People are an agency’s most important organizational asset. An organization’s people define its character, affect its capacity to perform, and represent the knowledge-base of the organization. As such, effective strategic human capital management approaches serve as the cornerstone of any serious change management initiative. They must also be at the center of efforts to transform the cultures of federal agencies so that they become less hierarchical, process-oriented, stovepiped, and inwardly focused; and more flat, results-oriented, integrated, and externally focused. In January 2001, GAO designated strategic human capital management as a governmentwide high-risk area. As GAO’s January 2001 High-Risk Series and Performance and Accountability Series reports make clear, serious human capital shortfalls are eroding the ability of many agencies, and threatening the ability of others, to economically, efficiently, and effectively perform their missions. Plainly, the major problem is not federal employees. Rather, the problem is the lack of a consistent strategic approach to marshaling, managing, and maintaining the human capital needed to maximize government performance and ensure its accountability. Our High-Risk report outlined four pervasive human capital challenges now facing the federal government: Leadership, continuity, and succession planning Strategic human capital planning and organizational alignment Acquiring and developing staffs whose size, skills, and deployment meet Creating results-oriented organizational cultures These challenges are longstanding and will not be quickly or easily addressed. They require sustained and inspired efforts by many parties, including the President, department and agency leaders, the Office of Management and Budget, the Office of Personnel Management, Congress, and others. Comprehensive human capital legislative reforms will likely be needed, but agency leaders must not wait for them to happen. Much of the authority agency leaders need to manage human capital strategically is already available under current laws and regulations. Therefore, we believe the first step toward meeting the government’s human capital challenges is for agency leaders to identify and make use of all the appropriate administrative authorities available to them to manage their people for results. The use of these authorities often will need to be undertaken as part of and consistent with proven change management practices. The second step is for policymakers to pursue incremental legislative reforms to give agencies additional tools and flexibilities to hire, manage, and retain the human capital they need, particularly in critical occupations. The third step is for all interested parties to work together to identify the kinds of comprehensive legislative reforms in the human capital area that should be enacted over time. These reforms should place greater emphasis on skills, knowledge, and performance in connection with federal employment and compensation decisions, rather than the passage of time and rate of inflation, as is often the case today. The human capital model highlights the kinds of thinking that agencies should apply, as well as some of the steps they can take, to make progress in managing human capital strategically. The model consists of the following: The Critical Success Factors Table identifies eight critical success factors for managing human capital strategically, which embody an approach to human capital management that is fact-based, focused on strategic results, and incorporates merit principles and other national goals. Each critical success factor is then presented in a table, illustrating their development across three levels. Discussions in Pointers expand upon the eight critical success factors to highlight not just the needed actions but the kind of thinking that marks high-performing organizations’ approaches to managing people through the presentation of concepts, steps for progressing, and agency case illustrations. Appendix A includes a list of related GAO products corresponding to the eight critical success factors. In developing the model, we built upon GAO’s Human Capital: A Self- Assessment Checklist for Agency Leaders (GAO/OCG-00-14G, September 2000). In addition, we considered lessons learned from GAO reports on public and private organizations that are viewed as leaders in strategic human capital management and managing for results. Additional GAO reports highlighting the progress and shortcomings of individual federal agencies in these two areas were also consulted (Appendix A). Our model was further informed by the findings of external reports on strategic human capital management and managing for results from academia, OPM, the Merit Systems Protection Board, the National Academy of Public Administration, and others. We also reflected upon our own experience in strategic human capital management and lessons learned from our use of flexibilities available to GAO for maximizing the performance and accountability of GAO employees. Since maximizing performance and assuring accountability are at the heart of our mission at GAO, we believe it is our responsibility to lead by example, especially in the human capital area. By managing GAO’s workforce strategically and focusing on results we are helping to improve our performance and enhance accountability. By doing so, we also hope to demonstrate to other federal agencies that they can make similar improvements in the way they manage their people. Individuals who made key contributions to this product include Stephen Altman, Martin DeAlteris, Ellen V. Rubin, Shelby D. Stephan, and Edward Stephenson. The Critical Success Factors Table identifies eight critical