VII. The Governance and Organization Issue

A. Introduction

In accepting its privileged assignment of suggesting alternate futures for ten Department of Energy laboratories, this Task Force could have limited itself to the conventional objective of most Federal advisory studies and only presented findings and proposals that might be adopted within the accepted governing processes of the times. But one critical finding is so much more fundamental than we anticipated that we could not in good conscience ignore it. The principle behind that finding is: Government ownership and operation of these laboratories does not work well.

The laboratories are purported to be contractor operated. The system is titled Government-Owned, Contractor-Operated or GOCO. The GOCO system was a promising concept. The Contractors, as contractors, do yeoman work. The system has been employed for decades. But in that time it has followed the natural course of government's proclivity to govern more. The owner wants to take charge more. Most able government personnel aspire to add value. Translation: add more governance. This makes work for more government personnel, increasing the size of the operation, increasing still further need for management, ad infinitum. Congressional policy has significantly driven this consequence.

Numerous instances of poor DOE regulatory and management practices have come to the attention of all members of the Task Force during its investigation of the national laboratories. The system has been tried long enough; the evidence is in. Today, the system has evolved to a virtual GOGO - Government-Owned, Government-Operated, but certainly strongly government-dominated system. And the momentum in that direction has been unabating. This "ship of state" (the Congress/Department/Contractor/Laboratory system) is ponderous. Evidence in these regards is almost limitless. Appendix A illustrates the excessive oversight and micromanaging with an abbreviated litany of some forty anecdotes. However, general areas of excess are:

As we were in the final stage of editing our report and preparing for submission, the Department initiated a Strategic Alignment effort to address some of these issues. The initiative is described in the announcement and explanation documents of the Department which were released on December 20, 1994. The Task Force applauds the Department's acknowledgment of the problem and many of its intended actions. The Task Force presumes no credit for this happening. Rather, we note that the establishment of this Task Force was itself an initiative of the Department a year earlier. The natural consequence was to put the governance issue into public play, and the Department has been responsive to the inevitable greater emphasis of this governance issue to its credit.

There is heartening evidence from inside the Washington Beltway regarding the suffocating consequences of micromanaging. It confirms our finding that something really substantial has to be done soon or the vitality of the laboratories will founder. But our evaluation of the seriousness of the problem and the limited promise of a continuing federal governance system even though partially muted, per the new Department proposals, is that efforts such as announced will be seriously insufficient.

It is the Task Force's position that top-down, command and control bureaucracies are counterproductive for these laboratories. Pundits may dismiss this reality. But if the laboratories are to optimally enhance America's energy interests, these are the realities of group dynamics essential for the laboratories to contribute their best.

Thus, our first operations recommendation is that we must begin to evolve, over a period of one or two years, the development and implementation of a new modus operandi of Federal support, based on a private sector style "corporatized" laboratory organization system. This proposal embraces the counterintuitive, yet newly-further-confirmed institutional principles that allow the subsets of an organization to operate more to the principles of trust and self initiative. From these principles accrue greater flexibility, quality, and productivity; as well as the revitalization of an operating institution and the heightened accomplishment of its mission.

There have been many studies of the Department of Energy laboratories. As one reads these reports, one recognizes that the items which were recommended in previous reports are for the most part recommended in most subsequent reports. As each past study has taken place, people of good intention do make sincere efforts to "fine tune" the system. However, the Department and the Congress should recognize that there has been little fundamental improvement as a function of past studies. In fact, the cost-benefit relationship of the Department/Laboratory operation has continued to degrade. If there is to be a significant benefit from this study, it will have to come as a function of a major organization and governance change.

We suggest that the country must try one or more concepts that are radically new in order to revitalize the laboratories and to achieve significant improvements. If some parts of a bold solution were to prove to be not as beneficial as this Task Force is confident that they would be, that unto itself should not be a matter of concern. The laboratories and the country would still be better off than they otherwise will be from the continual repetition of federal governing policies. The system is now so concerned with details that it cannot work the big picture.

