Small Business Administration: Progress Made, but Transformation Could Benefit from Practices Emphasizing Transparency and Communication
Published: 2003-10-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Small Business Administration (SBA) has recognized that it needs to realign its current organizational structure and processes to improve its ability to fulfill its primary mission--supporting the nation's small businesses. In July 2002, SBA announced that it was initiating a transformation effort to increase the public's awareness of SBA's services and products and make its processes more efficient. GAO evaluated SBA's progress in implementing its transformation initiatives and challenges that have impeded or could impede implementation and whether SBA's transformation incorporates practices GAO has identified in previous work that are important to successful organizational change.
section_title: What GAO Found
paragraphs: SBA has made some progress in transforming its organization, although efforts could be impeded by budgetary and staffing challenges. SBA started three district office pilots to test marketing and outreach techniques and two pilots to centralize loan processes. However, SBA officials told us that their plans for expanding the pilots and implementing additional initiatives have changed because the agency did not receive any funding for transformation in fiscal year 2003 and may not receive any in fiscal year 2004. GAO found that SBA did not provide consistent, clear budget requests with a detailed plan for transformation results. The challenge of staffing its centralization initiatives, including relocating employees and avoiding undue disruptions to operations, could further complicate SBA's progress. When SBA initially planned and began implementing transformation, it gave some attention to practices important to successful organizational change. SBA drafted a plan and created an implementation team to manage the transformation. However, significant weaknesses in implementation could impede further progress and exacerbate the challenges noted above. The transformation could fail if practices and implementation steps focusing on transparency and communication are not given more attention.

section_title: Letter
paragraphs: Like many federal agencies, the Small Business Administration (SBA) has  recognized it needs to realign its current organizational structure and  processes.  In doing so, SBA aims to improve its ability to fulfill its primary  mission—supporting the nation’s small businesses and protecting their  interests—by increasing the public’s awareness of SBA’s services and  products and making its business and loan processes more efficient.  For  over a decade, SBA has been centralizing some functions of its many  district offices to improve efficiency and has been moving more toward  partnering with outside entities such as private sector lenders to provide  direct services.  SBA’s district offices were initially created to be the local  delivery system for SBA’s programs, but as SBA has centralized functions  and placed more responsibilities on its lending partners, the district offices’  responsibilities have also changed.  In a previous report, we found that past  realignment efforts during the 1990s had changed SBA’s organization but  had also left parts of the previous structure intact, contributing to  complicated organizational relationships and a field structure that was not  consistently matched with mission requirements.  For example, we found  confusion over the mission of the district offices, with SBA headquarters  officials believing the district office’s key customer was small businesses  and district office staff believing that their key customer was the lender  who makes the loans to small businesses.
SBA transformation efforts have not been a reaction to any change in SBA’s  mission.  Rather, SBA’s intent has been to transform the agency so that it  can more effectively and efficiently achieve its mission.  In its current  transformation effort, SBA intends to expand centralization to additional  loan functions and some of its other small business programs to improve  efficiency.  As centralization frees up employees in the district offices, SBA  intends to better define the district office role to focus on marketing and  outreach to small businesses and managing SBA’s relationships with  lenders and other resource partners.
Following SBA’s testimony in July 2002, which stated that SBA was  initiating a 5-year workforce transformation plan, you requested that we (1)  review SBA’s progress in implementing its transformation initiatives and  discuss any challenges that have impeded or could impede implementation  and (2) determine whether SBA’s transformation incorporates practices  that are important to successful organizational change and effective human  capital management in the federal government. This report contains the  results of our review of SBA’s implementation of the first phase— approximately 6 months—of the transformation effort.  As part of phase  one, SBA planned to implement pilot initiatives to test a new marketing  focus for its district offices and centralize some of its loan functions.
To conduct this review, we analyzed planning, budget, and implementation  documents related to SBA’s transformation and interviewed key officials at  SBA headquarters.  We also conducted site visits at each of the pilot offices  involved in the first phase—three district office pilots in Phoenix, Arizona;  Miami, Florida; and Charlotte, North Carolina; and two center pilots in  Santa Ana and Sacramento, California.  At these locations, we interviewed  all employees who were directly affected by the pilot.  To ensure open  communication, we met with directors, supervisors, and employees  separately.   We compared SBA’s implementation process for  transformation with practices important to successful transformations,  using practices we identified in literature and our previous work on  reorganizations, organizational change, and human capital management.   We performed our review from February through September 2003 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: In pursuing its mission of aiding small businesses, SBA provides small  businesses with access to credit, primarily by guaranteeing loans through  its 7(a) and other loan programs, and provides entrepreneurial assistance  through partnerships with private entities that offer small business  counseling and technical assistance.  SBA also administers various small  business procurement programs, which are designed to assist small and  small disadvantaged businesses in obtaining federal contracts and  subcontracts.  In addition, SBA makes loans to businesses and individuals  trying to recover from a disaster.
As figure 1 shows, SBA has experienced many organizational changes over  the past 20 years partly due to changing the way it delivers its services and  partly due to budget cuts.  Perhaps the largest change to SBA’s service  delivery has occurred in its lending programs, where the agency went from  making loans directly to guaranteeing loans made by commercial lenders.   SBA provides small businesses with access to credit, primarily by  guaranteeing loans through its 7(a) and 504 programs.  For the 7(a)  program, SBA can guarantee up to 85 percent of the loan amount made by  private lenders to small businesses.  Within the 7(a) program, for smaller  loans, SBA offers SBA Express as an option to lenders who will use their  own applications and underwriting procedures by agreeing to a lower  guaranty of 50 percent.  Within the 7(a) program, there are three  classifications of lenders—regular, certified, and preferred lenders—that  illustrate the various range of responsibilities handed over to lenders.  SBA  continues to provide final approval of loans made by its regular lenders  through the district offices.  Certified lenders have the authority to process,  close, service, and may liquidate SBA guaranteed loans, and SBA provides  expedited loan processing and servicing.  Preferred lenders are given full  authority to make loans without prior SBA approval.  However, these  lender-approved preferred loans are submitted to SBA’s Sacramento  Processing Center, which, among other things, verifies that the lender has  documented eligibility requirements, issues a loan number, and processes  the loan guaranty.  Under the 504 program, SBA provides its guaranty  through certified development companies—private nonprofit  corporations—that sell debentures that are fully guaranteed by SBA to  private investors and lend the proceeds to qualified small businesses for  acquiring real estate, machinery, and equipment, and for building or  improving facilities.  When a 7(a) or 504 loan defaults, SBA reviews the  lender’s request for SBA to purchase the guaranty, and if the lender met  SBA’s program requirements, SBA pays the claim.  SBA usually relies on the  lender to recover as much as it can by liquidating collateral or SBA takes  over the loan servicing and liquidation.
