When we placed strategic human capital management on our high-risk list back in January 2001, as a governmentwide high-risk challenge, we noted that after a decade of government downsizing and curtailed investments of human capital, it had become increasingly clear that federal human capital strategies were not appropriately constituted to adequately meet the current and emerging needs of the government and its citizens. We provided many examples of where human capital shortfalls were eroding the ability of agencies—and threatening the ability of other agencies—to effectively, efficiently, and economically perform their missions. In short, strategic human capital management was a pervasive challenge across the federal government. We noted that while legislation and other actions have been put in place since 1990 to address most major management areas, human capital was the critical missing link in reforming and modernizing the federal government’s management practices. Our high-risk report pointed to actions that federal leaders and their agencies, the Office of Personnel Management (OPM), the Office of Management and Budget (OMB), and Congress needed to take to address high-risk human capital issues. Since then, a real and growing momentum for change has become evident. In August 2001, President Bush placed the strategic management of human capital at the top of the administration’s management agenda. In October 2001, OMB notified agencies that they would be assessed against standards for success for each part of the President’s Management Agenda (PMA), including the strategic management of human capital. The first agency assessment was made public in February 2002 as part of the President’s proposed fiscal year 2003 budget. Subsequent assessments were later released in June and September 2002 and in January 2003, reporting on both the status and progress of agency efforts. In December 2001, OPM released a human capital scorecard to assist agencies in responding to the human capital standards for success in the PMA. In March 2002, we released A Model of Strategic Human Capital Management, designed to help agency leaders determine how well they integrate human capital considerations into daily decision making and planning for the program results they seek to achieve. In April 2002, the Commercial Activities Panel, which I was honored to chair, sought to elevate attention to human capital considerations in making sourcing decisions. In October 2002, OMB and OPM approved revised standards for success in the human capital area of the PMA, reflecting language that was developed in collaboration with GAO. To assist agencies in responding to the revised PMA standards, OPM released the Human Capital Assessment and Accountability Framework. In the fall of 2002, OPM began realigning its organizational structure and appointed four new associate directors with proven human capital expertise to lead federal efforts as part of a larger OPM effort to be more customer-focused. In November 2002, Congress passed the Homeland Security Act of 2002, which created the Department of Homeland Security (DHS) and provided the department with significant flexibilities to design a modern human capital management system. The effective development and implementation of these flexibilities will prove essential to the performance and accountability of DHS, as well as provide a potential model for Congress to consider for wider application governmentwide. The Homeland Security Act of 2002 also included additional significant provisions relating to governmentwide human capital management, such as direct hire authority, the ability to use categorical ranking in the hiring of applicants instead of the “rule of three,” the creation of chief human capital officer (CHCO) positions and a CHCO Council, an expanded voluntary early retirement and “buy-out” authority, a requirement to discuss human capital approaches in Government Performance and Results Act plans and reports, and a provision allowing executives to receive their total performance bonus in the year in which it is awarded. Congress has further underscored the consequences of human capital weaknesses in federal agencies and pinpointed potential solutions through its oversight process and a range of hearings. Despite the building momentum for comprehensive and systematic reforms, it remains clear that today’s federal human capital strategies are not yet appropriately constituted to meet current and emerging challenges or to drive the needed transformation across the federal government. The basic problem is the long-standing lack of a consistent strategic approach to marshaling, managing, and maintaining the human capital needed to maximize government performance and assure its accountability. Specifically, as detailed in our January 2003 high-risk volume on human capital, agencies continue to face challenges in four overarching areas: Leadership: Top leadership in agencies must provide the committed and inspired attention needed to address human capital and related organization transformation issues. Strategic human capital planning: Agencies’ human capital planning efforts need to be more fully and demonstrably integrated with mission and critical program goals. Acquiring, developing, and retaining talent: Additional efforts are needed to improve recruiting, hiring, professional development, and retention strategies to ensure that agencies have the needed talent. Results-oriented organizational cultures: Agencies continue to lack organizational cultures that promote high performance and accountability and empower and include employees in setting and accomplishing programmatic goals. Committed and sustained