Previous reviews of the laboratories have taken a top down approach. This one focused otherwise. Early on we invited the involvement of the people active in the system from the bottom up. It is evident to us that the competence is there in the laboratories to make these changes. Properly oriented and supported with quality management training, this inherent competence can make enormous changes in the productivity and effectiveness of the laboratories.

B. The Need to De-Federalize

The principal organizational recommendation of this Task Force is that the laboratories be as close to corporatized as is imaginable. We are convinced that simply fine tuning a policy or a mission, a project, or certain administrative functions will produce minimal benefits at best.

The government should be the customer of the laboratories. The Department itself should be an instrument of that customer function. The Department must become a world-class customer. World-class commercial customers do not tell their suppliers how to do things. They simply buy a result for a given price. World-class commercial suppliers are not audited by their customers. The commercial practice sets the quality of operations standards to which the government should commit.

The Task Force is aware that there are numerous laws on the books that specify that things should be done the way they are currently being done. The Task Force recommends that a clean sheet of paper be applied to the design of a new laboratory governance system by the Congress and the Department. The Task Force notes that over the years creative variations of government structures and funding have been flexibly initiated, including the Defense Advanced Research Projects Agency (DARPA, now ARPA) the Federal National Mortgage Corporation, Mitre Corporation, and many others. This precedent justifies the application of imaginative and practical forms and financing of organizations such as we propose, including the circumscribing of prescriptives, audits, and other overhead.

One attractive model that we outline here is the creation of a new not-for-profit R&D corporation or corporations, formed with many of the basic principles and criteria of a conventional commercial corporation. Although the DOE weapons-oriented laboratories could be omitted from the proposal outlined here, many if not all of the other DOE national laboratories at least are candidates to be included in this corporation. The not-for-profit corporation(s) will be governed by a Board of Trustees, consisting primarily of distinguished scientists and engineers and experienced senior executives from U.S. industry, appointed to staggered terms by the President of the United States. This Board will select the chief executive officer and other principal officers of the corporation. Each lab would similarly have a trustee advisory board elected by the parent board.

The Department of Energy will be the government sponsor of this new R&D entity. Initial funding of the corporation will be in the form of Congressional line items in the DOE budget in each of the four mission areas of national defense (if the weapons laboratories are included in the "corporation"), energy, basic research and environment; and another line item for "other programs," a miscellaneous category including health, facility improvement, global ecology, economic betterment, etc. Each of those missions will contain funding that can be used across the full R&D spectrum from basic research to development and technology demonstration. The budget should be for some multiple of years with our Task Force recommending that a decline be built into these funds over a five year period. Renewal of federal funding will be subject to Congressional approval.

Allocation of these funds among its several individual laboratories will be made by the corporation. The management of the corporation will deal with the traditional agencies for which the work is usually done in refining the allocations. Micromanaging or "earmarking" of these allocations should not be made by the Congress or the Department.

The corporation will be permitted to serve the particular needs of the Department of Defense, the Department of Energy, as well as any others in government, the universities and the private sector, just as any corporation would serve its customers. The corporation will be subject to normal commercial criteria of operation, including conventional outside auditors, as are required of other corporations. The corporation and its several laboratories will be subject to the normal influence and control of those agencies of the state and federal government that normally have authority over a United States corporation. If it wishes, the corporation may hire one or more contractors, similar to those now engaged by the DOE, to assist it with aspects of the management of its affairs.

The laboratories will be challenged to embrace the new higher standards of self-initiated, self-determined, quality service to customers that are being perfected in the private sector. As a result, the Department will receive more "bang for the buck". There is a spectrum of possibilities from which a new system of governance and operation can design the needed better way. Although we have outlined one specific embodiment of a corporate structure, many variations are possible. As mentioned above, the weapons- laboratories may or may not be included in such a "corporatizing," although some Task Force members feel including them would be both useful and successful. Various options also exist for ownership of the plants and facilities. For example, they may be leased to the corporation on a long-term or rolling basis, or they may be transferred outright. Combinations of operating plans can be staged in transition to a "far-less-federal" plan as a further possibility.