SBA’s loan programs have also been the focus of a major organizational  change with the creation of centers to process and service the majority of  SBA’s loans—work once handled largely by district office staff.  (See fig. 1.)   About 92 percent of the processing and servicing of SBA-guaranteed loans  are handled in centers instead of district offices.  Among other things, these  centers process the loan guaranty and review servicing requests submitted  by lenders and borrowers.
In response to budget reductions, SBA streamlined its field structure  during the 1990s, downsizing the 10 regional offices, moving the workload  to either district offices or headquarters offices, and eliminating most of  the regions’ role as an intermediate management layer between  headquarters and the field.  SBA created the Office of Field Operations to  take over the role of intermediary.  SBA’s overall workforce has decreased  by over 20 percent since 1992 and as of 2002 includes about 4,075  employees, including 956 for the Office of Disaster Assistance and 102  employees for the Office of the Inspector General.
When SBA embarked on this current transformation effort, it planned its  implementation in three phases.  The key pilot initiatives SBA undertook in  phase 1 that began on March 10, 2003, focuses on (1) transforming the role  of the district office to focus on outreach to small businesses about SBA’s  products and services and linking these businesses to the appropriate  resources, including lenders and (2) centralizing its loan functions to  improve efficiency and consistency of its loan approval, servicing, and  liquidation processes.  Later phases will include expanding these pilots to  the remaining district offices.  As SBA proceeds in transforming the district  offices and centralizing many of its processes, it will analyze its business  processes to identify opportunities for improvement and reduce its office  space to achieve some cost savings.  Finally, SBA’s plan included initiatives  to apply technology and use the Internet to reach out to more small  businesses.
section_title: SBA Has Made Some Progress in Implementing Transformation, but Budget Constraints and Staffing Challenges Could Continue to Impede Progress
paragraphs: As part of the first phase of SBA’s transformation, the agency began  implementing pilot initiatives to test a new marketing focus for its district  offices and centralizing some of its loan functions.  As the first phase nears  completion, SBA has made some progress in implementing the pilot  initiatives at three district offices and two centers.  While SBA’s  implementation efforts have been and could continue to be impeded by  budget constraints, we found that the agency did not always clearly  communicate its budget requirements.   SBA’s centralization efforts could  also be impeded by the challenge of realigning staff from multiple field  offices so that it can operate its central locations with experienced  employees.
subsections: section_title: SBA Made Progress in Implementing Initial District Office and Centralization Pilots
paragraphs: SBA’s purpose for transformation is to realign its organization, operations,  and workforce to better serve its small business customers.   Based on SBA  transformation documents and agency officials, the agency planned to  approach its transformation in phases to allow it to test a number of  initiatives and to make refinements before implementing the initiatives  agencywide.  In our July 2002 testimony on SBA’s workforce  transformation plan, we noted that SBA had started to develop a sound  implementation plan for its transformation.  As part of phase one, SBA  intended to test a new marketing and outreach initiative for its district  offices that would refocus their efforts on becoming more responsible and  accountable for promoting small business growth and development as well  as on providing better oversight and management of its lenders and  resource partners.   Additionally, SBA planned to centralize a number of the  offices’ loan functions to (1) free up district office staff to reach and  respond to the needs of local businesses and to do more lender and partner  management and oversight and (2) improve the efficiency and consistency  of its loan processing, servicing, and liquidation functions.   To accomplish  these initiatives, in March 2003, SBA began its initial pilot initiative at three  district offices and two centers and based on its initial transformation plan,  it expected to run the pilots for 6 months before moving to the second  phase of its transformation.  As of our report date, SBA is nearing the  completion of phase one of its district office and centralization pilots and  plans to expand the results of phase one to all of its other district offices.   Based on our site visits to the pilot offices and discussions with SBA  headquarters officials, we identified a number of transformation-related  activities that SBA has made progress in since implementing its initial pilot  initiative.  Specifically, for its district office initiative to  prepare staff in carrying out their new marketing and outreach roles,  during March through June 2003, SBA provided training at the three  district office pilots on topics such as marketing and outreach,  presentation skills, and customer/partner relationships;     develop the competencies necessary for staff to carry out their new  roles and to evaluate gaps in the existing skill sets of its staff, SBA has  hired a contractor to conduct a skills analysis.   In July 2003, the  contractor completed the analysis for the three pilot district offices and  according to SBA officials, district office management will use the  results to identify its employees’ developmental needs in the marketing  and outreach areas;   update and clarify the specific duties that SBA expects its district office  staff to perform in their new marketing roles, the agency developed new  job descriptions for its marketing and outreach specialist positions at  the district office level; and    allow staff at the three pilot district offices more time to conduct  marketing and outreach functions, in March 2003, these offices had  stopped processing any new 7(a) liquidations and guaranty purchase  cases and 504 loan origination applications.  In addition, the offices had  also transferred most of their outstanding 7(a) liquidation cases to SBA’s  liquidation center in Santa Ana, California.
Additionally, a key component of SBA’s transformation is to make  fundamental changes over the next 5 years at its district office level to  reflect the change in the agency’s vision for its district offices from making  and servicing loans to primarily reaching out to new markets and  overseeing its private-sector partners.   Based on our site visits to the three  pilot district offices, we found that the offices have begun to move toward  SBA’s new vision for its district offices.  Specifically, SBA’s Phoenix,  Arizona, office has officially changed its organization structure to allow its  staff to focus mainly on marketing and outreach-related activities.  As  shown in figure 2, the office has replaced its portfolio management division  with divisions for lender development and marketing and outreach, and it  also moved some staff formerly in portfolio management to its business  development division.   The Miami and Charlotte district pilots have also  started to expand their marketing and outreach efforts.  For example, a  Charlotte official told us that it plans to use “SBA Days” as a way to reach  out to small businesses in its district.  SBA Days are events conducted at  local chambers of commerce around the district’s state where SBA staff  along with chamber members and other firms in the area conduct one-on- one counseling sessions with business owners and potential entrepreneurs.   To reach small businesses in the Miami area, officials told us that the office  is using one of its resource partners to work with a national chain of office  supply stores to provide on-site counseling to small business customers  when they are in the stores.
SBA headquarters officials provided us with briefing slides that show that  the three district office pilots have submitted proposals for establishing  alternative customer service sites so that SBA employees can provide  direct customer service in areas outside the physical location of the district  offices.  For example, the Phoenix district office already has one marketing  specialist located in Tucson and is proposing two additional positions to  support lender relations.  Officials also told us they are working with local  governments and resource partners to identify free office space for these  new sites, but in some cases there may be some rental expenses.
