Chapter 1

AN INTRODUCTION TO STRATEGIC PLANNING

Planning is planning, right? Not really. In fact, there are all kinds of plans and all kinds of planning and planning approaches. All of these approaches and types may be in play at any one time within an organization. Any organization will have plans at different levels, from the five-year (or more) plan to the weekly plan for a project or program.

While working for the Department of Homeland Security, I once sent out a memorandum to department components requesting copies of their “plans.” I received a call back from one component informing me that if I wanted all their “plans,” I would need an extra building for storage. They had their five-year strategic plan, their annual plans (strategic and budget), operational plans, and tactical plans for specific long-term goals, with interim goals.

This handbook provides guidance for strategic planning in the public sector and advocates an approach that balances performance and financial measures. That doesn’t mean that some of the practices discussed can’t be adapted to other types of planning. They can be. As I advise later in this book, adapt, don’t adopt. No concept or practice fits every organization perfectly, so always think about how to adapt a practice to your organization’s specific culture and structure or to your specific planning needs.

WHAT IS STRATEGIC PLANNING?

Strategic planning is a process that defines an organization’s long-term direction. The process includes a vision statement describing where and what the organization wants to be. The mission statement defines what the organization is mandated to do. The plan that results from this process and that moves the organization from where it is to where its vision statement wants it to be is a strategic plan. It can be broken down into shorter-term, more specific goals, usually with a one-year time frame. The strategic plan is revisited and re-evaluated on a rotational basis, annually or every few years, depending on the organization. Most strategic plans cover the next three to five years.

The strategic plan states where an organization is going, how it’s going to get there, and how it will know if it got there. The way a strategic plan is developed depends on the nature of the leadership, the culture of the organization, and the structure and size of the organization. For example, a massive federal department will have multiple planning efforts by smaller organizations within it, resulting in a series of smaller plans that in turn result in a single departmental strategic plan. A smaller organization with a single focus, such as a local fire or police department, will have a less complicated process. (The strategic planning process is discussed in more detail in Chapter 3.)

An organization must first answer two questions before any strategic planning process can begin:

1.  What, exactly, do we do—and NOT do? In the public sector, this can be a very complicated question. Over a period of time, “mission creep” sometimes occurs—when an organization begins to take on responsibilities that are not part of its official mandate.
In seeking the answer, the planning process should include asking management to write down what they do, then having them define under what mandate (e.g., a law, an executive order, or perhaps a congressional unfunded mandate) they do it. Never, ever settle for the answer “we do it because we always have.” This process should result in a mission statement.

2.  Who are our partners, stakeholders, and customers? Begin by identifying partner, stakeholder, and customer roles, as well as each group’s expectations. Roles should be defined as specifically as possible during the planning process. There will always be some crossover among these three groups; it is possible for someone to be both a stakeholder and a customer.
This question can be answered through consultation efforts (discussed in Chapters 2 and 3). Consultation will also help define outcomes and goals. This consultation activity, and all resulting discussions, are the consultation phase.

In addition to answering these fundamental questions, the planning process should include the following activities:

•   Defining an end state for the organization—whether five, ten, or more years out—that results in a vision statement

•   Establishing long-term and short-term goals

•   Allocating resources to achieve both the long-term and the short-term goals

•   Understanding the current status

•   Communicating goals and plan back to the customer, stakeholder, and partner.

A second consultation phase helps focus the proposed goals. This should be continual throughout the process until the goals and plan are finalized.

Strategic Planning in the Public Sector

The Government Performance and Results Act (GPRA) brought private-sector accounting concepts to government agencies. When it was first implemented in the 1990s, many felt that government management was somehow different—that the same rules that applied to the private sector could not apply to the public sector, or at least not in the same way, and compliance with GPRA was “beneath” them. After all, government agencies don’t have a bottom line or profit margin. But history has shown that this assumption is not true. The bottom line for most government organizations is their mission—what they want to achieve.

