE CAPITO, West Virginia 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

MIKE ROSS, Arkansas 

DONNA M. CHRISTENSEN, Virgin Islands 

NELSON CROWTHER, Professional Staff 

(III)

C O N T E N T S 

Page 

Hearing held on July 16, 2002 ............................................................................... 1

WITNESSES

D’Agostino, Davi M., Director, Financial Markets and Community Investment, U.S. General Accounting Office ................................................................ 4

Blanchard, Lloyd A., Chief Operating Officer, U.S. Small Business Administration ................................................................................................................... 7

Jasper, Herbert, Fellow, National Academy of Public Administration ............... 10

Anderson, Frank, President, Defense Acquisition University ............................. 12

APPENDIX

Opening statements: 

DeMint, Hon. Jim ............................................................................................. 25

Jones, Hon. Stephanie ...................................................................................... 28

Prepared statements: 

D’Agostino, Davi M. .......................................................................................... 30

Blanchard, Lloyd A. .......................................................................................... 44

Jasper, Herbert ................................................................................................. 68

Anderson, Frank ............................................................................................... 75

(1)

MAXIMIZING ORGANIZATION AND LEADERSHIP IN A FEDERAL 

AGENCY TO FULFILL ITS STATUTORY MISSION: RESTRUCTURING OF THE SMALL BUSINESS ADMINISTRATION 

TUESDAY, JULY 16, 2002 

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT

AND GOVERNMENT PROGRAMS, 

Washington, DC. 

The Committee met, pursuant to call, at 2:05 p.m. in Room 2360, 

Rayburn House Office Building, Hon. Jim DeMint (chairman of the 

Committee) presiding. 

Chairman DEMINT. Let us get started. First, I want to thank everyone for coming today, particularly our witnesses. We are looking 

forward very much to hearing from you. 

This is an important hearing. It is important to get what we 

have to say on record. It is important to follow up. This Committee 

is all about strengthening the small business fabric of this nation. 

Small businesses create opportunities for millions of entrepreneurs. 

It is the economic engine of our whole economy. Small businesses 

have been the way that minorities and women have broken into 

ownership of businesses themselves. 

And the Small Business Administration was created to make 

sure that that happens, and I want to make sure, as the little Committee that has oversight over SBA, that we do everything we can 

to make sure that the agency addresses the needs of start-up companies and of helping small companies succeed. 

And to do that, we have to be focused, as a Committee on the 

needs, the obstacles, everything that could prevent the success of 

these businesses. We need to make sure that the Small Business 

Administration is a part of that. 

And over the last several months we have had GAO take a close 

look at SBA, and they have submitted an excellent report for us to 

analyze what the agency is doing. SBA has responded to that with 

a restructuring plan. I think to reshape its mission, its organization structure to make that happen, and we are looking forward 

today to seeing how that falls together. 

My hope is that the outcome of this hearing will be that both 

sides of the aisle on this side of the desk can be supportive of this 

restructuring plan, and that we can get the support we need to 

make sure that it happens. 

Let me just quickly introduce our witnesses and then I would 

like Ms. Millender-McDonald to make a few opening statements as 

well. 

2

We have Ms. Davi D’Agostino, did I do that right, Davi? She has 

again been instrumental in making sure that we had a complete 

analysis of SBA. She has been gracious enough to come by my office to brief me and my staff on what she thought of the agency 

and the restructuring plan, so I really very much appreciate your 

cooperation. 

And Dr. Lloyd Blanchard, who is the Chief Operating Officer of 

SBA, has also been very cooperative and responsive to our questions and putting this whole hearing today, so I very much appreciate you being here to present your restructuring plan. 

We have Mr. Herbert Jasper here to comment on management 

and leadership, and how that relates to what we will be seeing, and 

you are with the National Academy of Public Administration. 

We also have General Anderson, the president of Defense Acquisition University, to make his comments on the needs of SBA and 

the restructuring plan and whatever observations you have on 

leadership and how that applies to what we are trying to do today. 

So let me yield a moment to Ms. Millender-McDonald, our ranking member. 

Ms. MILLENDER-MCDONALD. Thank you so much, Mr. Chairman, 

and I would like to also echo the thanks to all of our panelists for 

being here today, and I do know that we will gleam a lot of important information from your presentation. 

Mr. Chairman, as the Ranking Member of the Subcommittee on 

Workforce, Empowerment and Government Programs, I am pleased 

to bring today’s hearing to the forefront as we explore proposed 

plans by the Small Business Administration to undergo management restructuring. 

Those of us who serve on this Committee often communicate a 

widely-held impression that small businesses are the driving force 

of our economy. Based on this reality, the various program administered by the Small Business Administration constitute the engine 

for that driving force. And as with any machine from time to time, 

you need to perform a tune up. Today, we will be embarking on an 

agency tune up. 

It is important to provide legislative input to the SBA because, 

as we start the twenty-first century, the agency and our nation’s 

small businesses are at a critical juncture. We are witnesses a constantly evolving technological revolution. The revolution has created dynamic changes during the past decade, and has delivered 

such tools as the internet, hand-held computers and wireless 

phones, with technology that was previously only available to expensive equipment. 

As profound changes have occurred in the marketplace, so too 

have major changes been realized in the legislative arena, especially in the arena of financial systems. The elimination of legislation that builds firewalls between banking, insurance and investments has drastically altered the ability of entrepreneurs to access 

capital. Given changes in the laws to reflect time realities in the 

marketplace, it makes sense that SBA’s policies must also evolve. 

Events over the past decade have created and enhanced several 

SBA programs, including some that relate to new markets’ initiatives, micro loan programs, and the creation of women’s business 

3

centers. Therefore, a logical extension of these recent revelations 

should be the re-tool of SBA’s management processes. 

It is therefore imperative that changes to SBA practices be undertaken, particularly in light of a GAO study that the Chairman 

just alluded to that sighed a cumbersome organizational structure 

and a failure to adequately communicate with the public and other 

organizations. 

In response to that report the administration outlined a plan to 

revise and re-tool SBA in its F.Y. 2003 budget, with the goal of providing better service to our nation’s entrepreneurs. However, I 

want to emphasize that as we consider the cost to implement—restructuring for the agency, we must not lose sight of the fact that 

the dollars being allocated for administrative functions could be applied to support problematic initiatives that would yield substantial 

benefits for small business. 

As we engage in this Committee’s role of ensuring that the restructuring is achieved systematically and comprehensively, I believe it is important to allow the agency to evolve and fulfill its 

mission without sacrificing its institutional programs. The programs have become and are as fundamental aspects that support 

America’s business. 

A recent GAO report clearly stated that SBA has lost its focus. 

Therefore, it is critical that any restructuring plans first and foremost create a clear definition of the agency’s mission. To proceed 

without an understanding of what needs to be accomplished will be 

an unwise and inefficient use of resources. 

Once the mission statement is developed, the agency must reconcile the skills base of its SBA workforce to accommodate its mission. This is an issue that is particularly important to me because 

I have concerns about the readiness of federal agencies to respond 

to the inevitable loss of skilled employees who are nearing the age 

of retirement. 

As a matter of fact, I introduced H.R. 2403, the Employment 

Readiness Act, that requires federal agencies to conduct an assessment of their future needs as skilled managers prepare to retire 

over the course of the next 15 years. 