Finally, as part of its centralization initiative to improve the efficiency and  consistency of its loan approval, servicing, and liquidation processes, in  March 2003, SBA’s two pilot centers assumed their new roles and  responsibilities.  The liquidation center in Santa Ana, California, began  processing new 7(a) liquidations and guaranty purchase cases from the  three pilot district offices, and the loan processing center in Sacramento,  California started processing new 504 loan origination applications from  these offices.  In May 2003, the Santa Ana center also started working on  1,275 outstanding 7(a) liquidation cases from the three pilot district offices.    Based on SBA’s benchmark reporting data for its centralization pilot, as of  October 2003, the Santa Ana center had processed 185 of 227 new 7(a)  guaranty purchase cases it had received and closed 55 of 450 7(a)  liquidation cases.   The Sacramento center had processed 582 new 504  applications that it had received since beginning the pilot initiative.
According to SBA and representatives from two lender trade associations,  the centralization pilot has resulted in a more efficient and consistent  processing of SBA’s 7(a) liquidation and guaranty purchases and 504 loan  approvals.   SBA headquarters officials told us that the agency would be  able to perform these functions with far fewer resources than it has to date.   According to the officials, based on results from a workload analysis SBA  did of the Santa Ana centralization initiative, it found that the 7(a)  liquidation and purchase guaranty process could be done by 40 employees  in a center, as opposed to the 266 employees that now process the cases in  its district offices.  SBA officials also told us that centralization results in  faster processing times.  SBA data indicate that the average turnaround  time for processing 7(a) guaranty purchases has decreased from 129 days  to 32 days and, for 504 applications, it has gone from about 14 days on  average to about 2 days.  We reviewed about 450 cases of the 504  application approvals from the pilot and found that most applications were  processed and returned to the certified development companies in about 2  days.  We did not review data for any of the other measures.  When we  visited the two centers participating in the pilots, center officials showed  us documentation they were using to make the process more efficient and  consistent.  For example, for the 504 pilot, the Sacramento center  developed standardized letters to send to certified development companies  in situations where the center receives an incomplete application package  from a company.  According to a center official, some district offices spend  a lot of time making telephone calls to the development companies  requesting the necessary data to complete the processing.  However, by  using the letters, the official said the center is saving time because it stops  processing the application until it receives the needed information, and in  the meantime it can continue processing applications that are complete.   One official representing certified development companies told us that the  companies participating in the pilot initiative for SBA’s 504 program are  pleased with the results of the pilot.  Officials representing 7(a) lenders  said that some lenders might not be in favor of centralization because they  have good working relationships with the local SBA district office and  would prefer to continue working directly with them.
section_title: Budget Uncertainties and Constraints Affected Transformation, but SBA Needs to Better Communicate Budget Requirements
paragraphs: SBA transformation efforts have been impeded and could continue to be  impeded by budget uncertainties and constraints.  SBA officials stated that  due to inflation and increases in employee compensation and benefits,  available operating funds had been declining since 2001 as shown in figure  3.   Therefore, SBA requested specific funding for its transformation.   According to SBA officials, the agency expected to start its pilot initiative  in July 2002 with funds from its 2002 operating budget and then expand the  initiative in phase two of its transformation, 6 months later, with funds  specifically requested for transformation in its 2003 budget.   But SBA  delayed the start of the pilot until March 2003 due to a number of  uncertainties about its budget.   SBA officials explained that language in its  appropriations bills requires that SBA notify the appropriations committees  15 days prior to reprogramming its funds for relocating an office or  employees, or reorganizing offices.  In the summer of 2002, SBA notified  the appropriations committees about its intent to go forward with the  pilots.  However, SBA was told that it should first negotiate with its union  before moving forward.  Although SBA reached agreement with its union,  starting the initiative still remained an issue for SBA because, according to  officials, it was too late to use 2002 operating funds as it initially planned.   While SBA then planned to use 2003 operating funds to start the pilot  initiative, officials said that the government’s 2003 continuing resolution  further delayed the start because without an approved operating budget,  SBA did not know the portion of its operating budget that would be  available for transformation.
For its 2003 budget, Congress did not approve any of the $15 million that  SBA specifically requested for transformation activities planned for phase  two, and SBA officials told us they do not believe the agency will receive  any of the $21.1 million for transformation in its 2004 budget request.   According to officials, SBA has had to change its transformation plans and  the level of funding associated with these plans because of its shrinking  operating budget and the lack of specific appropriations for  transformation. Specifically, officials stated that SBA actually spent $96,000  in 2003 operating funds on the first phase of its transformation for activities  associated with its pilot initiative, including shipping files, training, travel,  and pilot office evaluations.  Officials could not tell us how much money  SBA initially planned to spend in phase one when it was going to use 2002  operating funds or whether any of the activities associated with this phase  had to be cut back due to the lack of funds.  However, many employees in  the district offices we visited told us that they had not received the level of  funding needed to support marketing and outreach functions including  money for travel, laptops, and cell phones that would allow them to cover a  wider geographic area in the districts and to test telecommuting and  alternative work sites.
Although SBA struggled with budget uncertainties and constraints as it  began implementation of its transformation, SBA could have provided  better information about its budget requirements.   Based on our analysis of  SBA budget request data for fiscal years 2003 and 2004, SBA has not clearly  defined its budgetary needs for transformation.  As shown in figure 4, the  labeling of specific transformation initiatives varies between SBA’s fiscal  years 2003 and 2004 Budget Request and Performance Plans, making it  difficult to compare and align its transformation activities from year to  year.  Also, as shown in figure 4, in its fiscal year 2004 budget request, SBA  requested $21.1 million for a number of investment initiatives, of which  $8.8 million was for transformation.  The $8.8 million figure was also the  amount cited by SBA’s Administrator during two congressional hearings.   When we met with SBA headquarters officials to discuss the variances in its  budget request data, the officials told us that SBA’s 2004 budget request for  transformation is the entire $21.1 million, and not the $8.8 million.  In  response to our questions about the budget data inconsistencies, SBA  officials attributed the differences to the agency’s changing environment.   However, the inconsistencies we found in SBA budget request data and the  lack of a detailed plan make it difficult for outsiders, including  congressional stakeholders, to understand the direction SBA wants to take  with transformation and the resources it needs to achieve results.
section_title: Staffing Challenges Could Impact Centralization Efforts
paragraphs: To staff its centralization initiatives, SBA will have to relocate employees  from its 68 district offices scattered throughout the country.  Realigning  staff from multiple field offices to central locations is and will be an  ongoing challenge for SBA.  Relocations could not only prove potentially  disruptive for employees but can also have an effect on SBA’s operations by  negatively impacting morale and productivity.  As part of phase one of its  transformation, SBA centralized a number of loan functions from the three  pilot district offices to two of its existing loan processing and servicing  centers.  In phases two and three of its transformation, SBA had planned to  expand its centralization initiative until all of its loan functions performed  by its remaining 65 district offices were centralized.  In addition, SBA had  planned to have fewer centers by consolidating some of its existing ones.
