Arlington, Virginia Thursday, April 20, 2000 Mr. Lawrence: Welcome to The Business of Government Hour, Conversations with Government Leaders. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and a co-chair of the PricewaterhouseCoopers Endowment for the Business of Government. The Endowment was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. To find out more about the Endowment, visit us on the web at ww.endowment.pwcglobal.com. The Business of Government Hour focuses on outstanding government executives who are changing the way government does business. Our guest tonight is Tom Bloom, director of Defense Finance and Accounting Service. Welcome, Tom. Mr. Bloom: Great to be here. Mr. Lawrence: Joining me in our conversation is Wood Parker, also a partner at PricewaterhouseCoopers. Welcome, Wood. Mr. Parker: Thanks very much, Paul. I'm pleased to be here as well. And Tom, thanks so much for joining us. Mr. Lawrence: Well Tom, in this first segment, tell us more about D-FAS. What is it and what are its responsibilities? Mr. Bloom: First of all, let me say that I tell anybody who will listen that I think I have the best job in Washington, D.C. There are a couple of reasons for that. One is that we have a very clear mission at the Defense Finance and Accounting Service, and we've got some really great people. Our mission is to provide responsive, professional finance and accounting service to the Department of Defense. And our success is actually very easily measured. It's ultimately defined by how well we service the commanders and managers in the field, with a particular emphasis on the war fighter. Some people ask about my job and it is somewhat schizophrenic, if I might say. I ask the question sometimes, am I the chief finance and accounting officer of the largest entity in the world, which is what the Department of Defense is, or in my position as the head of the agency, am I really the CEO of a $2 billion corporation with 20,000 employees? Defense is really big business. As the Finance and Accounting Service for the Department of Defense, we pay out to folks over $1 billion each and every day. Each month we pay over 5.5 million soldiers, sailors, airmen, Marines and civilian employees, as well as retired and annuitants. And we pay over 144 million invoices each year. Mr. Parker: Tom, you mentioned that one of the descriptions or potential descriptions of your job is a CFO. And I noted in your experience you've been a CFO before. You've also been an Inspector General before. Could you talk about those two different positions and two different sets of responsibilities and what you're bringing from those experiences to the Defense Finance and Accounting Service? Mr. Bloom: Well, certainly the positions are very different. I've been lucky enough to be a CFO at the Department of Commerce, as well as GSA, the General Services Administration. And at the Department of Commerce, I was not only CFO, but I was also the Assistant Secretary for Administration. The job at GSA was really much more of a pure accounting and finance position, although having developed a close relationship with the CEO there; I was brought into many of the discussions of general business areas. The two CFO jobs were very fulfilling jobs. Again, we had a very clear mission. We had teams that worked together very well to get the mission accomplished, which is to give financial managers the kind of information they need to manage better. The job of an Inspector General is very, very different. I like to tell folks that the two years I spent as Inspector General were very much character-building years. It is a very difficult position to be an Inspector General. There is a feeling, really on both sides of the fence, both in the Inspector General community as well as the folks who are being looked at by the Inspector General Community, that it needs to be a contentious relationship. That makes that job very difficult sometimes. Mr. Parker: How do you think those jobs prepared you for your current position? Mr. Bloom: Well, certainly the two CFO jobs very much helped me prepare for this position. They both involved a lot of finance and accounting. In fact, the GSA job was almost exactly the same, it's just that the magnitude at DOD and the Defense Finance Accounting Services is really so much larger. Another good thing about the Department of Commerce CFO job -- as I mentioned, I was also the Assistant Secretary for Administration – was that it was very much a management job. I was very much involved in procurement as well as human resources. I had the civil rights office. So it really was a broad spectrum of management, which of course comes in handy being the CEO of a large organization, as D-FAS is. Mr. Parker: Why don't we take a step back and tell us more about your career. I understand you've also been in the private sector as well. So I'd be curious to know how that transition worked and the pluses or minuses, having people come from the private sector. Mr. Bloom: Well, I've spent most of my career, actually, in the private sector, starting from junior staff to rising to senior partner in a large CPA firm. That actually was great preparation also. I am an accountant, with all the good