In this model, the DOE is the customer of the corporation. Funding for the corporation would be allocated to the DOE by Congress in a small number of broad blocks as described earlier. Allocation to specific projects would be the responsibility of the DOE, with no earmarking from Congress beyond quantifying the amount of money given to each broad block. Congress would indicate its level of satisfaction with the job the DOE was performing by increasing or decreasing the funding to each broad block. The DOE, in turn, would indicate its satisfaction with the job the corporation and its parts are performing by increasing or decreasing the level of funding for each project.

The contemporary official view is that the laboratories must conform to the so-called federal norm. The Task Force believes it is time to run a major experiment with a modest part of the federal budget and have the laboratories test out a progressive concept. The current annual budget of some $6 billion for these laboratories is modest compared to the entire government budget, or even the budget of many large corporations. At minimal risk, the country could experiment with a new way of doing things. It is just such quality of change that is renewing the rest of America to heightened achievements and increased competitiveness with resultant ability to achieve improved results with a smaller budget.

A compelling question is: what are the cost savings consequences of the change in governance and reorganization? Each time we tested the question on the players-those who work in the laboratories-the least called out was "10% savings"; to which most all other respondents would strenuously interject "40%," "25%," "50%," "20%." In private industry it is virtually axiomatic that a dedicated, empowered, quality program will generate better than 20% cost improvements with greater values in significantly improved quality of output of services, engineering and product.

As described in its Strategic Plan, the Department of Energy sincerely desires to be people oriented, to value creativity and innovation, to commit to excellence, to work in teams, to embrace leadership empowerment, and to pursue accountability. Regrettably, the fundamental system and structure under which it is obliged to operate cannot achieve the first five objectives to near the degree the Department leadership intends. The Department further recognizes that certain critical success factors are communications, trust, and human resources. Again, its hands are tied as it is obliged or elects to overadminister. The activities that it is obliged to direct and order are a countervention of the value of trust. The laboratory human resources are demotivated by such an environment.

The above are our recommendations of the type of substantial reorganization which could be expected to result in an improvement of between 20 and 50 percent in the effectiveness of the laboratories themselves, on top of significant staff and overhead economies in the Department. For example, under the proposed structure the present DOE Field Offices might have no role to play vis-a-vis the laboratories.

In implementing the proposed corporatization, a separate detailed identification of those services which only the government can provide as a supplier should be identified. One example may be the transportation of nuclear or other dangerous materials. These services could be purchased by the laboratories from the government.

Certain of the liability responsibilities that have been placed on the government's shoulders must be continued (at least relating to past government assignments, such as nuclear materials) absent bad faith and willful misconduct on the part of the laboratory corporations.

C. Other Subjects

1. Financial Resource Planning

The laboratories must have a reasonable predictability as to their financial resources. In this way, the people who work at the lab will be more secure in their professional futures, and will be further motivated to become the supremely productive entity to which they aspire. Some form of multiple year fund guarantees are essential. We must find a way under the "clean sheet of paper" doctrine of making this possible. We must further be willing to find ways of engaging cooperatively with foreign sources of funds for research and development, as such cooperative work will often multiply the effectiveness of the domestic work to our benefit.

2. The Laboratories As a System

One of the values of this Task Force process has caused the laboratories to come together as a system to a greater degree than they had been inclined or directed to do in the past. The laboratories could move to a virtual system, such as is described elsewhere in the report. This would be more readily accomplishable under Corporate structuring.

3. Technology Roadmaps[19]

The Task Force suggests that there be a more liberal application of the technique of defining technology roadmaps for those classes of technology which would yield to a roadmap. We urge that this management process be employed where practical. All appropriate constituencies from government, academia, industry and the laboratories who have a competence at contributing to a given roadmap, should be called upon to define such roadmaps in a manner similar to that which has been accomplished by the semiconductor industry.

4. The Globality Issue (vis-a-vis non-Defense technology)

These laboratory Corporations will be serving other private corporations. They must not be unduly inhibited by policies that restrict the use of the technology to American sites or to American personnel. This is a global energy economy and general economy. All users of knowledge must be able to use the knowledge, wherever that knowledge can best serve their customers. If that requires doing some further engineering or production overseas, such investments will do nothing but enhance the economic strength of America through exports and the lowering of trade barriers, with the eventual desired job creation at home. Some further liberalizing of the "design and manufacture only in America" must be effected.