Based on our discussions with SBA staff in the pilot offices, the staffing of  any centralization initiative with experienced staff could be potentially  challenging for SBA.  Specifically, some staff believed that the two pilot  centers would not have a sufficient number of staff to handle the increased  workloads when SBA expands its centralization initiative to include more  district offices.  According to one district office employee, unless the two  pilot centers or any other center have enough staff with the right skill mix,  they will be unable to adequately respond to lenders, which the employee  believed could potentially affect relationships between SBA and the  lending community.   One center official characterized the problem as  fundamental because in his view staff are not all equally adept and SBA is  faced with matching jobs with people who do not have the skills to do the  work.   An official representing one of SBA’s lender trade associations also  expressed concern that if SBA forced employees to move, that the  centralization initiatives will be staffed with employees with low morale  that could hurt productivity.
SBA’s first attempt to realign staff with one of its centralization initiatives  was to establish a new 7(a) liquidation and guaranty purchase center near  Washington, D.C., beginning in early October 2003 and operate it with 40  liquidation staff relocated to the center from its district offices.  Based on  SBA transformation documents, SBA plans to relocate those staff with the  greatest experience into the center to take advantage of their expertise.
According to SBA officials, to identify experienced staff the agency used  results from a cost allocation survey that provided information on the  amount of time district office staff spend on loan liquidation functions.  On  September 10, 2003, SBA sent notification letters to certain district office  employees identified as having worked on liquidations, informing them that  they were eligible for a monetary buy-out if they separated from federal  service not later than September 30, 2003.  While the letter also states that  the employee has 7 calendar days to accept the buy-out offer, it is unclear  how SBA would handle reassigning those staff who do not accept the buy- out offer.   Specifically, the letter does not mention where staff are being  assigned, or what relocation costs SBA would pay.
According to the memorandum of understanding between SBA and its  employees’ union signed September 9, 2003, the two parties agreed that  current district office staff at the GS-9 level and above who reported  spending at least 25 percent of their time performing liquidations on SBA’s  most recent cost allocation study would be directly reassigned to the new  liquidation center in the Washington, D.C., metropolitan area, or to one of  the six most severely understaffed SBA district offices in New York, New  York; Newark, New Jersey; Atlanta, Georgia; Chicago, Illinois; and San  Francisco and Los Angeles, California.  The memorandum indicates that  SBA identified the six offices based on staffing levels for those district  offices with the lowest ratio of SBA staff to small businesses in their  service area, as of August 1, 2003.  Also, the memorandum states that SBA  plans to begin relocating staff 30 days from the time it notifies them about  their reassignment to the center and that it will pay all of an employee’s  relocation cost in accordance with the law.   While SBA has indicated that it  will make reassignments as minimally disruptive for its employees as  possible, depending on where the 40 staff being reassigned to the center  currently work, logistical factors associated with moving, such as finding a  new home, could pose a challenge for these staff.  As of our review date,  SBA had not informed us about when it expects to begin the reassignments  or the number of and office locations for the employees that it intends to  relocate.
section_title: SBA Applied Some but Not Many Aspects of Practices and Implementation Steps Important to Successful Transformation
paragraphs: We compared SBA’s implementation process to practices that have been  identified in major private and public sector organizational transformations  as key for a successful transformation.  Building on lessons learned from  the experiences of large private and public sector organizations, these  practices can help agencies successfully transform their cultures so that  they can be more results oriented, customer focused, and collaborative.   While SBA applied some key practices, such as involving top leadership,  dedicating an implementation team and developing an implementation  plan, it also overlooked key aspects that emphasize transparency and  communication.  For example, although it developed a draft transformation  plan with implementation goals and a timeline, it did not share the plan  with employees and stakeholders.  SBA developed strategic goals for  transformation but still needs to link those goals with performance goals  and its performance management system.  Finally, a lack of communication  and employee involvement in SBA’s communication approach did not  encourage two-way communication to obtain feedback from employees  and stakeholders and involve employees to obtain their ideas and gain their  ownership for the transformation.
subsections: section_title: Practices Important to Successful Transformation
paragraphs: According to key transformation practices, people are at the center of any  change management initiative—people define the organization’s culture,  drive its performance, and embody its knowledge base.   Experience shows  that failure to adequately address—and often even consider—a wide  variety of people and cultural issues are at the heart of unsuccessful  transformations.  Recognizing the “people” element in these initiatives and  implementing strategies to help individuals maximize their full potential in  the new organization, while simultaneously managing the risk of reduced  productivity and effectiveness that often occurs as a result of the changes,  is the key to a successful transformation.  Thus, transformations that  incorporate strategic human capital management approaches will help to  sustain agency efforts to improve efficiency, effectiveness, and  accountability in the federal government.
We convened a forum on September 24, 2002, to identify and discuss useful  practices and lessons learned from major private and public sector  mergers, acquisitions, and transformations.  The invited participants were  a cross section of leaders who have had experience managing large-scale  organizational mergers, acquisitions, and transformations, as well as  academics and others who have studied these efforts.  The forum neither  sought nor achieved consensus on all of the issues identified through the  discussion.  Nevertheless, there was general agreement on a number of key  practices that have consistently been found at the center of successful  mergers, acquisitions, and transformations.  In a follow-up report issued on  July 2, 2003, we identified specific implementation steps for these key  practices.  These practices and implementation steps are shown in table 1.
section_title: SBA Transformation Has Top Leadership Support and a Designated Implementation Team, but Senior Officials’ Roles Were Not Always Transparent
paragraphs: One of the key practices important to a successful transformation is for the  agency to ensure that top leadership drives the transformation.  SBA has  followed this practice, with both the Administrator and the Deputy  Administrator demonstrating support for the transformation.  The SBA  Administrator has provided a rationale behind the purpose of the agency  and the goals of the transformation by addressing district directors and  visiting field offices to discuss the importance and goals of  transformation—to increase awareness of SBA’s services and to make SBA  a better trained, better equipped, and more efficient organization. SBA  officials told us that the Deputy Administrator has also visited many field  offices to discuss the transformation.
Designating a strong and stable implementation team that will be  responsible for the transformation’s day-to-day management is also  important to ensuring that transformation receives the focused, full-time  attention needed to be sustained and successful.  SBA has dedicated an  implementation team to manage the transformation process, but it has  experienced leadership changes that were not made apparent to employees  and stakeholders.   The composition of the team is important because of  the visual sign it communicates regarding which organizational  components are dominant and subordinate or whether the transformation  team involves a team of equals.  Prior to the Deputy Administrator  assuming the lead for implementing the transformation, the Chief  Operating Officer was responsible.  The Chief Operating Officer, along with  SBA’s Associate Administrator for the Office of Field Operations, visited  the pilot district offices during the kick off to promote the transformation  and to address questions and concerns of the pilot district office staff.   However, the Chief Operating Officer left SBA shortly after the first pilot  phase was initiated.  Similarly, the person who was initially the Associate  Administrator for the Office of Field Operations, who was responsible for  overseeing the district office pilots, was no longer involved in the  transformation shortly after implementation.  SBA officials told us that it  was not productive for its Chief Operating Officer to be in charge of the  transformation because the Chief Operating Officer position was equal in  terms of authority to the other key positions on the implementation team.   Since the Chief Operating Officer left the agency, SBA has not publicly  designated a day-to-day manager for the transformation effort.  Based on  our discussions with stakeholders and field and union officials, the  Counselor to the Administrator appeared to be the manager.  However, SBA  has not issued any announcement or otherwise clarified the leadership or  implementation team to employees and stakeholders.  SBA officials told us  that the person now serving as the Associate Administrator for the Office of  Field Operations leads the weekly conference calls with the district and  center directors involved in the pilots and is the person most involved in  the day-to-day management of the transformation.