success factors for managing human capital strategically. These factors are organized in pairs to correspond with the four governmentwide high-risk human capital challenges that our work has shown are undermining agency effectiveness (Figure 1). Taken together, the eight critical success factors embody an approach to human capital management that is fact-based, focused on program results and mission accomplishment, and incorporates merit principles and other national goals. When considering the human capital cornerstones and the critical success factors, it is important to remember that they are interrelated and mutually reinforcing. Any pairing or ordering of human capital issues may have a sound rationale behind it, but no arrangement should imply that human capital issues can be compartmentalized and dealt with in isolation from one another. All of the critical success factors reflect two principles that are central to the human capital idea: People are assets whose value can be enhanced through investment. As with any investment, the goal is to maximize value while managing risk. An organization’s human capital approaches should be designed, implemented, and assessed by the standard of how well they help the organization achieve results and pursue its mission. For each of the eight critical success factors, the table describes three levels: Level 1, Level 2, and Level 3 (Figure 2). The descriptions portray the approach to managing people that can be expected of an organization at each level. To understand the progression from level to level, it is best to keep in mind the two central human capital ideas just discussed. An agency at Level 1 is unlikely to have effectively put these two principles into practice. At Level 2 an agency is clearly taking steps to apply them. An agency at Level 3 has made these principles an integral part of its approach to doing business, and can see demonstrable results from having done so. Progressing to Level 3, which each agency should strive to accomplish, will take considerable time, effort, and resources on behalf of agency leadership to successfully manage the required organizational change. The use of this model requires a long-term commitment to valuing human capital as a strategic asset. Agency leaders view people as costs to be cut rather than as assets to be valued. Management decisions involving the workforce are often made without considering how these decisions may affect mission accomplishment. Similarly, business decisions are often made without due consideration of the human capital needs they entail or the human capital approaches that may be needed for successful implementation. Agency leaders acknowledge the importance of human capital to mission accomplishment, and have informed managers at all levels of the roles they need to play in acquiring, developing, and retaining people to meet the agency’s programmatic needs. The agency is working to explicitly link its human capital approaches to intended program results. Agency leaders view people as an important enabler of agency performance, recognize the need for sustained commitment by the agency to strategically manage its human capital, and stimulate and support efforts to integrate human capital approaches with organizational goals. The agency’s human capital approaches are consistently developed, implemented, and evaluated by the standard of how well they support the agency’s efforts to achieve program results. Managers at all levels actively support these concepts and are prepared and held accountable for effectively managing people. Human capital management is considered a support function, separate from and generally subordinate to the agency’s core planning and business activities. The “personnel” or “human resource management” office is largely process- oriented and focused on ensuring agency compliance with merit system rules and regulations. Expectations for staff in these offices are limited to processing transactions and addressing “personnel issues” on a case-by-case basis. Human capital professionals have begun to focus on the agency’s business needs and their role in filling them. The human capital function is in transition “from rules to tools,” facilitating compliance with merit system principles and other national goals, and helping the agency more effectively meet its strategic and business goals. Human capital professionals are expected to be customer- oriented and to develop the expertise needed to be effective in their new roles. Human capital professionals partner with agency leaders and line managers in developing strategic and program plans. The human capital office provides effective human capital strategies to meet the agency’s current and future programmatic needs and fulfil merit systems principles and other national goals. Human capital professionals are prepared, expected, and empowered to provide a range of technical and consultative services to their internal customers; agency leaders and managers consistently recognize the key role of human capital professionals in helping the agency and its people effectively pursue their mission. The agency has streamlined personnel processes and effectively employs technology to meet customer needs. The agency has yet to fully recognize the link between its human capital approaches and organizational performance objectives. Existing human capital approaches have yet to be assessed in light of current and emerging agency needs. The agency changes or adopts human capital approaches without considering how well they support organizational goals and strategies, or how these approaches may be interrelated. The agency's human capital needs are considered during strategic and annual planning.