It is against this backdrop that we must look closely at the efficacy of proposed plans by the SBA to restructure. It is vital that 

an assessment is conducted of the skill level of the current workforce in order to assist the SBA to develop agency policy that will 

result in smooth and seamless organizational transition. 

I want to emphasize that restructuring can only occur to the degree that there is adequate funding to support stated administrative and problematic goals and objectives. The fact that the SBA 

services 25 million small businesses that include minorities, 

women, and disabled veterans highlights the need for making sure 

that management programs can indeed respond to the growing 

needs of a diverse constituency. 

One program that truly needs organization and financial support 

is women business centers. I offered an amendment in Committee 

to increase authorization—appropriations for these centers. Unfortunately, the bill reported out of Committee. H.R. 3230 has not 

been considered yet by the House. I hope we can do something 

about that. 

4

In closing, Mr. Chairman, we are clearly at the beginning of a 

very complicated process that involves the restructuring of SBA, 

and I look forward to working with you and other members of this 

Committee to make sure that we are vigilant in our duty as Committee members to support the SBA and the constituents that it 

serves. 

Thank you, Mr. Chairman. 

Chairman DEMINT. Thank you, Ms. Millender-McDonald. 

We are going to go a little out of the ordinary today on our testimony. I have asked Ms. D’Agostino to take the time she needs to 

present the analysis of SBA. I have also asked Dr. Lloyd Blanchard 

to take more time than our normal five minutes to present the restructuring plan. But then we will try to hold Mr. Jasper and General Anderson to about five minutes, if that is possible. 

So we will begin—excuse me—to dim the lights. I have been told 

that this is being broadcast over the internet, at least the audio 

part, so make sure your microphones are as close as possible in 

making your presentation. 

Davi. 

STATEMENT OF DAVI M. D’AGOSTINO, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, UNITED STATES 

GENERAL ACCOUNTING OFFICE 

Ms. D’AGOSTINO. Mr. Chairman and members of the Subcommittee. 

Before I begin I would like to recognize the GAO team members 

who performed the work on the testimony. 

[Pause.] 

Ms. D’AGOSTINO. I am sorry. I would like to recognize Susan 

Campbell, Katie Harris, Kay Kuhlman and Max Kalhammer who 

have worked on this testimony, and on our SBA work as a whole. 

I am pleased to be here today to discuss GAO’s previous work on 

the Small Business Administration’s organizational alignment and 

then how SBA’s five-year transformation plan prompted by the 

president’s management agenda proposes to respond to the management challenges GAO, the SBA’s inspector general, and the Office of Management and Budget have identified. 

By organizational alignment, we mean the integration of an 

agency’s organizational components, activities, core processes and 

resources to support efficient and effective achievement of its mission and outcomes. 

The SBA’s mission is to maintain and strengthen the nation’s 

economy by aiding, counseling, assisting, and protecting the interests of the nation’s small businesses and by helping businesses and 

families recover from natural disasters. 

Previous GAO reports and testimony have highlighted organizational alignment and human capital challenges SBA faces in 

achieving its mission and in transforming from an agency that 

makes and services loans to one that primarily reaches out to and 

helps its clients—small businesses—and oversees its private sector 

partners. 

We reported that SBA’s current organizational alignment is characterized by challenges in three key areas: 

5

First, SBA’s structure has complicated, overlapping organizational relationships and ineffective lines of communication; second, 

there is confusion over the mission of the district offices; and third, 

SBA’s field structure is not consistently matched with its mission 

requirements. 

These and other elements combine to impede the efforts of SBA’s 

staff to effectively deliver services to small business. 

Let me focus for a moment on the first challenge, the complex 

overlapping organizational relationships and lines of communication, particularly among the field and headquarters units. 

This slide shows the complexity of the reporting and accountability lines in SBA, an agency with 70 district offices, 10 regional 

offices, six area offices, nine loan processing and servicing centers, 

and over 1,000 small business development centers and other partners. 

For example, district staff working on SBA loan programs report 

to their district management, while loan processing and servicing 

center staff report directly to the Office of Capital Access in headquarters. Yet district office program staff sometimes need to work 

with the centers to get information or expedite loans for their lenders in their districts. 

Districts sometimes must route their request to the centers 

through the Office of Capital Access, and they have difficulty expediting loans because they lack the authority to direct the centers 

to take action. 

Lenders also pointed out to us that lines of authority between 

headquarters and the field can be very confusing, and they highlighted that practices can vary widely from district to district. 

The second key area we highlighted was confusion within SBA 

about the primary customer of the district offices. While headquarters saw the new role for the district offices as working more 

with small businesses, district office managers saw their primary 

clients as lenders. These managers also told us that their performance ratings were weighted very heavily on aspects of loan activity. 

In addition, only the 8(a) Business Development Program called for 

district offices to work directly with small businesses, which then 

further reinforced their perception that lenders rather than small 

business were their primary clients.

Finally, we reported that SBA’s field structure is not consistently 

aligned with its mission requirements. For example, creation of 

loan processing and servicing centers moved some but not all loanrelated workload out of the district offices. Similarly, regional offices were downsized but not eliminated, and a small headquarters 

office of field operations was created. 

This slide—also the graphic on page 8 of my statement—shows 

all the locations of SBA’s offices and those of its partners around 

the country. 

The SBA officials, during our work, pointed out that some offices 

and centers were not located to best accomplish the agency’s mission. These officials also stressed the role of congressional direction 

in the current structure. 

We found 78 offices, programs or program changes created by 

law since 1961, with most being passed in the 1980s and 1990s, 

6

and 11 staff positions with specific reporting relationships required 

by law. 

In response to these and other challenges that have been raised, 

SBA drafted its five-year workforce transformation plan, and my 

comments are based on the version that we obtained from the SBA 

Chief Operating Officer, Dr. Blanchard. 

For example, in response to the first challenge we raised, SBA 

plans to eliminate the current complex relationships between field 

and headquarters organizations by consolidating functions and establishing specific lines of authority. 

Specifically, the plan is to further centralize loan processing, 

servicing, oversight, and liquidation functions, eliminate area offices for certain functions, and place them under either regional or 

district office lead, and move oversight for entrepreneurial development into the district offices. 

To deal with the second challenge we raised, the confusion over 

the district offices’ primary client, SBA’s plan proposes making fundamental changes at the district level that have been discussed for 

years, but never actually carried out. The plan is to test specific 

strategies for focusing district offices’ goals and efforts on outreach 

and marketing of SBA services to small businesses and on lender 

oversight. 

The SBA’s transformation plan also discusses consolidation and 

elimination or reduction of redundant offices to deal with the third 

challenge I mentioned, a field structure that is not consistently 

matched with mission requirements. 

For example, the loan-related functions I discussed earlier are to 

be consolidated into fewer centers but with expanded roles for handling loan-related functions currently handled by district offices. 