The Deputy Administrator, who can direct the other members of the  implementation team, leads the current team, which comprises senior  executives of the key program areas affected by the transformation such as  the Associate Deputy Administrator for Capital Access, the Associate  Administrator for the Office of Field Operations, Chief Human Capital  Officer, and the three pilot district office directors.  The team also includes  the Counselor to the Administrator and two Regional Administrators.   Officials on the implementation team told us that they meet on a weekly  basis with the Deputy Administrator and sometimes the Administrator to  discuss the status and concerns related to the pilot’s implementation.  SBA  officials also emphasized that the implementation team includes a mix of  political appointees and senior career officials.  For example, the Associate  Deputy Administrator for Capital Access and the Associate Administrator  for Office of Field Operations are political appointees.  The Chief Human  Capital Officer and the Counselor to the Administrator are career officials.
section_title: Lack of a Transparent Plan and Changing Focus Made SBA’s Implementation Goals and Progress Reports Confusing
paragraphs: A key practice in organizational transformations is to set implementation  goals and a timeline to build momentum and show progress from day one.   Although SBA had developed a transformation plan that contains goals,  anticipated results, and an implementation strategy, it never made the plan  public.  SBA headquarters officials told us that all of its plans provided to  us were “preliminary” documents because of changes made to the plan;  therefore, it had not been shared with employees or stakeholders.  Making  the implementation goals and timeline public is important for transparency  and accountability in a transformation and because employees and  stakeholders are not only concerned with what results are to be achieved,  but also how to achieve those results.  According to SBA’s draft  transformation plan, SBA intended to keep its employees apprised of the  current status of activities, and continuously inform its employees on what  the agency intended to do. However, SBA has not made much information  available to its employees and stakeholders regarding the details of  upcoming steps, measures for success, and reasons for decisions.  As a  result, it appeared to many district office employees and stakeholders that  headquarters lacked a plan and direction.   Stakeholders, including  representatives from lender trade associations, informed us that SBA has  not been forthcoming in discussing its transformation plans with them.    Generally, district office employees told us they thought SBA had no clear  plan and lacked direction.  Specifically, two district office employees told  us that despite any planning that SBA had done for the transformation,  headquarters officials kept adding to the plan, and changing goals during  mid-year, which left employees in the district office uncertain about what  to expect.
SBA officials told us that internal and external factors, such as budget  uncertainties, caused SBA to alter aspects of the draft transformation plan.   Initially, phases two and three of its transformation were to expand its  district office and centralization pilot initiatives to additional district  offices.  SBA had also planned a number of other initiatives as part of the  later phases, including analyzing its business processes to identify  opportunities for improvement, restructuring its surety bond program, and  expanding its technology systems.   According to a revised plan dated  August 1, 2003, and discussions with SBA officials, the focus of SBA’s  transformation is now on creating a new center for centralizing all of its  7(a) loan liquidation and loan guaranty cases.   Also, the plan and other  documentation describing SBA’s new centralization initiative indicate that  SBA’s reason for the initiative is to allow it to correct staffing imbalances at  its district offices nationwide and will allow these districts to increase the  number of people in the field offices who are providing direct assistance to  small businesses, including providing assistance in areas that have not had  access to SBA services.  While SBA officials told us the focus of the  transformation had changed, we had difficulty in determining the extent of  changes to the specific initiatives in its initial transformation plan,  including to what extent SBA would test new marketing and outreach  approaches, centralize other functions, and improve business processes.   According to a senior SBA official, although there has not been a formal  announcement about creating the liquidation center, he expected that staff  would be aware that SBA was moving toward centralizing loan-related  functions based on the new marketing and outreach focus in the pilot  district offices, and because the union had been informed.
Similarly, although SBA planned for evaluating the progress of its pilot  initiatives, the SBA evaluations provided to us have been limited to  measuring the results of its centralization pilots and not the results of the  district office pilots or lessons learned from the implementation process.   As a result, employees and stakeholders are uncertain about the results of  the district office pilots.  According to key transformation practices, it is  essential to establish and track implementation goals to pinpoint  performance shortfalls and suggest midcourse corrections.  According to  SBA transformation documents and officials, follow-up evaluations of its  pilot initiatives were to take place after kick off—every 90 days for the  district office pilots and every 30 days for the center pilots—to evaluate the  progress of the pilots, and to monitor and validate the information SBA  received.  In addition, these reviews were intended to identify any  problems related to the transformation process, as well as best practices,  which would be documented and shared with the others in the pilot to  improve efficiency and effectiveness.   For its centralization initiative, SBA  has established some evaluation standards—such as measuring average  turnaround and processing time for the centers, and has generated a  benchmark report reflecting the results of these measures.  While SBA  gathered benchmark measurements to monitor progress in the district  office pilots as part of its quality service reviews conducted in January  2003, SBA did not provide an evaluation of the results of SBA’s district  office initiative.  As of our report date, it is unclear to us whether SBA has  completed or begun district office evaluations.  SBA officials told us that  they are working on developing a way to evaluate the impact of the district  office pilots and to link their marketing and outreach focus with their  existing performance goals, such as loan volume, so that they would have a  road map on lessons learned to use when adding more district offices to the  pilot.
section_title: SBA Has Developed Strategic Goals for Its Transformation, but Needs to Link Performance Goals to Its Marketing and Outreach Focus
paragraphs: Establishing a coherent mission and integrated strategic goals is another  key practice in organizational transformations.  Although SBA has  developed strategic goals to guide its transformation and included these  goals in its fiscal year 2004 performance plan, SBA has not linked them  with measurable performance goals that demonstrate the success of the  agency’s expanded focus on marketing and outreach.  According to the  Government Performance and Results Act, agencies are required to  develop annual performance plans that use performance measurement to  reinforce the connection between the long-term strategic goals outlined in  their strategic plans and the day-to-day activities of their staff, and include  performance indicators that will be used to measure performance and how  the performance information will be verified.  District office employees we  interviewed generally indicated an understanding of the strategic goals and  the purpose of the transformation, and had a sense of what the  transformation intends to accomplish.  However, some district office  employees told us that they did not know what the measures would be for  determining whether the new marketing and outreach focus was  successful, while others told us that they were unclear on how the district  office staff should conduct marketing and outreach.  SBA officials told us  that the agency was still struggling with how to link its marketing and  outreach focus with its existing performance goals, such as number of  loans made by lending partners.