Like the private sector, they cannot achieve this mission by managing in a vacuum. The roles of customer, partner, stakeholder, and employee in an organization’s day-to-day operations are vital to its success—and must be incorporated into planning for that success.

The history of strategic planning in the public sector began on separate paths that eventually merged. The private sector experimented for several years with different types of performance management and measurement. These include, among others, Management by Objective, Zero Based Budgeting, and Total Quality Management (TQM). As these various practices began to demonstrate significant improvement for private-sector entities, state and local governments began to experiment with them. Frequently led by elected officials with private-sector experience, these governments soon began to develop better communication and management systems.

Federal-sector organizations also began experimenting, especially with Zero Based Budgeting and Total Quality Management. The United States Coast Guard acknowledges that its experience with TQM paved the way for its highly successful continuous improvement and performance efforts today.

Legislation in the late 1980s and early 1990s began to move the federal sector toward more responsible performance management and measurement. Among the laws and regulations that formed the basis for public-sector strategic planning were the following:

•   Federal Managers Financial Integrity Act of 1982, Public Law 97-255. Commonly referred to as “FMFIA,” the act encompasses accounting and financial management programs and operational and administrative areas and establishes specific requirements for management controls in federal agencies. Agency heads must establish controls that responsibly ensure that (1) obligations and costs comply with applicable law; (2) assets are safeguarded against waste, loss, unauthorized use, or misappropriation; and (3) revenues and expenditures are properly recorded and accounted for in accordance with the law. Additionally, agency heads must annually evaluate and report on the control and financial systems that protect the integrity of federal programs.

•   Chief Financial Officers Act of 1990, Public Law 101-576. The CFO Act of 1990 was enacted to improve the financial management practices of the federal government and to ensure the production of reliable and timely financial information for use in managing and evaluating federal programs.

•   Government Management Reform Act of 1994, Public Law 103-356. GMRA furthered the objectives of the CFO Act by requiring all federal agencies to prepare and publish annual financial reports, beginning with fiscal year 1996 activities. At the same time, GMRA authorized the Office of Management and Budget to implement a pilot program to streamline and consolidate certain statutory financial management and performance reports into a single, annual accountability report.

•   Government Performance and Results Act of 1993, Public Law 103-62. GPRA is the primary legislative framework through which agencies are required to set strategic goals, measure performance, and report on the degree to which goals were met. It requires each federal agency to develop strategic plans and a subsequent annual performance plan to provide the direct link between the strategic goals outlined in the agency’s strategic plan and the day-to-day operations of managers and employees. GPRA requires that each agency submit an annual report on program performance for the previous fiscal year, reviewing and discussing its performance compared with the performance goals it established in its annual performance plan. The report also evaluates the agency’s performance plan for the fiscal year in which the performance report was submitted to show how an agency’s actual performance is influencing its plans.

•   Executive Order 12862: Setting Customer Service Standards, September 11, 1993. This executive order puts “people first … ensuring that the Federal Government provides the highest quality service possible to the American people.” It requires continual reform of the executive branch’s management practices and operations to provide service to the public that matches or exceeds the best service available in the private sector. All executive departments and agencies are required to “establish and implement customer service standards to guide the operations” of each agency and to “provide significant services directly to the public … in a manner that seeks to meet the customer service standard established herein.” They are also required to report on Customer Service Surveys and Customer Service Plans.

•   Presidential Memorandum for Heads of Executive Departments and Agencies: Improving Customer Service, March 23, 1995. With “Setting Customer Service Standards” as the first phase, this presidential memorandum directs that, to continue customer service reform, agencies shall treat the requirements of the earlier executive order as continuing requirements. The purpose is to establish and implement customer service standards that will guide the operations of the executive branch. “Services” include those provided directly to the public, delivered in partnership with state and local governments by small agencies, regulatory agencies, and enforcement agencies. Results achieved are measured against the customer service standards and reported annually. Customer views determine whether standards have been met on what matters most to the customer, and replacement standards will be published, if needed, to reflect these views. Development and tracking are to be integrated with other performance initiatives. Customer service standards should relate to legislative activities, including GPRA, the CFO Act, and GMRA. Employees are to be surveyed on ideas to improve customer service and will be recognized for meeting or exceeding customer service standards. An important observation is made within this memorandum: “Without satisfied employees, we cannot have satisfied customers.” It is also recommended that agencies initiate and support actions that cross agency lines to serve shared customer groups and take steps to develop cross-agency, one-stop service to customer groups.