I would now like to emphasize that organizational alignment is 

crucial if an agency is to maximize its performance and ensure accountability. As SBA moves forward to execute its transformation 

plan, success will depend to a great extent on the following: 

One, how well it links changes, goals, resources, strategies and 

performance measures to the fundamental result SBA seeks to 

achieve through strategic planning; 

Two, whether it employs effective strategic human capital management, including strategic human capital planning, acquiring, 

developing and retaining talent and results-oriented organizational 

culture; 

Three, how well it sustains senior leadership and accountability 

with agency goals reflected in performance ratings of senior executives, and in the performance appraisal system for lower level employees, and sustained senior management attention to implementing the draft plan and support from key external and internal 

state holders; 

Four, sound alignment of activities, core processes and resources; 

And five, how effectively internal and external collaboration is 

employed. 

Mr. Chairman, that concludes my summary remarks. 

[Ms. D’Agostino’s statement may be found in the appendix.] 

Chairman DEMINT. Thank you very much. That was excellent. 

And now let us move to the SBA itself to see how we are responding to this. 

7

Dr. Blanchard. 

STATEMENT OF LLOYD A. BLANCHARD, CHIEF OPERATING 

OFFICER, U.S. SMALL BUSINESS ADMINISTRATION 

Mr. BLANCHARD. Thank you, Mr. Chairman. Thank you very 

much for allowing us the opportunity to expound on our plan here 

today, and good afternoon, and thank you, Ranking Member, for 

your comments and for allowing us to present to you our plan. 

I am pleased to share with you all the Small Business Administration’s plan to transform the agency and its workforce to meet 

the modern demands of small businesses. As you know, small businesses are the foundation of our nation’s economy. SBA assistance 

has helped many of today’s successful small businesses. 

Today, almost a quarter of American households are either starting a business, own a business or are investing in someone else’s 

business. President Bush has shown a strong commitment to small 

businesses. He recently stated, ‘‘One of my jobs is to create an environment in which the entrepreneurial spirit flourishes, in which 

small business owners are able to keep making a living, and keep 

people employed.’’ The SBA’s transformation plan seeks to shape the agency so that 

it will be in a position to create such an environment. 

Small businesses must be able to change with the times, adjusting to the changing demands of their customers as well as incorporating new technologies to remain competitive. SBA faces a similar challenge. 

In the President’s F.Y. 2003 budget request, SBA has requested $15 million to undertake this transformation effort that will bring 

the agency’s organization in line with the way it will serve small 

businesses in the future. This testimony will summarize these 

plans. 

The SBA is a small agency with about 2,100 employees in the 

field, 700 in headquarters, and approximately 1,300 full and parttime employees in the disaster assistance program. While SBA is 

one of the five major credit agencies, its regular appropriation for 

F.Y. 2002 was just $768 million. With this amount and modest 

fees, SBA has the ability to leverage $25 billion in capital and credit. 

The President has called for federal agencies to not only become 

more citizen centered and results oriented, but also market-based. 

SBA has been quite successful in leveraging its scarce resources, 

largely because of a business model that is market-based. Instead 

of providing its non-disaster services to small businesses directly, 

SBA operates through a public/private partnership model where 

the agency relies on resource partners to deliver its products and 

services. 

For example, instead of making direct loans, SBA guarantees 

loans made by lending institutions, and instead of delivering technical assistance programs directly, SBA funds its entrepreneurial 

development partners like the Service Corps of Retired Executives 

and the Small Business Development Centers to deliver such services. 

This market-based model has enhanced SBA’s ability to serve 

small businesses. In 1990, SBA provided just $3.7 billion in lending 

8

through its business lending programs. In 2001, it provided $14 billion. Over this decade the number of clients counseled and trained 

through SBA’s entrepreneurial development programs increased 

from about 800,000 to 1.3 million, while at the same time overall 

agency personnel dropped by 30 percent. 

Despite this success over the past decade, SBA continues to face 

the challenge of serving more small businesses while still being 

customer centered and results oriented. Administrator Hector 

Barreto has charged the agency to continue to accomplish the following: 

Find new ways to reach out to America’s 25 million small businesses; operate using a model of client and partner relationship 

management, and measure SBA’s success by its customers’ success. 

With the remainder of my comments, I will explain how SBA’s 

transformation plan will meet these challenges and serve more 

small businesses. I will describe why the agency needs to transform 

itself, addressing the problems raised by the General Accounting 

Office and SBA’s Inspector General. I will show how SBA intends 

to transform itself, and in doing so address the concerns that have 

been raised. I will also point to the management principles that 

SBA will use as guidance. 

The SBA’s plan to transform its organization and workforce is 

based largely on three sources: the President’s Management Agenda, the Administrator’s vision for the agency, and the need for fundamental change as identified by GAO and SBA’s IG. 

The GAO has just referred to the challenges SBA’s current organizational structure presents, and SBA agrees that they do pose a 

problem. SBA’s transformation plan addresses ineffective lines of 

communication by increasing the responsibility and accountability 

of the 10 regional administrators and relying more on the regional 

offices to enhance communication. 

Regarding the confusion and inconsistency related to mission and 

the structure of district offices, SBA will change the role of the district offices from being process-oriented to providing greater marketing and outreach to small businesses. 

We have, Mr. Chairman, and will continue to make it clear to all 

within the Agency and to our partners that serving small businesses is our mission, and all small business owners are our customers. 

In response to the complicated and overlapping organizational relationships, SBA’s transformation plan will remove most of the 

processing and servicing functions, often called the backroom functions, from the districts and consolidate these functions within the 

centers. This will also be addressed by the structural reorganization that will give the regional administrators more responsibility 

and hold them more accountable for all field activities. 

With this plan, SBA has acknowledged the difficult challenges it 

faces in improving its service delivery. The fact that SBA is biting 

the bullet and committing to correcting these longstanding problems is due to the leadership of Administrator Barreto. Since the 

necessary changes are substantial in scope, they will be phased in 

over the next five years. 

The following outlines the main components of SBA’s transformation plan: 

9

The regional offices, under the direction of the regional administrators, will have a larger role in facilitating communication from 

headquarters to the field and will have greater responsibility for 

the delivery of all SBA services in the field. 

The SBA will also place one senior career staffer with solid 

knowledge of all program areas in each regional office to support 

that regional administrator. 

The SBA will consolidate the government contracting offices and 

the surety bond field functions within the regional offices. 

The SBA will remove most loan processing, servicing, guaranteed 

purchases and liquidation of business loans, as well as servicing 

and liquidation of disaster loans, from the district offices, and consolidate them into the centers. Districts will retain, however, some 

processing and servicing responsibilities for the most difficult cases. 

The SBA will consolidate the certification, eligibility, and review 

functions for the HUBzone, SDB, and 8(a) programs. SBA will also 

centralize all lender oversight functions and purchase reviews. 

The Agency will streamline headquarters operations by eliminating management layers, expanding their span of control, and 

implementing a rent savings initiative to decrease the burden of 

overhead costs. 

In support of these efforts, SBA will use a more flexible service 

delivery model, we will use more flexible service delivery mechanism, including telecommuting, off-site locations, and storefronts. 

The SBA will also implement a training regime that will support 

all of the new responsibilities we will be asking of our employees. 

Indeed, SBA’s most valuable asset is its employees, and SBA could 

not achieve this transformation effort without dedicating significant resources toward their development. 

While SBA’s programs have changed over the past decade, its required employee skills and training programs have not. This has 

left SBA with skill gaps in critical areas, hindering the Agency’s 

ability to effectively serve its clients. 