SBA currently uses quantitative measures, such as the number of jobs  created, number of loans made, and dollar volume of loans to determine  how well it is achieving its strategic goals.   SBA officials told us that SBA  uses an Execution Scorecard, which is an Intranet-based system, as the  internal management tool to track data on each district offices’  performance goals, for monthly progress reviews with the Deputy  Administrator on key initiatives, including transformation.  According to an  SBA official, the scorecard shows that the loan volume in two of the three  pilot district offices has increased more than in nonpilot district offices  when compared to last year’s volume.  However, we identified other factors  that could have contributed to an increase in loan volume.  For instance,  the policy changes made to its SBA Express program, which allows the  lender to use its own documentation and applications, also most likely  contributed to an increase in loan volume.  In fact, other district offices not  in the pilot have also seen an increase in loan volume.   As a result, the  scorecard may be limited in measuring success that could be directly  attributed to the pilot efforts for marketing and outreach.
section_title: Lack of Clear Performance Goals Puts New Performance Management System At Risk
paragraphs: Using the performance management system to define responsibility and  assure accountability for change is a key practice in organizational  transformations.  SBA has taken steps toward creating a performance  management system that would define responsibility and set expectations  for the individuals’ role in the transformed SBA.  However, since SBA is still  struggling with how to define measurable outcomes for the new marketing  and outreach focus, its performance management system may also send a  confusing or ambiguous message to employees.  We previously reported  that as agencies continued to shift towards a greater focus on results, they  would need to make progress connecting employee performance with  agency success.  An explicit alignment of daily activities with broader  results helps individuals see the connection between their daily activities  and organizational goals.  According to SBA headquarters officials, SBA’s  performance management system, modeled after IBM’s, would focus more  on results and not on activity.  SBA officials told us that SBA implemented  its performance management system for senior executives and supervisory  staff in fiscal year 2003.  SBA is implementing the system for its  nonsupervisory staff beginning in fiscal year 2004.  SBA officials provided  us with documentation of the new position descriptions for the marketing  and outreach positions that explained the duties and expectations.   However, at the time of our review SBA was still developing the  performance standards and had not yet implemented them for  nonsupervisory staff. SBA recognized that it would need to provide training  to help employees make the transition from their former areas of expertise  to a new, broader, and in some respects, more complex job.
It was unclear what the linkage will be between these new job  responsibilities, performance standards, agency performance goals, and  the strategic goals for the transformation.  District office employees who  have been conducting new marketing and outreach activities told us that  they were not sure how their performance will be measured because they  have not received information on their performance management  standards, and are unclear as to how their job responsibilities would  change, or how they would be rated. Specifically, one district office  employee told us that it was easy to measure loan specialist performance  prior to the pilot because the standards were clear and concise—he knew  from his own self-assessment where his performance stood—and that  under the new performance management system, it will be harder to  measure results because they are not tangible.  In addition, another district  office employee told us that although many employees see benefits to the  transformation, they do not know how SBA will measure its progress  toward reaching more of the public since employees do not understand  what exactly they need to accomplish, such as number of clients the staff  should contact or how many marketing events staff should attend, to help  SBA reach its goals.
section_title: Communication Strategy Is Limited
paragraphs: While establishing a communication strategy is a key practice in  organizational transformations, SBA has not established an effective and  on-going communication strategy that would allow the agency to create  shared expectations and report related progress to its employees and  stakeholders.  Organizations implementing transformations have found  that communicating information early and often helps build an  understanding of the purpose of planned changes and builds trust among  employees and stakeholders.  In particular, SBA does not have an effective  communication strategy that reaches out to its employees and stakeholders  to engage them in the transformation process, encourages two-way  communication, and communicates early and often to build trust.  A  comprehensive communication strategy that reaches out to employees and  stakeholders and seeks to genuinely engage them in the transformation  process is essential to implementing a transformation.
SBA officials acknowledged that it was important for headquarters to  communicate and address staffs’ concerns.  However, when we reviewed  SBA’s current methods of communication and asked employees in the pilot  offices how they received information, we determined that communication  is one-way and through a chain of command model, newsletters, or rumors.    Communication is not about just “pushing the message out,” but also  involves facilitating an honest two-way exchange and allows for feedback  from employees and stakeholders.  SBA officials told us that SBA  headquarters disseminated information to the employees through the  regional administrators and the district directors—and a newsletter—The  SBA Times.  District office employees told us that they generally hear  about transformation-related events either through their district director or  their immediate supervisor, while other employees stated that they get  most of their information through rumors. In addition, stakeholders also  told us that they initially hear information through rumors. For instance, a  representative from a lender association informed us that they get  information through rumors because SBA did not provide any information  about the transformation to them.  As we noted in an earlier report, it is  important for stakeholders to be involved because it helps to ensure that  resources are targeted at the highest priorities, and it creates a basic  understanding among the stakeholders of the competing demands that  confront most agencies, such as the limited resources available.
It is also important to consider and use employee feedback and make any  appropriate changes to the implementation of a transformation.  According  to union officials, SBA had set up an e-mail address in June 2002 to which  employees could send their questions regarding the transformation.   However, despite staff submitting questions, the district office staff told us  they have yet to see a list of the questions or SBA’s responses.  According to  SBA officials, these emails were provided to senior management officials to  respond to questions in conference calls held with field staff.  The draft  transformation plan we reviewed included a set of questions and answers  about the transformation, but they were never made public.  SBA officials  told us that because all the transformation plans were preliminary, SBA has  not drafted a thorough list of questions and answers and therefore had not  made them available to employees.
SBA did not communicate sufficiently with its employees.  The information  on the transformation initiative found in SBA’s monthly newsletters from  June 2002 through March 2003 reported on the status of the transformation  effort, described the purpose of transformation, announced when the pilots  began, and described them.  We reviewed all of the newsletters issued after  the kick off of the pilots in March 2003, to see what kind of information was  provided to SBA employees.  With one exception, the newsletters had no  information about the transformation or the creation of the new 7(a)  Liquidation and Purchase Guaranty Center and SBA’s intention to reassign  staff from overstaffed district offices to understaffed offices.  The topic  related to transformation included in one issue was a brief reference to the  district office pilot in Phoenix.  None of the newsletters mentioned who  would replace two people who had been key leaders in the  transformation—the Chief Operating Officer who left the agency or the  Associate Administrator for Office of Field Operations who had moved to a  different position within SBA.  SBA officials told us that no one has filled  the position of the Chief Operating Officer and the replacement for the  Associate Administrator for Office of Field Operations was announced in  an agencywide e-mail.  However, as we stated earlier, after the Chief  Operating Officer left the agency, SBA had not clarified who was leading  the implementation team for transformation.