5. Metrics

At the onset of the Task Force study, a request was made to identify metrics of the laboratories' work. In no order of importance these can include: adherence to budgets, adherence to project schedules, patents filed, inventions disclosed, estimates of cost savings from a given potential application or actual application of technology, lists of technical problems solved, research dead ends now avoidable, the quantity and quality of research papers published, lab/university and lab/industry interactions as well as other collaborative work anecdotes, including CRADA results. The presently overused metric of "jobs expected to be produced from a CRADA" should be discouraged as speculative at best.

The degree to which a laboratory engages in the process of renewal would be a significant measurement. Science change, laboratories change, and laboratories' missions change. Laboratories such as Lawrence Livermore, for example, have changed over the last forty years having naturally gone from an 90 percent national security orientation to a 60 percent other class of activities orientation. Major projects like the Bevatron at Lawrence Berkeley Laboratory, which played an early important role, have been closed.

It is worth having metrics on how well the government is performing to make possible the better work of the laboratory and to expedite the application of certain of the output of the laboratories. For example, to what degree is the government becoming a better customer of the development, to what degree is it moderating regulations, to what degree is it making aid available tied to the development to encourage the commercial exploitation, to what degree is it making available low cost capital, what are the practical honorable ways of reducing the risks that would be borne by investors, how is the network of extensive testing facilities used to enhance and advance the application of products, how willing is the government to identify with the beginning success of a technology roadmap to support more vigorously extensions of achievements on that roadmap.

When all is said and done, the nature of the laboratories as a multidisciplinary system providing solutions to some of the truly challenging puzzle of nature, will require a qualitative evaluation more than anything else and a long time horizon to best measure the results.

6. Quality

The Department of Energy and most of the laboratories have embraced the language of quality management. They have studied the issue, they articulate the principles and they are educated on the fundamentals. The pursuit of these quality initiatives and the embracing of the practical methods and procedures of quality should produce values for the Department and the laboratories.

However, the likely end result will be limited because the principal authorities do not adequately appreciate a major way one improves quality: the elimination of functions. One must simplify procedures and get down to their essences, and the people in government are not prone to this. They administer quality in, control quality in, and audit quality in. Exactly the opposite is obliged. One cannot have a quality effect through the manner in which government imposes itself on the operations of the laboratory. We call for a true quality program. It must start at the top. It must start with the Congress and the Administration. When it starts there with proper respect for the essential principles, the ultimate result will require the government to "get out of the way" so that the laboratories can practice the quality principles that are practiced in the private sector.

Consider this excerpt from an article, "Why to go for Stretch Targets," in Fortune Magazine: "Finally - and here's where stretch targets differ from old-fashioned top-down management by fiat that U.S. companies have spent years unlearning - the CEO has to get out of the way. The job belongs to managers in the field, workers on the plant floor, and engineers in the labs." [20]

7. Facilities

There are superb facilities at the government laboratories. There are also facilities that have been allowed to languish. The insufficient attentiveness of the Department in keeping up the quality of existing facilities or the disposition of obsolete facilities is evident.

There should be a gradual reinvestment by the federal government in repairing research laboratories, and upgrading research instrumentation. Once that has been achieved after a period of years, the responsibility should be turned over to the laboratories. The laboratories should be expected to maintain and renew facilities in the same manner that the private sector is obliged to perform the updating, the tearing down and the construction of new facilities from their then aggregate budget assignments.

Elements of such a facility renewal plan should include:

If we do not correct this facility situation, the cost of managing and maintaining facilities "today's way" will soon be so costly that it may substantially consume the laboratories' budget. If the full management responsibilities of the facilities are placed in the hands of the management of operations (that is, the laboratory directors responsible to their public trustees), we anticipate that the cost of facility maintenance will be significantly improved.

D. Recommendation

  1. Over a period of one to two years, the Department and Congress should develop and implement a new modus operandi of Federal support for the national laboratories, based on a private sector style - "corporatized" - laboratory system.

To Section VIII, Summary of Recommendations

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