The SBA recognizes the task in taking on such a broad initiative. 

The implementation plan relies on an incremental phased-in approach that mitigates potential risks. SBA’s transformation efforts 

begin with studying the best practices of its planned changes. 

In phase I, we will remove back room lending functions from 

three districts: Miami, Florida, Charlotte, North Carolina, and 

Phoenix, Arizona. SBA will transfer the 7(a) loan purchases and 

the 7(a) and disaster loan liquidation activities from these offices 

and transfer them to the Santa Ana liquidation center. Also, SBA 

will transfer all 504 loan processing from these districts and the 

Sacramento district office to the Sacramento PLP Processing Center. 

This six-month pilot is scheduled to begin in earnest after a twomonth transition. 

Two assessments will evaluate the district’s new operations: one 

in three months, and one after the six-month period. SBA will use 

the first assessment to learn from the district’s experiences and adjust the new operations accordingly. The second assessment will 

conclude with a report on the success of this pilot to make the necessary changes in the second and the third phases. 

10

Phase II of the transformation will extend the pilots to up to 20 

more districts with an eye on the effects of the diversity of regions’ market size and small business needs on the implementation of 

these new responsibilities. 

Around April 2004, SBA will have a solid understanding of the 

benefits and consequences of its transformation and will begin full 

implementation in Phase III. 

The SBA’s implementation plan includes five key elements: client 

relationship management, partner relationship management, personnel development, the implementation of technology, and organization and business process re-engineering. 

In addition, SBA is following GAO’s guidance for successful management reform which includes the following: demonstrated leadership commitment, integration of management improvement initiatives to programmatic decision making, thoughtful and rigorous 

planning to guide decisions, effective employee involvement, organizational alignment to streamline operations and clarify accountability, and strong and continuing congressional involvement. 

The SBA anticipates that full implementation will yield several 

long-term results. They include: more satisfied and successful customers, more efficient and effective delivery of its services, reduced 

costs, and improved oversight of all resource partners. 

Mr. Chairman, SBA is at a crossroads. Unless the Agency makes 

fundamental changes, it cannot effectively serve small businesses 

in the future. This plan documents how the Agency will transform 

itself through increasing use of technology, investing in our personnel, becoming more customer focused, and forging more constructive relationships with our partners. The $15 million SBA has requested in the President’s F.Y. 2003 

budget is critical to facilitate these changes to meet the needs of 

small businesses. This is what the President and Congress demand, and this is what citizens expect. 

Thank you, Mr. Chairman, for the opportunity to address the 

Subcommittee, and I am happy to answer any of your questions. 

[Mr. Blanchard’s statement may be found in the appendix.] 

Chairman DEMINT. Thank you, Dr. Blanchard. We will hold our 

questions until we hear from the other two panelists. 

Mr. Jasper, we will keep you to five minutes, and you will see 

a green light until you are almost out of time, and then you will 

see a yellow light, and when the red light comes on the hook comes 

out. Thank you. 

STATEMENT OF HERBERT JASPER, FELLOW, NATIONAL 

ACADEMY OF PUBLIC ADMINISTRATION 

Mr. JASPER. Mr. Chairman and Subcommittee members, I appreciate the opportunity to offer comments on principles to guide the 

structuring of federal agencies. 

Last October’s report by GAO on SBA’s structure identifies a 

number of challenges. I will start with general comments on guiding principles. Then I will discuss the challenges facing SBA, especially those relating to organization. 

Following is an adaptation of principles regarding federal organization and agency management from previous academy papers that 

appear most pertinent to this hearing. 

11

Agency heads should be held accountable for the quality of management. Legislation that lodges functions in officers other than 

agency heads or that stipulates reporting channels will impair effective management and make it harder to hold agency heads accountable. 

The quality of program management depends heavily on the field 

organization’s design. Experience favors decentralized management, but there must be clear policies and standards to guide field 

officials. 

No agency can function well unless it relies heavily on an experienced cadre of career civil servants. 

Principal field officials usually should be in the career civil service. 

I turn now to some organizational challenges for SBA. I begin by 

applauding SBA’s efforts to date. What follows is intended to fill 

in some of the plan’s gaps and to encourage early attention to those 

and to the remainder of the agency’s agenda. First, a few more 

thoughts about restructuring. 

Thomas Stanton noted in a recent paper that, ‘‘as in architecture, 

form should follow function or purpose.’’ SBA has experienced significant growth in number, size, and complexity of its programs, 

but it is not clear that SBA had previously changed its structure 

sufficiently in response to changes in programs, priorities and 

methods. So it is probably time for a program review addressing 

the possible elimination or combination of programs, as well as a 

review of structure. 

As also noted by Stanton, ‘‘* * * reorganization is not a substitute for inadequate resources.’’ Further, I believe that reorganization is always costly and disruptive; is a way to emphasize certain values or goals; and seldom saves money. SBA’s plan proposes 

some changes to make the agency more responsive to its principal 

small business customers, but the first phase of the plan does not 

go very far in rationalizing a complicated field structure with 10 regions, 70 district and 16 branch offices, more than 1100 centers, 

plus six area offices and nine loan servicing centers. 

The GAO noted that creation of the Office of Field Operations 

was not reconciled with a coherent redefinition of the regional administrator’s role. Perhaps creation of that office was a mistake. 

Substantial delegation of operating responsibilities to the field is 

desirable. However, for various headquarters offices to deal directly 

with a large number of field offices is guaranteed to cause confusion and conflicts. I believe regional administrators ought to be in 

the chain of command to district offices. That should go far toward 

clearing up two challenges cited by GAO; namely, overlapping organizational relationships and ineffective lines of communication. 

Also, the number of district offices appears excessive, and some 

area offices no longer have a significant workload. SBA, with up to 

60 appointees, has an inordinate number of such positions. I suggest that SBA convert regional administrators to career positions 

and eliminate or convert a substantial number of other appointed 

positions. 

Congress should consider removing unnecessary prescriptions 

about internal management matters that GAO noted. The four 

most significant appeared to be: number and location of the field 

12

offices, apparently some located in response to congressional influence, and termination of them or a combination will surely require 

congressional acquiescence. 

Second, constraining the Administrator’s ability to integrate the 

SBDC program and other programs with defined reporting relationships is a difficult approach and makes it impossible to hold the 

Administrator accountable for results. He must be able to adapt 

the delegations of authority from time to time as conditions change. 

Third, servicing of direct loans for disaster assistance is sometimes performed by the same personnel who service other loans, 

but the funding for those service centers is not able to be combined. 

I have just a couple of more points if you would like me to finish. 

Chairman DEMINT. Sure, please. 

Mr. JASPER. Eleven positions beyond presidential appointees are 

required by statute. I am not referring to the programs they are 

responsible for. Those should be authorized by law. But specifying 

administrative arrangements locks in the reporting channels and 

prevents adjustments as programs evolve. 

Finally, about the overlapping positions at headquarters, the 

COO in executive departments is usually the deputy secretary, but 

not in SBA, which also has a chief of staff and a deputy associate 

administrator for management and administration. 