section_title: Transformation Has Not Adequately Involved Employees
paragraphs: Involving employees from the beginning to obtain their ideas and gain  ownership of the transformation is important to successful  transformations.  It strengthens the process by including frontline  perspectives and experiences.  In addition, a study conducted by the  National Academy of Public Administration indicates that agencies that  have effectively restructured have also worked with their unions to  implement changes.  The Academy reported that when Congress  mandated in 1998 that the Internal Revenue Service (IRS) restructure, IRS  management worked with the National Treasury Employees Union to  implement benchmarks and develop alternatives.  As a result of this  collaboration, according to the Academy, IRS facilitated the process of  moving employees into new jobs and made the transition easier.  Although  SBA officials told us that SBA has involved its union, the American  Federation of Government Employees, and signed memorandums of  understanding with the union on implementation of the pilot and on  establishing a liquidation center, union officials told us that they had very  little involvement.  A union representative told us that SBA does not  involve them in any of the planning and only includes the union after it has  decided what it wants to accomplish.  In addition, another union  representative told us that since signing the memorandum of  understanding for the first pilot phase in October 2002, SBA has not  included the union in aspects of the transformation, such as creating SBA’s  competency models, or following up on training courses.  SBA made a  presentation to the union in July 2003 regarding the second phase of the  pilot—to create a new liquidation center in the Washington, D.C.,  metropolitan area—prior to signing the second memorandum of  understanding but did not give the union an opportunity for input on  planning for the second phase.  In September 2003, SBA and the union  signed a memorandum of understanding on the creation of the new center  in which SBA agreed to offer an early retirement for all agency personnel  and a buyout option to those employees who performed the liquidation  function.
SBA’s transformation has not involved employees in the planning or  implementation stages.  During our field visits, we found that because SBA  has not actively involved its employees in the transformation process, there  is often anxiety and apprehension, as well as low morale in the pilot district  offices. However, based on our field visit, we observed that the Arizona  District Office’s former Portfolio Management Team appeared to be less  anxious about the transformation than Portfolio Management teams in the  other district office pilots, mostly because the team leader and her staff  were involved early in the transformation by preparing the loan files for the  Santa Ana 7(a) center, and training the center staff.  We found that because  of this early involvement, they had a better sense of their role and were  more optimistic about the transformation.   An SBA headquarters official  told us that SBA intends to use its employee feedback from training  evaluations to modify its training curriculum for the next pilot phase, but  we were unable to identify any other examples where employee opinions  and perspectives were sought.   During our field visits to the pilot offices,  we found that the employees had valuable input on lessons learned and on  ways that SBA could improve its implementation process.  For example,  one employee suggested that SBA create a guidebook for its employees on  what to expect from the transformation, and that the three district office  pilots be a resource for the guidebook.  In addition, one district office  employee suggested that SBA change the order of the training curriculum  so that the course on results management is offered first to help  supervisors communicate with their staff regarding the transformation. We  also observed that employees generally were not opposed to the  transformation and saw benefits resulting from the transformation;  however, a few employees expressed frustration with the way the process  was implemented. If employees had a larger role in implementing and  planning the transformation, such as through employee teams, they could  help to facilitate the process by sharing their knowledge and expertise,  particularly those employees who have had experience in the marketing  and outreach area.
section_title: Conclusions
paragraphs: SBA has made some progress in implementing its transformation plan for  phase one.  However, continued success and progress in implementing its  transformation may be impeded by budget uncertainties and constraints  and the difficulties in realigning employees to staff centralization efforts.   To some extent, SBA has compounded the budget challenge by not sharing  its plan with a key stakeholder—Congress—and not providing clear,  consistent budget requests with a detailed plan that show priorities and  link resources to desired results.  In addition, as SBA moves forward in  centralizing its loan and other functions, realigning staff will likely present  additional challenges, such as problems with employee morale and  productivity.
Transforming an organization is not an easy endeavor.  It requires a  comprehensive, strategic approach that takes leadership, time, and  commitment.  Although SBA may achieve progress in the short-term by  establishing new centers to improve some of its business processes, its  long-term success in defining and institutionalizing a new role for its  district offices will take more time and commitment.  The practices we  have identified as being important to successful transformation are  especially important as SBA moves forward with its transformation and  could also help mitigate the challenges it faces with its budget and staff  realignment.  However, the weaknesses we identified in SBA’s  implementation process could derail or negatively impact its  transformation effort as the agency attempts to expand transformation and  affect more of its operations and employees.  SBA’s leadership changes,  plans, and rationales for decisions have not been made public and  therefore have created an environment of confusion about the leadership,  specific goals, and timeline for transformation.  SBA is in the infant stages  of developing a link between its broad strategic objectives and measurable  performance goals, which will be important for determining the success of  transformation.  The lack of frequent and two-way communication has  exacerbated an environment of confusion, even though many employees  understand the goals of transformation.  Finally, SBA is missing out on one  of its key strengths—its employees—by not adequately involving  employees in the transformation process.  This lack of employee  involvement means that SBA does not receive information and  perspectives that could improve and facilitate the transformation and  promote employee buy-in.
section_title: Recommendations for Agency Action
paragraphs: In order to improve and build on transformation efforts under way at SBA,  we recommend that the Administrator adopt key practices that have helped  other organizations succeed in transforming their organizations.  Based on  our review of SBA’s initial implementation of phase one of its  transformation, we specifically recommend that the Administrator  Clarify for employees, congressional, and other stakeholders the  leadership and implementation team members who are guiding  transformation.
Finalize the draft transformation plan that clearly states SBA’s strategic  goals for transformation and includes implementation goals, timeline,  and resource requirements, and share the plan with stakeholders and  employees.
Develop performance goals that reflect the strategic goals for  transformation and more clearly link the strategic goals of  transformation to existing performance goals.  In addition, develop  budget requests that clearly link resource needs to achieving these  strategic and performance goals.
Ensure that the new performance management system is clearly linked  to well-defined goals to help individuals see the connection of their daily  activities and organizational goals and encourage individuals to focus on  their roles and responsibilities to help achieve those goals.
Develop a communication strategy that facilitates and promotes  frequent and two-way communication between senior managers and  employees and between the agency and its stakeholders, such as  Congress and SBA’s lenders.  For example, SBA could electronically  post frequently asked questions and answers on its Intranet.