•   Information Technology Management Reform Act of 1996 (also known as the Clinger-Cohen Act or the CIO Act), Public Law 104-106. This act repeals Section 111 of the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 759), often referred to as the Brooks Act, and gives the General Services Administration exclusive authority to acquire computer resources for all of the federal government. It assigns overall responsibility for the acquisition and management of information technology (IT) in the federal government to the Director of the Office of Management and Budget (OMB). It also gives the authority to acquire IT resources to the heads of each executive agency and makes them responsible for effectively managing their IT investments. The primary purposes of the bill are to streamline IT acquisitions and emphasize life cycle management of IT as a capital investment. The key IT management actions are to require agency heads to design and implement an IT management process, integrate it with the other organizational processes, establish goals for improving the efficiency and effectiveness of agency operations, deliver services to the public through the effective use of IT, prepare an annual report on the progress in achieving the goals, appoint a Chief Information Officer, and inventory all computer equipment and identify any excess equipment.

•   Government Performance and Results Modernization Act of 2010, Public Law 111–352
GPRA 2010 created a more clearly defined performance framework through an improved governance structure and by connecting plans, programs, and performance information. It requires a quarterly (rather than annual) reporting and review process. This report/review cycle was designed to increase the use of performance information in program decision-making.
There are three key revisions to requirements in the legislation:

1.  Timing of agency strategic planning was changed to align with presidential terms of office. Cross-agency alignment of goals and programs was added as a requirement, and congressional consultation was more clearly defined.

2.  A mandate requiring a link between the performance goals in the annual plan and the goals in the strategic plans was added. It requires that plans describe strategies and resources to be used and requires plans to cover a two-year period (rather than a one-year period).

3.  Agency performance reporting requirements emphasized more regular reporting. More importantly for federal agencies, it required OMB to take action on agency unmet goals.
In addition to the above, GPRA 2010 validated the existing governance framework that had evolved since the original GPRA was passed. It created chief operating officers, program improvement officers, a governmentwide performance improvement council, and a governmentwide performance website.

New, focused requirements under these various laws and regulations caused managers to rethink how they planned their activities and how they defined success. The one law that made a more powerful impact on this area than any other was GPRA, which set a schedule for the development of a strategic planning process for all segments of the federal government. The need for federal agencies to develop systems for performance management and measurement began a chain reaction, particularly for those agencies whose principal customers or stakeholders are state and local governments.

State and local governments that had already put systems into place were ahead of the game. Those that had not were (or in some cases are now) put into the position of catching up with the others. In a sense, this sequence has given new life to the concept of best practices. There has been a significant amount of give and take between the various levels of government. A community of practice that allows leaders at every level of public service to learn from the experience of others has evolved.

HISTORY OF THE BALANCED APPROACH

In the early 1990s, Robert S. Kaplan and David P. Norton introduced the concept of the Balanced Scorecard (BSC) to the private sector. (For further information on the work of Kaplan and Norton, please refer to their website, www.bcol.com.) Their groundbreaking Harvard Business Review article (January 1992) and subsequent works discuss private-sector efforts to align corporate initiatives with the need to meet customer and shareholder expectations.

A BSC is an organizational tool that translates an organization’s mission strategy into objectives and measures organized into four different perspectives: financial, customer, internal business process, and learning and growth (Figure 1-1). It provides all employees with information they can use to achieve the organization’s goals.