So SBA has four positions that are concerned with agency-wide 

management and operations. I suggest it is time to consider either 

lodging the COO job in the deputy or alternatively combining the 

COO and chief of staff jobs. However that combined position would 

be titled, I think it is vital that it should remain in the career civil 

service—should be put in, that is, because it currently is not although it was recently. 

I close by reiterating my strong support for what the transformation plan outlines, but I urge careful attention to the issues 

I have discussed. In particular, I urge that Congress work with 

SBA to minimize statutory prescriptions or other constraints regarding matters that should be left to the Administrator. 

Thank you. 

[Mr. Jasper’s statement may be found in the appendix.] 

Chairman DEMINT. Thank you, Mr. Jasper. And I do hope, Dr. 

Blanchard in our question period, if you might respond specifically 

to some of the things that we just heard. 

General Anderson, we will hear from you now. Thank you. 

STATEMENT OF BG (RET) FRANK J. ANDERSON, JR., 

PRESIDENT, DEFENSE ACQUISITION UNIVERSITY 

Mr. ANDERSON. Thank you. Mr. Chairman and members of the 

Committee, thank you for inviting me here to share some ideas on 

effective leadership principles. 

In defining leadership, most authors distinguish between leadership and management. Leadership is creating a vision, setting direction, aligning people, and leading change, while management is 

planning, budgeting, organizing, staffing, controlling and problem 

solving. 

My comments today will focus on three critical but interrelated 

aspects of leadership: leadership attributes, leadership functions 

and leadership results. 

13

Leadership is a leader’s ability to communicate, inspire, facilitate, mentor and influence others. The leader must be able to sell 

ideas and shape the environment so that good people will want to 

excel. Effective communication is how the leader ensures that the 

strategic direction is understood and that all employees are aligned 

with the organization’s mission and vision. 

Critical leadership functions include strategic planning, 

leveraging technology and organization redesign, and maybe the 

most important function, selecting, aligning and empowering the 

right leadership team. The leader must provide a clear vision and 

long-term perspective to shape the organization’s future. This provides a mission, vision, strategic goals, and strategies to obtain 

them. 

A deliberate strategic planning process that links performance 

and accountability for results is essential to guide the organization. 

All too often strategic plans are drafted and approved, and then become dust collectors that never influence organizational results. To 

avoid this very common outcome, the strategic plan must be constantly managed and renewed. 

Technology is a powerful enabler that can facilitate the leader’s 

drive to transform an organization. Organization redesign enabled 

by the smart application of technology can have a powerful impact 

on an organization’s productivity and eventual outcomes. But organizational redesign and enabling technology must be thoughtfully 

considered together. Simply imposing new technology on old organizational structures and old business practices will not only result 

in a more costly, but still inefficient organization. 

To achieve solid results, the leader must address the organization’s culture. Culture is the existing practices and social norms. 

Culture is how an organization routinely thinks, acts, and conducts 

business. It impacts how an organization responds to customers 

and stakeholders. The leader must value, nurture and reward collaboration and efforts to positively change the culture, to eliminate 

outdated practices, and to significantly improve internal processes 

and mindsets. Moreover, if the goal is to create a high-energy, customer-focused organization, the leader must provide opportunities 

and incentives for people to change from old to new paradigms. 

For organizational success, selecting the right people and placing 

them in the right positions are important; however, aligning the 

leadership team is not only important but vital. Leadership alignment involves all actions to ensure the leadership team has collective ownership of the mission, vision, goals, and direction set by the 

senior leader. This is paramount for long-term organizational success. Leadership alignment is about focus and getting the key leadership team to move and act in one voice, one plan, and one play 

book. 

In closing, I am honored to be here today and to have an opportunity to work with the hardworking and dedicated members of the 

Small Business Administration, and the Department of Defense Acquisition, Technology and Logistics workforce. I appreciate the support provided by Congress and look forward to working with this 

Committee in any way possible to realize our common goals for a 

viable, healthy, and strong small business program. I am happy to 

address any questions you may have. 

14

Thank you. 

[Mr. Anderson’s statement may be found in the appendix.] 

Chairman DEMINT. Thank you, General Anderson, for your 

words because you reminded me of many things that I needed to 

be thinking about as we look at restructuring. 

And, Dr. Blanchard, I would certainly like your consideration. 

Let me make some comments, and you may want to respond to 

that because I very much appreciate the organizational structure 

and where you want to go with that, but I am reminded that there 

is probably not enough discussion or has not been enough at least 

in our hands about reshaping the mission and the vision of SBA 

itself. And I think in a strategic plan we would certainly need to 

review that, what the agency is, what it wants to become. 

But I would also like to see more discussion of who your customers are, because who your customers are today, at least in my 

mind, are not who your customers need to be tomorrow. A lot of 

us on the Committee have been concerned that we have been basically picking the low-hanging fruit as far as loans to businesses 

that are well established with collateral. Those that really need to 

get started and need help—we are not there for them, or maybe we 

have too many requirements for them to get in the loop. 

So I would really like to see as a preface to this restructuring 

plan, mission, vision, and customers. And as Mr. Jasper suggested, 

I really do think in front of structural planning has to come some 

review of our programs and how that matches who our customers 

are, who they need to become, and how that fits with our mission. 

I think those are very important aspects of what we need to see, 

I think, to have the credibility to ask for $15 million in the first 

year, and what we need to be totally behind this. I think the structural plan makes a lot of sense in the abstract but I hope it could 

be connected to those things. 

Another part of this, I think, on the end of it that is missing, as 

was mentioned by the General, is every plan should have some way 

that we are going to measure results. How are we going to determine if these changes have actually affected appropriate outcome 

and actually achieved our mission to our customers? 

So I think this is probably a good start, although maybe we 

started on second rather than at home, to really look at the mission 

and vision, and I would appreciate just your input back to myself 

that I could share with the Committee of how these aspects of mission, vision, customers and programs fit with the structural design 

of the agency and how long term we are going to look at measuring 

the results. 

And before I ask for some interaction here, Mr. Grucci, you—oh, 

I am sorry, but we have had comments and you have not, but I will 

yield to you, Ms. Ranking Member. He had just indicated he could 

not stay the whole time. So Felix, would you like to make a few 

comments.

Mr. GRUCCI. Well, I would, but in the context of brevity I will 

ask that my comments be made a part of the record, and we may 

continue on with the questioning that may want to take place by 

the Ranking member. 

Chairman DEMINT. Okay, we will begin with the Ranking Member and you will be next. 

15

Ms. MILLENDER-MCDONALD. Thank you so much, sir, for your 

sense of protocol, and I thank you, Mr. Chairman. 

In the reports that you get, please make sure the Ranking Member gets a copy as well so that she can transfer this to the members 

on her side. 

I have appreciated the structural outline that Ms. D’Agostino 

gave to us, and I suppose many of us who have been in personnel 

positions, directorships, recognize organizational structure. And I 

am still a bit concerned, Mr. Blanchard, as to the responsibilities 

of your field units, your regions, your districts, who does what to 

whom, one reports to whom. The logistical nightmare in and of 

itself seems extremely complicated. 

There are some questions that I must raise in your comments. 

Dr. Blanchard, is it? I am sorry. 

Mr. BLANCHARD. Yes. 