and bad that comes with being an accountant. The transition, actually, was easier than one might think, although it wasn't my first transition from the world of public accounting into the government. I had done that once before when I was a senior banking regulator at the Federal Home Loan Bank System. So I'd done the transition before, and I think that made it easy. But I do want everyone to know that there is a transition. There is a big difference between the private sector and the public sector. The biggest area that I would note would be the area of risk and reward. In the public sector, too often folks are afraid to take risks. In the private sector, we had to take risks to continue to exist. To stay relevant we had to take risks. There had been a history of that in the private sector. Now that, to a certain extent, is changing in the public sector dramatically. And that is one of the big transitions that I think everyone in the public sector is going to have to work with. One of the things that I like to always ask our folks now that I'm in the public sector, when we're going to do something or when we're going to spend money, I'll ask the question, "If it was your money, would you spend it that way?" That's sometimes a bit of a foreign concept to them, as strange as that may seem. But we are trying to change the way we think about things in the public sector and not just at D-FAS, but I think, throughout the government. Mr. Parker: Well, having been in both sectors, what is it about the public sector that attracts you? Mr. Bloom: Where else would someone give me a $2 billion business to run? So there is that factor, but I'm also a third generation public servant. My grandfather was a public servant. My father was a career police officer. And so it's in my blood, to a certain extent. And the work is just so interesting. You're always doing new and interesting things. And while I enjoyed my career in public accounting, as I am sure you two enjoy your career, there's really no reward like helping out in the public sector. And, again, running a business, which is what D-FAS is, is very rewarding and very challenging. Mr. Parker: How about in terms of attracting new employees, in terms of attractiveness of the public sector? There are no stock options at D-FAS. Mr. Bloom: None that are worth anything. You know, it makes it a challenge. We clearly have a challenge ahead of us in the public sector to recruit and retain the best and the brightest. Certainly in the '60s, there was a feeling with President Kennedy and some of the things that President Johnson did, there was a feeling, a really good feeling about the public sector, particularly the federal public sector. In recent years, we really haven't enjoyed that same feeling in the public sector. It does make a difference in our recruiting. We need to be able to capitalize on the great things about public service. Mr. Lawrence: Great. It is time for a break. We'll be right back with more of The Business of Government Hour. (Intermission) Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And tonight's conversation is with Tom Bloom, director of Defense Finance and Accounting Service. Wood? Mr. Parker: Tom, before the break you were talking about the importance of public service. And in our job we feel it is very important that we make a contribution, and so I share your commitment to public service. Let's talk a little bit more about D-FAS. I understand you have a new vision for the organization. Could you tell us about it? Mr. Bloom: Sure. There are really four tenets of our vision. The first tenet is to be a world-class provider of finance and accounting services, with a strong corporate identity. There are two catch phrases there. The first one is "world-class provider." It is no longer good enough to be just the best in government or one of the best in government or as good as the average in the private sector. We are going to have to be world-class at D-FAS. We are going to have to be in the top ten percent of folks who provide the kind of service that we provide. If we are going to be competitive and relevant and best value to our customer, we are going to have to become world-class. The second part of that is to have a strong corporate identity. The Defense Finance and Accounting Service is a consolidation of the accounting and finance offices that the four Services had prior to D-FAS being formed. So, therefore, we have four corporate identities. What we're trying to do is amalgamate that into one corporate identity where we're learning from one another, where we're picking up the best practices of each. The second tenet of our vision is to become a trusted innovative financial advisor. We've been too much of a utility, where we have been supplying folks data but not much information. In fact, I've had a commander tell me that we are drowning them in data and they're thirsting for information. So we have to become the financial adviser, the trusted financial adviser, much like you all might be to the private sector. Our third tenet, and probably the most important, is that we would like to become an employer of choice, providing a progressive and professional work environment for our folks. I