At about the same time, Karl Sveiby was introducing the concept of the Intangible Assets Monitor (IAM) to the private sector in countries outside the United States. Both concepts create indicators that measure aspects of business and assume that the performance of an organization should be measured by more than merely the “bottom line.” Although they appear similar, the two concepts were developed independently, and the theories behind them differ.

The IAM sets forth the idea that human knowledge has very little to do with money, since very few people in an organization handle money. If the source of revenue is an organization’s employees, a planner must come closer to “the source” of their knowledge to measure it more accurately. By measuring closer to the source, it becomes possible to create an early warning system for failure to achieve goals more oriented to the future than one that relies on the financial accounting system. For this reason, the IAM argues that nonfinancial indicators are probably superior to financial ones. It focuses primarily on three intangible assets (external structure, internal structure, and individual competence) and acknowledges that financial indicators already exist within the strategy of the organization.

The BSC, on the other hand, sets forth the idea that to develop a long-term plan, organizational leaders must strive to balance four separate but intertwined aspects of the organization’s environment. Doing otherwise could produce success in the short term but would ultimately result in long-term failure. Unlike traditional measurement systems, based solely on financial information, the BSC sets objectives and measures performance from four distinct perspectives that are equally important: customer satisfaction, internal business, learning and growth, and the financial perspective. Together, these perspectives provide a balanced view of the present and future performance of the business.

BSC users are likely to develop nonfinancial indicators that are different from those used with the IAM and that also will be interpreted differently. The IAM assumes that some of the organization’s assets are intangible, and its purpose is to guide managers in how to utilize those assets while increasing, renewing, and guarding them against the risk of loss. The IAM is thus more similar to traditional accounting theory, with its balance sheet and income statements, than the BSC. The BSC begins from the base of a traditional management information system and adds three nonfinancial perspectives to that system.

While the IAM is based on the “knowledge perspective” of a firm, the BSC regards the perspective of the firm as a given, urging managers to take a more balanced view. In their 1996 book, Kaplan and Norton state: “The Balanced Scorecard complements financial measures of past performance with measures of the drivers of future performance. The objectives and measures of the scorecard are derived from an organization’s vision and strategy.” ¹ That strategy is then translated into action through the planning documents.

APPLICATION OF A BALANCED APPROACH TO THE PUBLIC SECTOR

As a result of these two concepts, a need evolved to study in-depth how all these efforts related to the public sector and if they could be replicated there. Could federal, state, and local government entities improve their strategic planning efforts by including customers, stakeholders, and employees in their processes? What would it take to reach some balance between the needs and opinions of these groups and the achievement of the organization’s stated mission?

A balanced approach in the public sector must look at four areas of responsibility, some of which correspond to the original concepts of the BSC: public governance, operational, supporting, and client responsibilities. ²

Public Governance Responsibilities

Public governance responsibilities address how we should appear to our customers and stakeholders as policy and resource stewards. The mission of the organization must align itself with its legislative mandates, which will provide the basic information. For the federal sector, congressional consultation is especially vital. Consultation with stakeholders is critical to this process and will identify their key needs and requirements, which can then be integrated into the overall planning process. Duplicate or multiple programs can sometimes be integrated through this process as well. Closely analyzing exactly what the organization must achieve and focusing on the mission can clarify expectations for everyone—stakeholder, customer, employee, and the organization as a whole.

As you, the government manager, look for the best policy results and achievement of mission, keep in mind that you are enacting legislative language. Are the mandated policies effectively translated into goals for implementation? Are you also addressing the fiduciary responsibilities of the organization? In a time of severe budget restraints, it is important to communicate the financial and performance restraints clearly (e.g., an agency is trying to downsize, and there will be fewer individuals to achieve a mission). Figure 1-2 maps out the three phases of strategic planning: (1) defining the mission of the organization; (2) developing the goals, objectives, and indicators; and (3) using performance information for a continuous improvement process. In day-to-day operations, continuous improvement allows combining decision-making with accountability, creating incentives, and building expertise. The four areas of responsibility for a public-sector organization provide the guidelines for your decisions in this process.

