According to senior SBA officials in headquarters and the field, several aspects of the current organizational alignment contribute to the challenges faced by SBA management. The problem areas include cumbersome communication links between headquarters and field units; complex, overlapping organizational relationships; confusion about the district offices’ primary customer; and a field structure not consistently matched with mission requirements. According to the agency scorecard report for SBA, while SBA recognizes the need to restructure, little progress has been made to date. In response to our findings and additional challenges identified by OMB and the SBA Inspector General, SBA drafted a 5-Year Workforce Transformation Plan. The 1990s realignment—in which the regions were downsized, but not eliminated, and the Office of Field Operations was created, but never fully staffed—resulted in the cumbersome communication links between headquarters and field units according to senior SBA officials in headquarters and the field. The Office of Field Operations had fewer than 10 staff at the time of our review, and senior SBA officials told us that it would be impossible for such a small office to facilitate the flow of information between headquarters and district offices as well as was done by the 10 regional offices when each region had its own liaison staff. As a result, headquarters program offices sometimes communicate with the district offices directly and they sometimes go through the Office of Field Operations. To further complicate communication, the regional offices are still responsible for monitoring goals and coordinating administrative priorities to the district locations. Officials described how these multiple lines of communication have led to district staff being on the receiving end of conflicting or redundant requests. While some SBA officials felt that the regions had a positive effect on communication between headquarters and the districts, others felt that the regions were an unnecessary layer of management. The SBA Inspector General’s office found similar problems with communication within SBA when it conducted management challenge discussion groups with almost 50 senior officials from SBA headquarters, regional, and district offices. SBA has recognized that as it transforms itself, it needs to make the lines of communication between the districts, regions, and headquarters clearer to help bring about quick, effective decision-making. SBA plans to increase the responsibilities of the regional offices, perhaps by adding a career deputy regional administrator to assist the Regional Administrator in overseeing the district offices. Under SBA’s draft plan, the deputy would also work closely with the Office of Field Operations to coordinate program delivery in the field. We also found evidence of complex, overlapping organizational relationships, particularly among field and headquarters units. 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 loan program staffs sometimes need to work with the loan processing and servicing centers to get information or to expedite loans for lenders in their district. Because loan processing and servicing centers report directly to the Office of Capital Access, requests that are directed to the centers sometimes must go from the district through the Office of Capital Access then back to the centers. District managers and staff said that sometimes they cannot get answers to questions when lenders call and that they have trouble expediting loans because they lack authority to direct the centers to take any action. Lender association representatives said that the lines of authority between headquarters and the field can be confusing and that practices vary from district to district. Figure 1 depicts the variety of organizational relationships we found between SBA headquarters and field units. SBA plans to eliminate the current complicated overlapping organizational relationships between field organizations and headquarters organizations by consolidating functions and establishing specific lines of authority. SBA’s draft transformation plan states that this effort will reduce management layers and provide a more efficient management structure. Specifically, SBA plans to further centralize loan processing, servicing, oversight, and liquidation functions; eliminate area offices for surety bonds and procurements by making regional or district offices responsible; and move oversight for entrepreneurial development programs to district offices. We found disagreement within SBA over the primary customer of the district offices. Headquarters executives said that the district offices primarily serve small businesses, while district office officials told us that their primary clients are lenders. The headquarters officials said that the role of the district office was in transition and that, because many lending activities had been centralized, the new role for the district offices was to work with small businesses. However, the district office managers said that their performance ratings were weighted heavily on aspects of loan activity. Moreover, there is only one program—8(a) business development—through which district offices typically work directly with small businesses, further reinforcing the perception of the district managers that lenders rather than small businesses are their primary customers. According to SBA’s transformation plan, the mission of its districts will become one of marketing SBA’s continuum of services, focusing on the customer, and providing entrepreneurial development assistance. SBA stated that over the next 5 years, it is fully committed to making fundamental changes at the district level, changes that have been discussed for years, but have never been fully implemented. To begin this change, SBA plans 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 in three offices during fiscal year 2002. SBA plans to implement the results in 10-20 districts in fiscal year 2003. As part of this change, SBA will need to carefully consider how the new mission of its district offices will affect the knowledge, skills, and abilities—competencies—district staff will need to be successful in their new roles. If competency gaps are identified, SBA will need to develop recruitment, training, development, and performance management programs to address those gaps. SBA managers said that, in some cases, the current field structure does not consistently match mission requirements. For example, the creation of loan processing and servicing centers moved some, but not all, loan- related workload out of the district offices. District offices retained responsibility for the more difficult loans and loans made by infrequent lenders. Similarly, the regional offices were downsized, but not eliminated during the 1990s. In addition, they said that some offices and centers are not located to best accomplish the agency’s mission. For example, Iowa has two district offices located less than 130 miles apart, and neither manages a very large share of SBA’s lending program or other workload. SBA also has a loan-related center located in New York City, a very high- cost area where it has trouble attracting and retaining staff. Figure 2 shows the locations of SBA offices around the country. SBA officials also stressed that congressional direction has played a part in SBA’s current structure. SBA officials pointed out that Congress has created many new offices, programs, aspects of existing programs, and pilot projects and has prescribed reporting relationship, grade, and/or type of appointment for several senior SBA officials. We found 78 offices, programs, or program changes that were created by laws since 1961, with most of the changes occurring in the 1980s and 1990s. Eleven SBA staff positions and specific reporting relationships were also required by law. In its transformation plan, SBA discusses its difficulty with matching its field structure with mission requirements and states that in order for the field structure to reflect the new mission and customer focus, consolidation of functions and the elimination or reduction of redundant offices may be necessary. The result of consolidations will be a streamlined organization with reduced management layers and an increased span of control for the field organizations that remain. For example, over the course of the 5-year plan, SBA plans to consolidate all loan processing, servicing, and liquidation into fewer centers, but give them an expanded role for handling all the functions currently carried out in the district offices. Integrating personnel, programs, processes, and resources to support the most efficient and effective delivery of services—organizational alignment—is key to maximizing an agency’s performance and ensuring its accountability. The often difficult choices that go into transforming an organization to support its strategic and programmatic goals have enormous implications for future decisions. Our work has shown that the major elements that underpin a successful transformation—and that SBA should consider employing—include strategic planning; strategic human capital management; senior leadership and accountability; alignment of activities, processes, and resources to support mission achievement; and internal and external collaboration. Proactive organizations employ strategic planning to determine and reach agreement on the fundamental results the organization seeks to achieve, the goals and measures it will set to assess programs, and the resources and strategies it will need to achieve its goals. Strategic planning is used to drive programmatic decision-making and day-to-day actions and, thereby, help the organization be proactive, able to anticipate and address emerging threats, and take advantage of opportunities, rather than remain reactive to events and crises. Leading organizations, therefore, understand that strategic planning is not a static or occasional event, but a continuous, dynamic, and inclusive process. Moreover, it can guide decision-making and day-to-day activities. According to the agency scorecard report, SBA has not articulated a clear vision of what role it should fill in the marketplace. In our review of SBA’s fiscal year 2000 performance report and fiscal year 2002 performance plan, we reported that we had difficulty assessing SBA’s progress in achieving its goals because of weaknesses in its performance measures and data.We said that SBA should more clearly link strategies to measurable performance indicators, among other things. SBA said it has made adjustments to its managing for results process and now has identified specific performance parameters that must be met. Additionally, SBA recognizes the need for its workforce transformation plan and 5-Year Strategic Plan to complement each other. People—or human capital—are an organization’s most important asset and define its character, affect its capacity to perform, and represent its knowledge base.