leadership and persistent attention on behalf of all interested parties will continue to be essential to building on the progress that has been and is being made, if lasting reforms are to be successfully implemented. First and foremost, individual federal agencies need to more consistently adopt a strategic approach to the use of their people. This requires persistent leadership and a long-term commitment; aligning human capital approaches with the accomplishment of agency goals; implementing recruiting, hiring, training, professional development, performance reward, and retention approaches that foster mission accomplishment; and instilling a results-oriented organizational culture. Agencies’ CHCOs will need to play a particularly important role in this regard. The careful and strategic selection of these officials is therefore critical. The CHCO is not fundamentally an “HR” or personnel administration position, although knowledge in those areas is important. Rather, agency CHCOs should have the ability, experience, vision, attributes, and credibility needed to successfully integrate human capital considerations with program goals and to play a major leadership role in driving agency transformation efforts. Agencies also must make effective use of the tools and flexibilities that Congress has provided. To assist agencies in this regard, and at the request of Chairman Voinovich, Ranking Minority Member Durbin, and other Members of Congress, we issued a report last December detailing the practices that agencies need to employ to effectively use human capital flexibilities. These practices are shown in figure 1. The central management agencies—OPM and OMB—also have continuing vital roles to play. As the agency responsible for leading human capital management governmentwide, OPM plays a central role in helping agencies tackle the broad range of human capital challenges that are at the root of transforming what agencies do, how they do it, and with whom they partner. As detailed in our Performance and Accountability Series volume on OPM, our work and the work of others continues to show that agencies need and want greater leadership from OPM in helping them to address their human capital challenges, especially in identifying new human capital flexibilities, removing obstacles from the federal hiring process, and assisting agency workforce planning efforts. Opportunities exist for OPM to be more vigorous in responding to a number of critical program challenges, such as applicant examination, staffing, and compensation approaches. In addition, OPM shares responsibility with agencies for ensuring that human capital practices are carried out in accordance with merit system principles and other national goals. Effective and strategic oversight of agencies’ systems is even more critical today because an increasing number of agencies are seeking and obtaining exemptions from traditional civil service rules at the same time that human capital staffs responsible for overseeing these activities have dwindled. In response to these ongoing challenges, OPM has taken a number of important actions. First, OPM realigned its organizational structure and workforce to create a new, flexible structure that seeks to “de-stovepipe” the agency; enable it to be more responsive to its primary customers, federal departments and agencies; and focus on the agency’s core mission. In November 2002, OPM’s Director appointed four new associate directors with proven human capital expertise to lead the organization. OPM also has the key role in leading the administration’s efforts to address strategic human capital management, a critical part of the PMA. OPM also published two reports in 2001 to increase agencies’ awareness of available human capital flexibilities, and released a report on federal compensation practices in April 2002. A major initiative begun in the spring of 2002 is designed to improve the hiring process. Furthermore, OPM is addressing its oversight challenge in part by encouraging agencies to develop and maintain internal accountability systems in line with its HRM Accountability Standards. OPM recently released the results of its 2002 Federal Human Capital Survey. This survey is providing a wealth of important information on the views and attitudes of federal employees. The results demonstrate the importance of routinely surveying employees across the federal government through the Federal Human Capital Survey or a similar survey. Consideration should be given to exploring ways to assure that these surveys will be conducted on a periodic basis. Finally, OPM is at the center of the DHS’s efforts to create a modern personnel system that serves the needs of the department and could serve as a potential model for others. The designation of human capital as the first item on the PMA and the supporting standards for success have raised the profile of human capital issues on OMB’s agenda. As OMB and the agencies learn to evaluate themselves against the standards and implement policies to make improvements, OMB will need to ensure that the standards are consistently and appropriately applied while assessing agencies’ progress in managing their human capital. Perhaps most important, OMB support will be needed as agencies identify targeted investment opportunities to address human capital shortfalls. Congress has had and will need to continue to have a central role in improving agencies’ human capital approaches. Traditionally, Congress has been an institutional champion in improving management of executive agencies across the government. Support and pressure from Congress has been indispensable to instituting and sustaining management reforms at specific agencies.