Figure 1-2
Balancing the Perspectives

Operational Responsibilities

Operational responsibilities are how we work within our organizations as well as with delivery partners, such as state and local governments, to achieve our stated mission. To be successful in this area, we must understand and measure (e.g., for time, cost, quality, and quantity) the core processes and their value chains. A value chain in the private sector defines all of the activities and processes an organization performs while producing a product. In the public sector, a value chain analysis helps an agency provide a service that is of value to the citizens it serves. Value chain analysis defines each particular activity in terms of the value added to the organization’s products or services. The overall concept is that an organization is more than a random set of things. Rather, for the organization to be efficient and effective, the individual items must be arranged into systems and processes. For more on value chains, see Chapter 2.

This is an area where “stovepiping” does the most harm. Stovepiping refers to limited or nonexistent communication among individual areas within an organization. Programs are managed solely in terms of their impact on the program—that is, within their own cylinder or stove pipe—rather than in terms of impact on the organization as a whole. (In Brazilian culture, management planners refer to a program having “its own church.”)

As the BSC takes hold, particularly in the federal sector, we frequently hear about “one” organization, e.g. “One HUD” or “One DHS.” This concept of one organization reflects an emphasis on establishment of cross-program and even cross-bureau goals and objectives, rather than multiple individual goals. In some areas where this has been successful, the emphasis is now shifting to interagency outcomes for future planning cycles.

The emphasis should be on comprehensive processes and interrelationships. Process mapping can be a great help here. Process owners must be identified and held accountable for the results. Does an organization have delivery partners? Where do they fit into the achievement of its mission? Does the service or benefit go directly to the citizen, or does the funding go through an intermediary source? When you map the processes, you must include delivery partners and supplier roles.

Supporting Responsibilities

Supporting responsibilities are the responsibilities we have to our employees. Do we have the right people? How do we, as an organization, provide them with the training, capabilities, and technological support they must have to do the job correctly and deliver high-quality service to the customer?

Client Responsibilities

Client responsibilities address how we want to (or should) appear to those outside the organization. The term as used here encompasses not only customers in the traditional sense but also indirect recipients of services or benefits and the ultimate customer: the taxpayer. In meeting these client responsibilities, balancing can become more like juggling—there may never be a time when everyone affected by a particular program will be in total agreement. A client is not always a customer, because some organizations regulate as well as provide a benefit or service. The client, too, has some level of responsibility in the achievement of successful results.

Communication among the groups can help define the limitations of the public-sector organization, especially for the recipient of the service. The expectations of an individual receiving a benefit or service may be beyond the capabilities of the organization. There must be balance between what the recipient, as a customer, wants and what the organization can provide while maintaining its responsibilities to the taxpayer. Communication can become critical—honesty regarding limitations vs. expectations allows “opposing” sides to understand the strategic planning issues with which the organization is struggling. The client groups, clearly defined, need to be involved in defining goals, targets, and strategies.

Where does financial measurement fit into this scenario? Although public-sector organizations do not exist to make a profit, they do have a fiduciary responsibility to achieve their mission in a cost-efficient manner. In today’s world of tighter budget restraints, this has gained additional importance. Measurement of these responsibilities is most clearly defined in such legislation as the Chief Financial Officers Act, the Government Management Reform Act, and the Clinger-Cohen Act. GPRA, too, requires linking budgetary resources with strategic planning efforts. However, financial performance is not the only area that crosses from private sector to public sector.

Customer satisfaction is particularly important to public-sector organizations, since one of the customers—the taxpayer—is also the source of funding. While in the private sector, internal efficiency would not generally be of concern to the customer, efficiency and productivity are of great concern to government customers, as they are paying for the service. For this reason, internal efficiency, also referred to as cost-effectiveness, should be a key element in strategic planning in the public sector.