like to use PwC as an example when I am talking to my folks. We want the best and the brightest to come to work at D-FAS. We want to attract them by having a progressive and professional work environment, where we are working with the latest in technology, we're training our people all the time to operate in this new economy. We want D-FAS to be a ticket that people have to have on their resume if they want to be relevant in this community. We want the private sector to be beating down our doors to hire our folks. And then I want our environment to be so good that they don't leave, that they stay at D-FAS. We've got some work to go on that. The last tenet of our vision is we want to be competitive and the best value to our customers. We are going to have to compete with the private sector, probably, for most of our jobs over the next five to seven years. And we should encourage that. We should want that competition. We should want to be the best that we can be, and to be the best value. Mr. Parker: I understand your motto is "Your financial partner at work," with the Internet "@" sign. And so I'm curious to know how you're refocusing customer relations efforts to support this motto. Mr. Bloom: Well, you know, our customers are world-class customers. They're the best in the world. And we need to be as good as they are. And we're not quite there yet. We hope our new catch phrase or slogan, "Your financial partner @ work," will emphasize what we're trying to do. The first word, "your"… we want to make it clear to our customers that we belong to them, that we're there to service them. "Financial," we do provide accounting and financial services, so that makes sense. Third, "partner," we really want our customers to know that we are their partner, that we are in it with them. And we want to do all the things that partners do for one another. We want to communicate and we want to make sure we're servicing them as well as we can. The internet "@" sign, that's to signify that we are modern and we are jumping full force into the e-commerce world, and we're ready to go with that. The fourth, "work," there's a double meaning there. We're working for them and we're working hard. We've got the same kind of work ethic that our customers have, the hard-working war fighters. Mr. Parker: In terms of your efforts with respect to your customers and becoming the trusted financial advisor, I understand you're also considering, and you referred, by the way, to the issue of competing with the private sector. I understand you're considering some competitive out-sourcing opportunities within your operation. Could you tell us a little bit about that -- and particularly within the context of trying to become the employer of choice? Mr. Bloom: Sometimes a tough balance, Wood. We believe very strongly that we can compete well with the private sector. And over the next five to seven years, we will compete out probably 90 percent of the work that we do. We have two initiatives, retired and annuitant pay and civilian pay, two very large parts of our business that we will be competing out in the next year. Our philosophy on this is we want to be doing the stuff that we do best. We think on a lot of stuff that we match up pretty well with the private sector. But the stuff we don't do so well, you know, so be it. That should probably be done by someone else and we stick to what we do best, our core competencies. Mr. Parker: What do you think you'll gain from that process? Mr. Bloom: Well, one of the great things about the process is first we learn an awful lot about ourselves. We take a really hard look at the way we're doing business. We've done five of these competitive sourcings in the past. In each case, we have been able to squeeze out a lot of inefficiencies in our process… nothing like competition to make you learn what you need to learn about your operation. Mr. Parker: But does the competitive out-sourcing produce a challenge in terms of your efforts to be the employer of choice? Sometimes folks are concerned when the boss talks about competitive out-sourcing. How are you handling that? Mr. Lawrence: Hold your answer. It's time for a break. We'll be right back for more of The Business of Government Hour. (Intermission) Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. Wood Parker is also a partner. And we're talking to Tom Bloom, director of the Defense Finance and Accounting Service. Tom, before we went to the commercial, Wood was just asking how difficult it was to be the employer of choice in a possible out-sourcing environment. Mr. Bloom: It does make it tough sometimes, Wood, trying to keep your folks motivated when they know that there is a possibility that they may lose the competition. But as you all know, in a competitive environment, that does sometimes stimulate the work force. Watching the guy over your shoulder sometimes does make you run faster. Sometimes that can be a positive thing, even with morale. Mr. Parker: And it is just possible out-sourcing? Those jobs aren't necessarily going to be out-sourced? Mr. Bloom: Let me make this absolutely clear. These are going to be competitions. And our folks at the Defense Finance and Accounting Service will have the opportunity