Ms. MILLENDER-MCDONALD. When you spoke about having the 

president’s management agenda, which seeks to make federal agencies citizen-centered, results oriented and market-based, have you 

done a market analysis, and have you talked with citizens, especially those who are small business persons? 

And as the Chairman says, a lot of the dynamics have already—

the dynamics has already changed in terms of small businesses. 

You have more minorities, more women. And so what has taken 

place in terms of your marketing analysis of that? 

And the other thing that I had pointed out in your comments, we 

have any number of 10 regional offices, 70 district offices. You have 

said here that the SBA transformation plan addresses this problem 

by enhancing the responsibility and accountability by the 10 regional administrators. 

That is confusing to me because I have yet to see where the accountability will lie ultimately. Who would have that responsibility 

for the accountability given the structure that we have? 

And it says here further that the 10 regional offices, and by giving the 10 regional administrators and 70 district directors responsibility over all SBA program activities to me becomes extremely 

confusing. As the structure has been in its present form, there was 

a confusion about the mission statement and your mission objective. 

And here with this conglomerate of persons having the responsibility over all of this, I suppose I need to be walked again, and you 

can do this perhaps in my office if you want to so that we will not 

belabor this, but I am still totally confused as to these layers and 

the transformation of those, the accountability and to whom reports 

to whom, and if you have done a market analysis, and where have 

you done this market analysis to reflect those persons of color, 

women in your whole restructuring plan? 

Mr. BLANCHARD. Thank you, Madam Ranking Member. 

It is the way our current structure is now. It is very confusing, 

and part of our plan is to try to get rid of some of that confusion. 

Indeed, it was the confusion that was pointed out by the GAO and 

our own IG that encouraged us to take a hard look at the structure 

at the same time that we look at on programs. We recently took 

a look at these during our district director conference. But I will 

16

get to that in just a second, and will address your question, if I 

may, on the market analysis or market-base. 

When the President calls for agencies to be market-based, he 

means for them to use the private sector as much as possible and 

using, to the greatest extent possible and to the greatest extent feasible, public/private partnerships. For SBA, however, being marketbased not only means using those public/private partnerships for 

service delivery, but it also means understanding our market, our 

customers, small businesses and their needs. 

And associated with this plan is a plan to perform a needs assessment, to understand clearly what small businesses need so that 

we can address those needs, but we cannot address those needs 

very well with the disjointed nature of our structure. 

What we are calling for is for the field through the regional administrators and the district directors, to have responsibility for 

the delivery of all of our programs because indeed they are the 

faces of the SBA. They are the members of this agency that touch 

small businesses. And we need to arm them with access to all of 

our services. 

Right now we have SBDCs performing our entrepreneurial services, our counseling and technical training. We have our lending 

partners and other banks providing loans. And then we have an 

entirely separate structure for our government contracting. 

Ms. MILLENDER-MCDONALD. Is that not amazing? So in other 

words, your regional office heads or someone there in the structure 

that we have currently has not done any needs assessment to discern what those needs are at this juncture? 

Mr. BLANCHARD. I suppose that some regional administrators 

have done that needs assessment on an ad hoc basis. There is nothing in our regular program to compel that to be done on a regular 

basis. What we want to do is to compel it to be done on a regular 

basis, and that needs assessment is not the needs of the business 

of the customers that we presently serve, but the customers that 

we want to serve in the future. That includes not only the more 

beginning and start-up small businesses, but also minority- and 

women-owned small businesses, and those businesses that are 

somewhat mature but want to grow even further, thus contributing 

more to this economy. 

Ms. MILLENDER-MCDONALD. You know, Dr. Blanchard, when you 

have said that your needs assessment would more or less be predicated on what your future aspects of the constituency or the small 

business persons will be as opposed to what they are now, women 

are making up a large segment of the small businesses, so that 

need assessment should be in place now in terms of women-owned 

businesses, and a great degree of minority-owned businesses, especially Latino businesses are already in place, so that needs assessment should already reflect those groups as we speak, and of 

course, African Americans and others who are coming, Asian small 

businesses as well. 

So I would like to think that there is a needs assessment out 

there now that has to some degree those components. If not, then 

I am quite disturbed on that. 

17

Mr. BLANCHARD. Well, the needs assessment that I speak of is 

one that is much more comprehensive so that it can guide a fundamental change in our program set. 

Ms. MILLENDER-MCDONALD. And that is fine and I understand 

that, as long as you do not leave out any one of those subsets in 

your—— Mr. BLANCHARD. No, ma’am. 

Ms. MILLENDER-MCDONALD [continuing]. In your plethora or 

your complete comprehensive plan. 

Mr. BLANCHARD. Yes, ma’am. 

Ms. MILLENDER-MCDONALD. The one thing that I spoke of, Mr. 

Chairman, if I may, and then I will conclude for the moment, I 

spoke about the workforce, and you spoke about your workforce as 

well. And I am hoping that in your restructuring you include in 

that a workforce that is depictive of this country’s constituency, 

and more importantly, the small businesses.

And I would like to ask you what are you doing in your assessment of your skill labor and your employees, and your contemplation of ensuring that they reflect the country? 

Mr. BLANCHARD. That is a very good question. Let me first say 

we are very proud at SBA that our employees and our workforce, 

are indeed reflective of our national demographics. The fact that 

Hector Barreto is our Administrator, and I sit here before you 

today—— Ms. MILLENDER-MCDONALD. From California, I might add. 

Mr. BLANCHARD. Yes, ma’am. Yes, ma’am. 

And what we are doing to improve the development of our workforce is very much a big part of this plan. What we need to do is 

to address the significant demographic problem that we face. That 

is not to say demographics along ethnicity, but demographics along 

age. In a year or two almost half of our employees will be prepared 

to retire. We are not prepared at this moment, and this is true for 

many agencies in the federal government, to deal with that because 

the agency has not done well to build a succession plan. 

What we plan to do, one, is to build a training regime that looks 

forward in regards to the vision that we have set forth, which is 

to serve many more small businesses, which is to build our district 

offices so that they can perform less of the backroom operations 

and more marketing and outreach, and also to measure our success 

by small business success, not simply by the widgets that we 

produce. 

And so this training program is a very important part of that effort. Included in the training regime are individual development 

plans, which you will see in our plan and in the written testimony, 

that are unique for each individual. What we want to do in this 

agency is not to keep on training specialists so that when job opportunities are presented folks are only able to apply for those jobs 

if they happen to have the special skills. What we want to do, and 

this is consistent with the changes we want to make in the district 

offices with regard to more marketers and outreaches, we want to 

create generalists so our finance professionals have a good understanding of the contracting world, so our entrepreneurial development professionals have a good understanding of our finance world, 

and the like. 

18

And so to the extent that we can do this and include the employees’ individual goals within their individual development plans, we 

will be able to accomplish the goals that I think you and I share. 

Chairman DEMINT. Thank you, Dr. Blanchard. 

Mr. BLANCHARD. Thank you. 

Chairman DEMINT. Mr. Grucci. 

Mr. GRUCCI. Thank you, Mr. Chairman. 

Dr. Blanchard, I have just two questions for you based upon the 

testimony I have heard here today. 

In evaluating the restructure of the SBA, have you considered 

any changes to the current SBA programs in addition to the 

changes in the structure of the agency? 