Successful organizations believe that, while there is no perfect fit within the public sector for either the BSC as envisioned by Kaplan and Norton or the IAM, the overall concept can nevertheless be useful in government planning—particularly with some tinkering and tailoring. For example, public-sector organizations with the most mature strategic planning processes—notably, city and state governments—feel that the area of employee satisfaction translates better to the public sector when viewed as employee empowerment or involvement.

Some important lessons to remember about balancing performance measurement include

•   Adapt, don’t adopt. Make a best practice work for you. Each organization, whether public or private, has its own unique culture. Take the best practices and adapt them to your specific organizational culture—don’t try to force what worked in another place onto your organization without taking that uniqueness into account.

•   We aren’t so different after all. Whether public or private, federal, state, or local, there are common problems and common answers. Defining who the customer is may be less of a challenge for the private sector; otherwise, the issues are markedly similar: opening and maintaining solid lines of communication with your customers, stakeholders, and employees; achieving organizational goals in a cost-effective and efficient manner; and making sure your product, service, or benefit is the best possible.

•   Leadership doesn’t stop at the top. It should cascade through an organization, creating champions and a team approach to achievement of the mission. In a public-sector organization, the political leadership will shift with elections. If the head of a department really wants to make a lasting difference, the overall process needs to become an integral part of the organization, not just a product produced by the head office or contractor. If the process is part of the entire organization, it will attain an enduring sustainability.

•   Listen to your customers, your stakeholders, your employees, and unions. This doesn’t mean send out surveys, collect the paperwork, and put it in some fancy notebook on a shelf in the office. It means communicate with them. Be prepared to listen to what they have to say and to act on it.

•   Partnership means success. Don’t tell customers, stakeholders, and employees what they need. Ask them—it works much better.

WHY A BALANCED APPROACH WORKS

Why should you, a government leader, try to achieve a balanced set of performance measures, or what’s often referred to as a family of measures? Because your job is to meet your customer’s expectations and fulfill your organization’s mission. In other words …

You need to know your customer’s expectations and your employee’s needs

Define what service or benefit the customer wants and what the employee needs to deliver that service or benefit. No organization can achieve a mission without the tools to accomplish its daily responsibilities, so human resource systems should use employee surveys. Necessary skills and competencies must be determined through analysis. Once those have been determined, then a curriculum of training can be developed. Management tools, such as appraisals, should align stated goals with actual performance. Workforce size and productivity issues, as well as access to information and technology, are also factors to consider. The resulting organizational culture should support the entire workforce in achievement of its mission.

You must plan for those expectations and needs to achieve your stated objectives

The success of the organization is determined in large part by the involvement of individual employees in the overall process, their awareness of their roles in the achievement of the mission, and their belief in the vision of the organization. Once the customer and the expectations of service or benefit are defined, there is a basis for discussion with employees. Involving employees is critical because they are your front line with the customer. (For a more thorough discussion of involving the employee, see Chapter 4.)

A balanced approach to performance management works

The BSC helps an organization become aligned on one strategy, eliminating the strategy disconnect between leadership and line workers by helping employees understand how they personally can make an impact on the performance of the business. It also allows customers to understand the limitations of an organization and adjust their expectations accordingly. When involved in these discussions, the stakeholder is provided with the full scope of the issues and can work better with the organization toward successful achievement of the mission.

When there is an open line of communication among the organizational leadership, the employee, the customer, and the stakeholder, the entire culture of the organization can change, focusing on achievement of the mission.

With the BSC, a public organization has the necessary tools to decide which projects are most important to the achievement of its goals while becoming more efficient and improving the level of service or benefit it is offering to the customer. Most important, the BSC provides a means of communication for successful implementation of strategic plans and a budget that is performance based.

NOTES

 1. Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy into Action (Boston: Harvard Business School Press, 1996), 8.

 2. Special thanks to Sharon Caudle, Ph.D., of the GAO for her assistance with this section.