to compete against the private sector. And again, I'm pretty confident that in most of our areas, particularly our core competencies, that we are going to match up very well with the private sector. Mr. Parker: You were talking about your vision of becoming the employer of choice, and you alluded to a couple of things you were doing. Tell us a little bit more about some of the things that you are doing to achieve your goal of becoming the employer of choice. Mr. Bloom: Well, one of the things that we believe very strongly at D-FAS is in keeping our folks trained. We spend a large portion of our budget, actually an amount that's equal to five percent of our salary expense, in training and educating our folks. We want our folks to work with the latest technology, to understand the latest technology, to learn the latest management techniques. One of the things that I tell our folks is that I cannot always promise them employment, but we want to work hard at making them employable. We believe that will help them do a better job in our business, for us. And it will certainly make them marketable in the public sector. Mr. Parker: There are 20,000 employees at D-FAS. How do you manage such a large work force, at the same time striving for efficiency and effectiveness? Mr. Bloom: Some days I ask myself that question. One of the big things that you have to work on when you're running an organization this size is communication. It's easy to say and it becomes almost a cliche or trite, but it's very difficult to communicate with 20,000 employees on a regular basis. One of the things that we're working with, and we're hoping to launch this in the next month or so, is going to be little snippets, video snippets that may be five to ten minutes in duration we'll e-mail to our folks. They'll be able to pull it up on the server and hear me, my deputy or another executive talk about some of our visions, about some of the changes that we are going to be going through. So, communication, really, you can't over-emphasize communication, and it's something we need to work really hard on. Another thing is you do have to set the vision. You have to make sure that people know what the vision is, what the bottom line is and what the finish line might be. You also have to eliminate all the obstacles that you can. I look at my job, really, as chief obstacle eliminator. If I can eliminate the obstacles so that my folks can get their job done, it will make it a lot easier for them to get their job done. And you have to empower your work force. There's so much more knowledge down there in the trenches where the work gets done than I would ever know. So you have to empower folks, you have to make folks feel as though they are contributing to the organization. And you have to have an organization where you encourage some risk taking. This is the public sector, and so you have to be careful that you are controlling your assets, but in order to move ahead you have to have a certain amount of risk. We have to change that in the government culture overall so that people feel more comfortable in taking risks. Then as the CEO, I need to get out of the way and let my folks do their jobs. Mr. Parker: What does the typical day look like, in broad strokes? Mr. Bloom: Usually I'll start the day, my deputy and I will spend 20 to 40 minutes talking about what happened the previous day. At least once a week we'll have a staff meeting with all the headquarters folks, and we'll talk about the issues there. Then the meetings start. One of the downsides of government, and we probably need to work on this, is that we spend way too much time in meetings talking about what we are going to do and maybe not enough time actually doing it. Although meetings are a good way to communicate, if you are doing them effectively. One of the things that I like to do is -- and I haven't done it as much as I would like to -- is to have meetings where everyone stands up, giving new meaning to standing committees. But I try to make the meetings go along as fast as possible, having agendas. We spend a lot of time at the Pentagon, talking to folks at the Pentagon. But what I really like to do are the customer visits, to get out and talk to our customers. In fact, just last Thursday and Friday we were in San Antonio talking to two of our biggest customers, talking to a one-star general and a three-star general, as well the colonels and some of the middle-level officers that actually get the work done. That's what I really enjoy, being where the rubber meets the road and hearing what we're doing well and what we're not doing so well. Mr. Parker: We're talking about people, Tom, and you referred to part of your job being the obstacle eliminator. I would think one of your biggest challenges is recruiting. We alluded to this earlier when we talked about the vision. But in the public sector there is a real challenge when it comes to recruiting IT and financially skilled folks and others. Could you talk to us about how you're addressing that challenge? Mr. Bloom: Well, it's a challenge, particularly at the Defense Finance and Accounting Service and probably the rest of DOD. We missed what I would call a generation of workers. We have