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

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

Transitioning to a New Organization: The Eight- Stage Process to Creating Major Change *Adapted from John P. Kotter, “Leading Change”. Harvard Business School Press, 1996, ISBN Establishing a Sense of Urgency Examining the market and competitive realities Identifying and discussing crises, potential crises, or major opportunities Creating the Guiding Coalition Putting together a group with enough power to lead the change Getting the group to work together like a team Developing a Vision and Strategy Creating a vision to help direct the change effort Developing strategies for achieving that vision 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 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 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. 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 DEFROST THE STATUS QUOINTRODUCE NEW PRACTICES

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)

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 , 03/05/96

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

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

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

Case Study The FAA Air Traffic Organization

Focus CUSTOMERS ATO Federal Employees Labor Unions U.S. Citizens* Traveling public* Taxpayers* *As represented by Congress Office of Management and Budget Secretary of Transportation Inspector General Commercial Aviation Airlines Cargo Business Aviation Personal Aviation DHS (and other Government Agencies) Military (DOD)* *Partner with ATO’ OWNERSEMPLOYEES Foundation COO hired in Aug Established in Feb 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 COO hired in Aug Established in Feb 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

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

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. FY 2008FY 2009FY 2007FY 2006FY 2005FY $ Billions Shortfall - ATO Operating Budget (based on constant staffing levels) $6.2 $6.4 $8.2 $6.2 Cost Funding Cumulative $5.0B FY 2004FY 2005FY 2006FY 2007FY 2008FY 2009 $ Billions Shortfall - ATO Capital Budget (F&E) $2.9 FY04 Capital Investment Plan $3.3 $2.5 Funding Cumulative $3.2B $2.9

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

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

Accomplishments 1. Business Plan briefings 2. Early-out offering 3. Implemented three Service Areas across nation 4. Air traffic controller hiring plan 5. Chicago O’Hare agreement on number of arrivals per hour 6. FY04 Flight Plan success 7. Developed draft milestones for FY05 Flight Plan

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

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

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)