Facilitate employees’ involvement by soliciting ideas and feedback from  its union and staff, ensuring that their concerns and ideas are  considered.  For example, SBA could develop employee teams and  expand employee feedback mechanisms like those it employed in the  pilot training.
section_title: Agency Comments
paragraphs: We received written comments on a draft of this report from SBA’s Chief  Financial Officer, which are reprinted in appendix I.  In commenting on the  draft, SBA did not state whether it concurred with our recommendations  but said it would consider them as it continues to plan for and implement  its transformation efforts.  SBA specifically noted that it had already  addressed recommendations regarding developing performance goals and  using the performance management system to define responsibility as a  result of issuing a new strategic plan with revised performance goals and  implementing its new performance management system for employees on  October 1, 2003.  SBA provided us with a draft strategic plan but then told  us that the plan was being revised significantly and that we should wait  until the revised plan was completed.  Since this revised strategic plan was  issued after we had completed our work, we did not have time to determine  whether SBA had sufficiently addressed our recommendations related to  linking its transformation efforts to strategic and performance goals and  performance expectations for employees.  Therefore, these  recommendations will remain in the report, and we will determine whether  SBA has implemented the recommendations as part of our  recommendation follow-up process.
SBA disagreed with our finding that its budget requests for transformation  were unclear.  SBA stated that it clearly lays out its funding requests for  transformation in the Fiscal Year 2003 and Fiscal Year 2004 Budget Request  and Performance Plans.  We used these documents to review SBA’s budget  requests for transformation and as the source for our analysis shown in  figure 4 of the report.  In its comments, SBA said that it had made changes  to its budget format in fiscal year 2004 to bring it more in line with the  requirements of the Results Act by integrating budget with performance  goals.  We clarified some language in the final report to better reflect the  issues we identified with SBA’s transformation budget requests.  While the  fiscal year 2004 budget request may have at some level integrated its budget  request with performance goals for its programs, it did not make clear  linkages between its request for transformation funds and its performance  goals.  The budget requests for transformation were not consistent in terms  of amounts requested or stated purposes nor were they accompanied by a  detailed plan that showed priorities and linked resources to desired  transformation results.  Therefore, we still maintain that SBA could  improve its transformation budget request presentation to better ensure  that it links the request to transformation performance goals and  outcomes.
SBA also disagreed with our findings related to communication and  employee involvement.  SBA stated that officials have traveled to the pilot  district offices to explain the agency’s transformation plans and solicited  comments from district directors in a May 2002 district director  conference.  However, our draft report did not state that management was  not involved or was uninformed, but that employees below the district  director level in the pilot offices were not sufficiently involved and  informed.  Furthermore, SBA cites its efforts to communicate prior to the  implementation of the pilots, which we recited in our draft report, but  employees told us that their level of involvement and the amount of  information they received was lacking after the pilot began. In its  comments, SBA also stated that it conducts weekly telephone calls with the  pilot district directors who in turn have regular meetings with their  employees.  Our draft report acknowledged SBA’s use of conference calls  with the district directors and the expectation that directors would then  have meetings with their employees.  However, we also found that  notwithstanding communications with district directors, district office  employees remained confused and lacked avenues for two-way  communication with headquarters about the transformation.  SBA also  stated that it has worked with its union to gain agreement through  memorandums of understanding for different parts of the plan, and these  efforts were reflected in our draft report.  However, in more than one  discussion with us, union officials expressed concerns that SBA had  approached them after having already decided what it was going to do and  had not adequately informed the union about new initiatives or changes to  the plan.  We continue to maintain that SBA’s transformation efforts could  benefit from improved communication and employee involvement.
SBA also provided technical corrections, which we incorporated as  appropriate in this report.
section_title: Objectives, Scope, and Methodology
paragraphs: In preparing this report, we focused on the district office and centralization  pilots of phase one of SBA’s transformation effort because (1) they were  initiatives that had begun at about the same time we began our review and,  therefore, we could observe the implementation process and (2) these pilot  initiatives, if expanded, would impact all 68 SBA district offices.
To determine SBA’s progress in implementing its transformation effort and  challenges that have or could impede progress, we analyzed planning,  budget, and implementation documents related to SBA’s transformation  and interviewed key officials at SBA headquarters involved in the  transformation planning and implementation processes.  We also  conducted site visits at each of the pilot offices involved in the first phase— three district office pilots in Phoenix, Arizona; Miami, Florida; and  Charlotte, North Carolina; and two center pilots in Santa Ana and  Sacramento, California.  At the center locations, we reviewed documents  that were developed to make the process more efficient and consistent (for  example, checklists and standardized letters).  We also reviewed measures  that SBA is using to assess the centralization pilots.  From data SBA  headquarters uses to track the pilots, we reviewed about 450 approvals for  the 504 loan program pilot and calculated an average total response and  processing time using the dates that were included in the data.  At each of  the pilot locations, we interviewed all employees who were directly  affected by the pilot—in the case of the district offices, we met with  virtually all employees.  To ensure open communication, we met with  directors, supervisors, and employees separately.  We asked them to  describe how their office, role, and job had changed; how information was  communicated to them about transformation; and whether they had been  provided training and resources to transition into new roles.  We also asked  them to identify the top five or fewer challenges and benefits of  transformation and lessons learned from the initial implementation  process.
To assess whether SBA applied practices that are important to  organizational change and human capital management in the federal  government, we reviewed the literature and our previous work on  reorganizations, organizational change, and human capital management to  identify key practices that have been recognized as contributing to  successful organizational transformation.  The main document we relied on  in identifying key practices was our recent report Results Oriented  Cultures: Implementation Steps to Assist Mergers and Organizational  Transformations.   We used these criteria as a basis to assess SBA’s  planning process for transformation, implementation process for the pilots  for phase one, leadership of the transformation, communication with  employees and key stakeholders, and level of employee involvement.   When interviewing SBA employees for objective one, we also asked  questions to determine their understanding of the transformation effort and  how they received information and communicated their questions or  concerns.  In addition to talking with employees involved in the pilots, we  also interviewed representatives of SBA’s union and asked the extent to  which they were involved in the transformation process.  To obtain  feedback from SBA stakeholders, we interviewed officials representing the  National Association of Government Guaranteed Lenders and the National  Association of Development Companies, whose members include SBA 7(a)  lenders and certified development companies that make 504 loans,  respectively.  We also met with SBA’s congressional stakeholders who  expressed views about their role in SBA’s transformation process.
We conducted our work in Washington, D.C.; Phoenix, Arizona;  Sacramento and Santa Ana, California; Miami, Florida; and Charlotte,  North Carolina, between February and September 2003, in accordance with  generally accepted government auditing standards.
Unless you publicly announce its contents earlier, we plan no further  distribution until 30 days after the date of this report.  At that time, we will  send copies of the report to the Ranking Minority Member of the Senate  Committee on Small Business and Entrepreneurship, the Ranking Minority  Member of the House Committee on Small Business, other interested  congressional committees, the Administrator of the Small Business  Administration, and the Director of the Office of Management and Budget.
We will make copies available to others on request.  This report will also be  available at no charge on the GAO Web site at http:/www.gao.gov.
Please contact me at (202) 512-8678, dagostinod@gao.gov or Katie Harris at  (202) 512-8415, harrism@gao.gov if you or your staff have any questions.   Major contributors to this report were Patty Hsieh, Kay Kuhlman, and Rose  Schuville.
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