not hired many people from 1991 to the present, and so there's a big gap in our work force. And, to add to that, at least at the Defense Finance and Accounting Service, 40 percent of my work force is going to be eligible for retirement in the next five years. That's a big part of my work force. That is a challenge, but it's also an opportunity. And we need to work with that opportunity. Recruiting is something that I believe is very personal. I've encouraged all my managers, all my executives to get involved in the recruiting process. I would like to see all my top-level people visiting colleges for entry-level folks, as well as getting involved in the recruiting of mid-career folks. We have a good story to tell at D-FAS. We have the vision. We have the technology, and we have great managers. And you can't recruit the kind of people we need in this environment without making it personal, just as I'm sure you all at PwC are personally involved in the recruiting process. We need to do more of that. It's not just the human resource people involved. We are at a disadvantage in some cases with our salary schedule. And we don't necessarily have the flexibility that we would like on the salary side. That is particularly true, I think, on the IT side. But you know, one of the interesting things I found about IT professionals is that the challenge is more important to them, many times, than the money. And the idea of working with the latest technology can be a real enhancer. So, that's a challenge, but it's one that I think in the long run we can do pretty well. And I think particularly we can do well at recruiting folks, you know, in the middle of their career. Maybe the young kids out of college should spend two or three years with PricewaterhouseCoopers, but after that, we're very competitive and can offer a good work environment. Mr. Parker: And you have a unique workforce that includes a lot of civilians and some military. I'm wondering what challenge that presents. Mr. Bloom: Interestingly enough, really no more challenge than if you had an all-civilian work force. I've found having the military really help us in meeting our mission. First of all, there's this great tradition that the military folks have. And they're all former and potential customers. And so they have an interesting view of our work. The other thing that it does, for the civilians, is it keeps in mind what we're here for. We're here to support the uniform folks, to support the war fighter. And having that guy or gal across your work environment reminds you that you're here really serving your country. Mr. Lawrence: Great. And it's time for a break. We'll be right back with more of The Business of Government Hour. (Intermission) Mr. Lawrence: Welcomee back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And tonight's conversation is with Tom Bloom, director of the Defense Finance and Accounting Service. And joining me is Wood Parker, one of my partners at PricewaterhouseCoopers. Mr. Parker: Tom, technology is becoming increasingly important in all facets of society, including, of course, government agencies. Can you tell us what role technology has been playing at D-FAS, especially related to your goal to becoming paperless in the future? Mr. Bloom: Well, technology really is our future. In order to stay relevant, in order to stay competitive, actually, if you remember our vision, every tenet of the vision really involves technology. To become world-class we have to work with technology. In order to be the trusted innovative financial advisor, you have to do that through technology. The employer of choice, people want to work at companies that are state of the art. The last tenet is to be a competitive organization. In order to be competitive, we really have to embrace technology. And we're doing that pretty well. Right now, for instance, we have 32 new systems that we're in the process of installing, and that in itself is a daunting task. I don't know of any organization, whether it's General Motors or Mobile-Exxon, that has that kind initiative, to put in 32 new systems. So, we're certainly on the cutting edge there. Mr. Parker: I notice in an effort to remain paperless D-FAS has engaged in e-commerce activities, to include things like document management, electronic funds transfer and EDI, electronic data interchange. I'm wondering how electronic commerce is affecting D-FAS in terms of being more efficient. What happens when a business rolls this out? Mr. Bloom: Well, paper is our enemy. We're probably going to have banners all over the Defense Finance and Accounting Service that say just that, that paper is our enemy. We are developing as many electronic means and as many electronic interfaces as possible, so that we end up with as little paper as possible. We have just recently rolled out employee member self-service, where you can change most of your human resource allotment changes, change you address, you can change your exemptions on your tax form. We would like to someday our leave and earning statements, essentially your pay stub, we would like to make that electronic. And in dealing with the vendors, there is a big push to have them transfer their invoices to us electronically. Not