And the second question, as Mr. Jasper suggested combining several positions, what are the differences, if there are differences, in 

the roles of the COO and the chief of staff? 

Mr. BLANCHARD. Thank you, sir. I will be happy to address those 

questions. 

With regard to consideration of changes in programs, which is 

also part of the Chairman’s concern, recently we participated in a 

district director conference where we brought all of our regional administrators and district directors from around the country here to 

Washington to have a pow-wow as it were, to figure out what we 

want to do for the future. 

It was at this district director conference that the Administrator 

promulgated his vision. It was at this conference that we then took 

that vision and asked how we implement this vision to include a 

focus on specific programs within the context of the President’s vision of being more customer-centered, market-based and results 

oriented. 

It is this plan that moves in that direction. This is the plan that 

brings that vision and the President’s vision together. Within that 

context, we spent that weekend thinking about what our loan programs should look like to be more customer focused development 

programs and our entrepreneurial, what should our technical training programs look like, to what degree do we want to do one-onone counseling, and to what degree do we want to do training via 

the internet. 

We took a look at the contracting environment and tried to determine how can we do better at providing greater access to government contracting for small businesses. This was the debate that 

took place at that conference, again working within the President’s 

and the Administrator’s vision providing the parameters for that 

conversation. 

And what bubbled out of that were some new directions for our 

programs which I have not talked about here today, but you can 

rest assured that those programs were designed to be more customer centered, and to use private/public partnerships to deliver 

those programs because, frankly, we cannot do it ourselves. We can 

reach many more small businesses by having our partners out 

there helping us deliver services. We will provide oversight and coordination activities on behalf of our partners. We will have our 

partners in the one hand and the small business customers in the 

other, and we redirect the customers based on our assessment of 

what they need. They may need a loan and some training to help 

19

build their business plan, or they just may need a loan because 

they are more mature and have a well developed plan. 

Whatever it is, maybe they need access to contracting because 

they already have a mature company and they are ready to deliver 

high-quality services to the federal government or to state and local 

governments. 

So what we want to do is put the districts in a position to move 

those clients to our service partners as they see fit, and that is 

what I mean by client and partner relationship management as 

well as the marketing and outreach focus. 

Mr. GRUCCI. Would that cause any changes in the current programs? 

Mr. BLANCHARD. Again, the current programs will not change. 

This structure is built to facilitate the new programs that we want 

to engage in, and those new programs are not fundamentally different than what we have always done. We are just trying to find 

better ways to get them out there to more businesses. 

If I may, in response to your question about Dr. Jasper’s point 

in regards to the role of the COO. There is an interesting debate 

about whether the COO should be separate from or embedded 

within the deputy of the Agency. 

The COO’s role is a unique role in the federal government, but 

only recently in GAO’s human capital products of July 2002—the 

GAO suggested that there ought to be a COO that is separate presumably, I am not sure of that, from the deputy so that person can 

engage in the sort of day-to-day managerial and operational functions key for success, particularly for success in a reform effort. 

Whether or not the COO should be political or career, I understand the arguments of Mr. Jasper and Ms. D’Agostino. I happen 

to be political, but those who know me know that I am pretty much 

a management wonk anyway. So I do focus strictly on the ability 

of the Agency to deliver its services and not so much on all of the 

other responsibilities that typically are handled by the Deputy and 

the Administrator. 

Ms. MILLENDER-MCDONALD. Mr. Chairman, I just wanted to ask 

him——

Chairman DEMINT. Ms. Millender-McDonald. 

Ms. MILLENDER-MCDONALD [continuing]. If we find that there 

are a lot of political appointees, how will that climate change in 

this restructuring? 

And you stated that there are—there are seven to eight program—there were seven to eight program changes, yet you say 

with new programs coming on. I suppose you will integrate those 

changes. But when you do that, Dr. Blanchard, please speak to 

this, and I will just wrap mine up, you said—well, the workforce 

transformation plan outlines the agency plan to centralize the 8(a) 

program annual reviews, and also consolidate of 8(a) offices and associated personnel cost. Now, what does that mean? 

We do know that a lot of the minority small businesses, specifically African Americans, rely heavily on 8(a) programs, and also I 

need to have you further in your delineation of this restructuring, 

how will you speak to those programs that are faltering, that need 

to have some type of uplift and be put into the realm of success? 

And that is a lot of the African American small businesses. 

20

Mr. BLANCHARD. Yes, ma’am. Let me address that by saying that 

you might think of our functions in the agency as falling into two 

categories with regard to our services. Some are front room functions, that is the marketing and outreach, and the others are back 

room functions, that is the processing and servicing, and the sort 

of turning of the wheel and paper pushing. 

What we want to do is consolidate the latter, consolidate the activities that are really back room so that we can free up FTEs, free 

up our limited human capital resources, to do more of the front 

room functions, which is marketing and outreach, and that outreach includes reaching out to various communities, providing 

them with the services that we have available. Sometimes those 

services are particularly directed to those communities, like the 

8(a) program, so that they can gain access to the government contracts that, for whatever reason, they have not been able to gain 

access to before. 

Remember, we want to move folks from back room operations to 

front room operations so that we can do precisely what you want 

us to do more of. We have a fixed human capital resource base. We 

have got to think more strategically as the President has called 

upon us to figure out how we are going to better manage that 

human capital. Without more human capital, we need to move that 

human capital around so to speak, and we believe that going toward the more back room functions is not the way to go. We can 

contract out back room functions. We can contract out that paperpushing activity. What we want to do is move more toward front 

room functions—marketing, outreach, bringing the client to the 

services and providing those services. 

That is not to say that we do not have work to do in the delivery 

of our services. We do indeed have work to do, and the Administrator has also charged me with the role of program review, so we 

will through my office engage in comprehensive program review so 

that we can make sure that all of our programs are indeed meeting 

their goals as they were directed through legislation. 

Ms. MILLENDER-MCDONALD. And meeting those goals with the 

variances of groups that are out there trying to be successful 

through this small business process. 

Mr. BLANCHARD. Yes, ma’am. 

Chairman DEMINT. The Ranking Member made an important 

point, I think, that fits with some of the things I was mentioning 

earlier. 

We talk about customers, but I have found from the marketing 

business that some businesses go out and get who they want. Others go out and meet the needs of those who have unmet needs are 

sometimes not the easiest to reach out to. And I think absent perhaps from the proposal of restructuring again is clarification of 

mission, who the customers are, targeting those customers and 

really detailing their needs, and the different segments of this market. 

I think we really need to see how programs relate to the different 

market segments would help us evaluate our programs, and then 

our structure. So it almost seems now we are talking about something in the abstract without really laying out details. 

21

Now, I am not suggesting that this is information you do not already have at the agency, but it is something I think that would 

help us sell a plan. And if there has not been a market needs assessment, if there has not been customer research about what their 

needs really are once we target who needs to be served, I would 

suggest that be included in the budget, because to build a whole 

structural plan to serve people that we do not clearly know what 

their needs are. Now that may be obvious from those who have operated in the agency for years, but sometimes the obvious does not 

include what is really there. 

And so what I would like to do just briefly is to allow the three 

other panelists just to make any remarks after hearing all the 

other remarks, just advice to the SBA. 

