Lessons Learned in Transitioning to Alternate Organizational Models

1. Lessons Learned in Transitioning to Alternate Organizational Models Robert E. Fenton Adjunct Senior Lecturer in Engineering Management The Catholic University of America December 15, 2004

2. Agenda • A model for organizational transition • The nature of an FFRDC • Some lessons learned on FFRDCs • Case study: New FAA Air Traffic Organization • Recommendations

3. DEFROST THE STATUS QUO INTRODUCE NEW PRACTICES • Establishing a Sense of Urgency • Examining the market and competitive realities • Identifying and discussing crises, potential crises, or major opportunities • Consolidating Gains and Producing More Change • Using increased credibility to change all systems, structures, and policies that don’t fit together and don’t fit the transformation vision • Hiring, promoting, and developing people who can implement the change vision • Reinvigorating the process with new projects, themes, and change agents • Anchoring New Approaches in the Culture • Creating better performance through customer- and productivity- oriented behavior, more and better leadership, and more effective management • Articulating the connections between new behaviors and organizational success • Developing means to ensure leadership development and succession • Creating the Guiding Coalition • Putting together a group with enough power to lead the change • Getting the group to work together like a team • Generating Short-Term Wins • Planning for visible improvements in performance, or “wins” • Creating those wins • Visibly recognizing and rewarding people who made the wins possible. • Developing a Vision and Strategy • Creating a vision to help direct the change effort • Developing strategies for achieving that vision • Empowering Broad-Based Action • Getting rid of obstacles • Changing systems or structures that undermine the change vision • Encouraging risk taking and nontraditional ideas, activities, and actions *Adapted from John P. Kotter, “Leading Change”. Harvard Business School Press, 1996, ISBN 0-87584-747-1 • Communicating the Change Vision • Using every vehicle possible to constantly communicate the new vision and strategies • Having the guiding coalition role model the behavior expected of employees Transitioning to a New Organization: The Eight-Stage Process to Creating Major Change

4. The Nature of an FFRDC Strengths (1) • Strategic partnership with sponsor • Long-term continuity • Comprehensive knowledge and corporate memory • Adaptability • Objective, high-quality research • Independence (B-2 vignette)

5. The Nature of an FFRDC (cont’d) • Freedom from conflicts of interest • Access to sensitive governmental, proprietary information • Quick response capability (1) GAO/T-NSIAD-96-117, 03/05/96

6. Potential Risks • Issues over scope of work, appropriate FFRDC roles • Erosion of capability (e.g., system development) • Possible loss of objectivity if development occurs • Lack of competition = poor performance • Lack of needed values (e.g., competition, risk-taking, entrepreneurship) • “Capture” by sponsor • Crucial role of leadership, governing institutions • Congressional restrictions, micromanagement

7. Some FFRDC Lessons Learned • Most FFRDCs based on preserving existing capability • Leadership/personnel are crucial, not structure • Technical knowledge/management skills • Integrity • Washington maturity • Communications/negotiation skills • Sources: ex-USAF/USN, space, industry; academia for technical skills

8. FFRDC Lessons Learned (cont’d) • Understand needs/issues of governing body • Understand culture of sponsor and Congress • Agree early on core mission/work, core competencies, fee structure and use, expected staffing/funding levels and any non-core or diversified clients

9. Case Study The FAA Air Traffic Organization

10. Foundation Focus • COO hired in Aug. 2003 • Established in Feb. 2004 • Performance-Based Organization (PBO) • FY04 Budget: $9.1 billion • Operations: $6.2 billion • Capital: $2.9 billion • Replacement Cost of Assets: $30 billion plus • Employees: 36,336 • National Airspace System: 40,997 components • ATC facilities: 631 • En route aircraft handled: 43.7 million CUSTOMERS • Commercial Aviation • Airlines • Cargo • Business Aviation • Personal Aviation • DHS (and other • Government Agencies) • Military (DOD)* • *Partner with ATO’ RESULTS OWNERS EMPLOYEES U.S. Citizens* Traveling public* Taxpayers* *As represented by Congress Office of Management and Budget Secretary of Transportation Inspector General ATO Federal Employees Labor Unions The FAA Air Traffic Organization

11. The FAA Air Traffic Organization Administrator & Deputy Administrator Chief Operating Officer (COO) ATO Transition* SR. VICE PRESIDENT *temporary Support Service Units Communications VICE PRESIDENT Safety VICE PRESIDENT Operations Planning VICE PRESIDENT Finance SR. VICE PRESIDENT Acquisition & Business Services VICE PRESIDENT Federal Acquisition Exec. Operating Service Units En Route & Oceanic VICE PRESIDENT Terminal VICE PRESIDENT Flight Services VICE PRESIDENT System Operations VICE PRESIDENT Technical Operations VICE PRESIDENT

12. Shortfall - ATO Operating Budget(based on constant staffing levels) 10 Shortfall - ATO Capital Budget (F&E) 8 $8.2 5.0 FY04 Capital Investment Plan Cost 4.0 $3.3 $2.9 $6.2 Cumulative $5.0B Cumulative $3.2B 3.0 $ Billions 6 $2.9 $6.4 $2.5 $6.2 Funding Funding 2.0 $ Billions 1.0 4 0.0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 2 0 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 The Sense of Urgency - A “Burning Platform” If OMB funding estimates for the next few years are accurate, we face severe funding deficits. In spite of rising demand, we must control costs and better manage our finances.

13. Transitioning to the Future • Organize around our customers • Define products/services from external perspective (service model) • Change our leadership model • Change “personality” (stovepipe) to “organizational” management • Simplify basis of performance for the organization • Develop metrics based on “value-based” units of output

14. Transitioning to the Future (cont’d) • Baseline our resources • Understand our basic resource and cost drivers • Develop a rolling five-year business plan • Establish forward revenue and cost management practices • Execute the plan • Drive operating and financial management goals from top to bottom

15. Accomplishments • Business Plan briefings • Early-out offering • Implemented three Service Areas across nation • Air traffic controller hiring plan • Chicago O’Hare agreement on number of arrivals per hour • FY04 Flight Plan success • Developed draft milestones for FY05 Flight Plan

16. Lessons Learned from ATO Transition • Organizational locus is sub-optimized • Possible alternatives: privatized entity, Government corporation • Selection of guiding coalition based on continuity of ATC services and desire to change ATO service model/culture • “Burning Platform” acceptance is crucial to ATO organizational change and long-term success • Change from highly structured, paramilitary FAA culture to entrepreneurial, cost/ customer-focused culture will be very difficult • Dealing with Congressional dual personality will be very difficult

17. Recommendations • Create a mission-based sense of urgency • Focus early on selection of “Guiding Coalition” • Build around an existing capability • Establish early agreement with Sponsor/Congress on core mission, etc. • Consider pay-for-performance approach akin to private sector

18. Recommendations (cont’d) • Consider mentor/protégé relation with existing FFRDC (e.g., RAND, CNA) • Consider partnership for development akin to Aerospace/TRW for ICBM; erect permeable wall • Consider consulting agreement for FFRDC start-up with Dr. Donohue (former RAND VP, Project Air Force)