to forget about the small mom and pop vendors, and that really is the lion's share of our vendors are the smaller businesses out there, we're making it easier for them. We're coming up with an electronic interface. We call it WINS, where a business, all they really need is a computer and internet access, which by the way, you can get at your local library, if you don't happen to have that, although most businesses do have that. But they can pull up a screen and essentially put their invoice information on this predetermined screen and send that to us electronically, so that we don't have to deal with paper. There's not the opportunity to lose the paper or to make the mistakes. So we're embracing this e-commerce as much as we possibly can to eliminate that enemy, the paper. Mr. Parker: How are the employees dealing with all this e-commerce stuff? Normally, it brings about tremendous change. So if you can adapt to the change, that's the first step. But also, one can then figure out that it might involve fewer employees. So it's difficult to imagine a win-win with those two things to think about. Mr. Bloom: Well, it is a challenge. It's a little bit of the challenge we talked about earlier. Although D-FAS employees, D-FAS has been in existence since, as I mentioned, 1991, and it's just been a flurry of change since we first came about. We had over 300 locations and we've consolidated down to 26. So our people are pretty used to the change. Also, we've gone from 27,000 employees to the 19,000 to 20,000 range. So our people have seen the diminishing of jobs. We have what we call the Responsible Employer Program, because we believe we do owe folks some consideration, and we work hard to get our folks ready in case their jobs do disappear. So there is a fair amount of trust there. But sure, they're seeing that the technology in many cases, particularly if you're dealing with just paper today, you know, you're at risk. And that can be a morale problem. Mr. Parker: We were talking earlier, Tom, about training and the importance of training to D-FAS and your people and your commitment to training. Within the context of technology, talk about that training. How is that going to be a change, whether in terms of delivery systems or other means? Mr. Bloom: Well, first of all, we have on the IT side about 1300 IT professionals at D-FAS. Many of those folks are working with old languages, old computer technology. We are giving them the formal training to deal with kind of the fourth generation relational data base kinds of things. With our accounting and finance technicians, since we are introducing a lot of new systems, they are working with state-of-the-art, you know, dual screens and multi-tasking kind of things. And we think that that's building competencies that they haven't had inthe past. That is a big challenge. Mr. Parker: How about some of the key issues looking out to the future for D-FAS? Will there be a D-FAS in ten years? Mr. Bloom: Well, I believe that there'll be a D-FAS. I think that we may look very different than we look today. There may be much more of an emphasis on the accounting side of what we do. Half of our business right now is accounting and the other half is finance, the actual paying of folks. I think on the finance side you will see technology making that easier and maybe turning that more and more into a utility. But on an accounting side, getting the information that we need to get to managers, to commanders out in the field to manage troops better, to manage their individual businesses better, that's really where the future of D-FAS lies, I believe. And we've got a long way to go in that area. I'm a user of D-FAS. I eat my own dog food, so to speak. We need to get me better information for me to manage my business, so I know that it's true probably for most of the commanders out there. I see a big future at D-FAS in helping turn data into information, so that my commanders aren't drowning in data, but their thirst is being quenched by the information that we're providing. Mr. Parker: As you look to the future, Tom, and the various challenges we've alluded to, what keeps you up at night? What are the ones that concern you the most, let's say, in the short term? Mr. Bloom: Well, certainly the thing that does keep me up and it has kept me up is paying our military folks, our soldiers, sailors, airmen and Marines. We don't ever want to miss a payroll. Their families depend on that. They're assuming that D-FAS is taking care of their families. And that's probably a security item. For the nation's security, we have to make sure that we're taking care of our number one customer, which is the war fighter. Mr. Lawrence: I'm afraid we're out of time. Thank you very much, Tom, for spending time with us tonight. Wood and I have enjoyed our conversation very much. This has been The Business of Government Hour, Conversations with Government Leaders. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and a co-chair of the PricewaterhouseCoopers Endowment for The Business of Government. To learn more about the Endowment's programs and research into new approaches to improving government effectiveness, visit us on the web at www.endowment.pwcglobal.com.