Ms. D’Agostino, I will just start with you. 

Ms. D’AGOSTINO. I guess the version of the plan, we understand 

it is still in a state of flux, and it is changing. I think it has 

changed since we—the copy we got. And I know there are a lot of 

details yet to be worked out for this plan. I think it is a good conceptual document. 

In looking at the plan, we identified a whole lot of strengths 

about the plan that I think are really important to recognize. This 

plan articulates the new business focus that SBA wants to pursue, 

which is getting closer back again to the customer, the small business, and I think it also provides for an employee line of sight, 

which I think is something we are always looking for with their 

ability to see their contributions to this new business focus. 

It also integrates all these important components like the organizational, functional, and human capital realignment, and the IT 

and training needs to accomplish this new business focus. 

It recognizes that it takes time and it costs some money to do 

these change initiatives. And the other good thing about this plan 

is that it is committed to evaluating progress, and that is often 

missing in many agencies change initiatives that we have identified. 

Some of the key questions that we still have remaining, and I am 

sure this will all become apparent over time is that we feel it is 

important to see how the performance management system and the 

district office goals and measures will be changed. And I think this 

is something you brought up, Chairman DeMint, to reinforce the 

new business focus that SBA’s success will be defined by its small 

business clients’ success, and how to marry those a little more 

closely than they have been in the past. 

And also how perhaps the SES contract terms, which is a very 

easy thing, it is such an easy thing to change each year to get focus 

from the leadership in the districts and the regions on being committed to this plan and making sure it works and gets carried out. 

But the bottom line is that performance goals and incentives are 

really crucial to gaining commitment and achieving success in a 

change initiative like this. So that is something we would like to 

see movement on. 

Chairman DEMINT. Mr. Jasper. 

Mr. JASPER. Yes, thank you. 

The principal point I would emphasize that is largely, and I emphasize largely within the discretion of the agency, is the field 

22

structure issue that has been discussed. I think that needs to be 

simplified and rationalized, and I suggested one model for that. 

The more important thing that I guess I would like to say, and 

perhaps I could preface it by saying that after many years in the 

federal executive branch I came up to Capitol Hill, worked as Senate staff for five years, and then with two congressional staff agencies. I learned a great deal about the Congress by working up here 

as compared to what I thought before I came up, and I think I understand a little bit about what motivates members and committees to behave the way they do. 

Ms. MILLENDER-MCDONALD. Really? Let me know what that is. 

[Laughter.] 

Mr. JASPER. But some of the things that are perfectly understandable for members and Committees to do can wreak havoc 

with an agency’s internal administration. And I would suggest that 

both the rather surprising, almost shocking, number of appointee 

positions in a small agency, and the detailed prescriptions with respect to the 11 officers—11 positions that GAO pointed to really 

prevent managing the agency in a way that can adapt it to the 

rapid changes in program priorities. 

And I understand, because of what I said about the Hill, that 

this is not easy to do. But I urge that you work sort of sympathetically and cooperatively with the agency to identify those matters of the general character I just described that are really the 

most significant obstacles to more effective management. The objective should be to see if you can work to reduce some of the statutory prescriptions and perhaps encourage the reduction of some of 

the appointed positions. 

Those would be my main points. 

Chairman DEMINT. Good ideas, and since we do not do the appointing, I do not think we will resist reducing the political appointments. 

Ms. MILLENDER-MCDONALD. Mr. Chairman, I would like to ask 

Dr. Blanchard. Part of your restructuring, does it call for some reductions in those political appointees? 

Mr. BLANCHARD. I would say it does not. The purview of the political appointees is outside the agency, and so it was not appropriate for us to address those. 

However, we are looking to reduce management layers in particular, and if, for instance, a position was deemed as duplicative 

or just useless, if that position happens to be held by a political 

person, it would not change our recommendation because our recommendation is based on the functional activities of the agency 

rather than who sits in what chair. 

Ms. MILLENDER-MCDONALD. Well, what about program underfunding. Now that would be something that is in your purview. 

Mr. BLANCHARD. The funding of the programs in part, I guess, 

could be, but overall funding is not. 

Ms. MILLENDER-MCDONALD. I understand. But I am saying that 

you can certainly speak to the fact that some of the programs that 

you want to implement need more funding. 

Mr. BLANCHARD. Again, our request for funds are based on a 

larger consideration. You know, when the President submits his 

budget, which includes our request——

23

Ms. MILLENDER-MCDONALD. That is correct. 

Mr. BLANCHARD [continuing]. I would say that falls within a larger set of considerations government-wide, and our request is in effect a negotiated settlement between the Agency and the President’s budget office. 

Ms. MILLENDER-MCDONALD. And, Dr. Blanchard, I think you can 

negotiate very well. 

Mr. BLANCHARD. Thank you very much. 

Chairman DEMINT. Okay, just a quick clarification, Dr. Blanchard, before we hear from General Anderson. 

You can reduce the number of positions. You just are not in control of how many of those end up being political appointees; is that 

right? 

Mr. BLANCHARD. That is correct, sir. 

Chairman DEMINT. Okay. So you can do the structure the way 

you think it should be, and it would be up to us to put pressure 

on the executive branch or whatever to reduce. 

Mr. BLANCHARD. That is correct. 

Chairman DEMINT. Okay. General Anderson 

Mr. ANDERSON. Mr. Chairman, since I did meet my five minutes, 

I would like for my extended text to be included in the record. 

And then a couple of points because I have not reviewed the details, but there are some fundamental organizing principles. 

One, as you start to look at reorganization or transformation, it 

starts from a clear definition and understanding of what is a mission, what are you tasked to do and what are you trying to achieve. 

By understanding those two things, and you made that point earlier, by understanding those two it allows you to get a clear focus 

on who the customers are and how you best serve them. 

As you start to look at an organization, the organizational structure that is put in place should be shaped around the mission or 

the tasking that you are trying to carry out, and that will drive 

both process and people. 

And probably the most significant decision in terms of people will 

be alignment of the key leadership team, knowing that from top 

through whatever the key leadership positions are, and that will be 

sorted out as you look at the regional and field structure, of the 

flow of communication and who you are holding accountable in 

those key positions. 

In a conversation that I had with Dr. Blanchard, I believe they 

are starting to sort through those issues, and they have a work in 

progress and time line that they have put in place to do that, but 

structure is always driven by what you are trying to do. 

So thank you. 

Chairman DEMINT. Any additional comments, Ms. McDonald? 

Ms. MILLENDER-MCDONALD. No, thank you. It seems like, as I 

have quickly reviewed Mr. Anderson’s testimony, it seems like everything you say I agree to, so I didn’t have any questions. 

Mr. ANDERSON. Okay. 

Ms. MILLENDER-MCDONALD. But I thank you so much for your 

testimony as well as Mr. Jasper. 

Chairman DEMINT. I want to thank all the panelists. It has been 

a great hearing, and I hope we can expect, Dr. Blanchard, to hear 

back from you on any additions or ideas after the input from this 

24

meeting. And I thank everyone in the audience. I appreciate your 

being here. 

This hearing is adjourned. Thank you. 

[Whereupon, at 3:40 p.m., the Committee was adjourned.]

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