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President Trump’s Office of American Innovation – A Big Deal or Not?

I asked my ICF colleague Michael (Whit) Whitaker to co-author this post with me. I spent 33 years in government, living through the initiatives of 6 presidents and Whit is an expert in innovation.

On March 27, President Trump announced a new Office of American Innovation and appointed Jared Kushner to lead it. Critics have focused on the “make government operate like a business” aspects of the new office, and point out previous presidential initiatives that failed to dramatically transform government operations.

It’s true that every president since Reagan has tried to do something similar. It is also true that they had mixed results. President Reagan’s Private Sector Survey on Cost Control in the Federal Government, commonly referred to as the Grace Commission, made 2,478 recommendations that it claimed would save $424 billion when fully implemented over three years. The Congressional Budget Office and Government Accounting Office (its name at the time) concluded the savings were overstated and few of the recommendations were adopted.

President Clinton had better luck with the National Performance Review (later renamed the National Partnership for Reinventing Government). The NPR made hundreds of recommendations that were implemented and there were real savings. On the other hand, the government is still feeling the effects of the large reductions in HR and Procurement specialists that resulted from the NPR.

President George W. Bush also saw some successes with his President’s Management Agenda and particularly with the Program Assessment Review Tool (PART) that was intended to measure the effectiveness of federal programs. President Obama also had some success with the creation of a Chief Performance Officer and initiatives such as “Cloud First” for information technology.

Even though prior efforts have not be completely successful in transforming government operations, it is clear that both republican and democratic presidents have seen a need to make government more efficient and effective. They have tried slightly different approaches, but the “make government operate like a business” theme is usually part of it.

The government is not a business and it is not going to operate like US Gov, Inc. The fundamentals of running a business are not the same as running a government. Businesses exist to return value to their owners. They choose the markets where they want to compete. Good businesses want to serve their customers to grow and build the value of the company. They make decisions based upon what furthers their interests. There is nothing wrong with that. Good businesses are the engine of our economy and a little enlightened self-interest is an important part of that.

Government, unlike businesses, has to serve everyone. It has a public trust because it belongs to the people and it also has substantial coercive power to get what it wants. We can go to jail if we don’t pay our taxes or violate some other criminal statutes. We cannot have a government that decides it will not serve the part of the population that isn’t profitable or that doesn’t pay for services. We do not want a government that sees growing itself as part of its mission. Growth drives businesses to learn, innovate and become more efficient – to find new lines of business, new products, untapped markets, and new goods and services and ways to deliver them. It is a powerful force that drives the best (and sometimes the worst) of businesses.

What can and should happen is that government can learn from business. Government will not have the same drivers, but it certainly can learn, innovate, and become more efficient. In fact, innovation is essential if we want to make the government work better.  Identifying specific government problems where innovative solutions are needed is only one part of the equation that may have limited long term impact.  The most successful businesses avoid the temptation to focus only on big bang, high profile innovation success stories and instead commit substantial effort and sustained resources to building their organizations’ underlying capacity to innovate over the long term.  Government can take lessons from the most innovative businesses by focusing on innovation capacity building and agile culture change in two primary areas:

  • Making innovation more relevant to the day-to-day jobs of more employees
  • Building targeted innovation skills at depth across the organization

Let’s briefly explore some strategies in these areas along with examples of how parts of government are already applying these lessons.

Making Innovation More Relevant to More Employees

One challenge for government as it seeks to innovate is that many of its programs involve the delivery of services and not the invention of new products or capabilities.  Employees may fail to see how they can innovate without inventing new things. However, innovation frameworks like the three box solution that have been successfully applied at businesses like General Electric, Hasbro, Caterpillar, and Pepsi can be equally helpful in making innovation more relevant and tangible within services organizations.  Government can benefit from adopting such an innovation framework that enables broader understanding and engagement by senior, mid, and junior level employees across the organization:

  • Box 1 calls for optimizing the present – doing what you do now incrementally better. Box 1 innovations are the most likely to be accessible to junior and mid-level employees. In business, this may be a call for driving more profit from existing business lines while in government, the key performance indicators may be more directly tied to the delivery of citizen services given a defined budget. Government employees can start to feel more connected to innovation if they believe that the organization values continuous improvement as a type of innovation.  To build capacity and consistency at depth in the organization, innovation opportunity assessments should be built into existing processes that are core to operations such as program management reviews.
  • Box 2 requires selectively forgetting the past – identifying and breaking the artificial chains restricting more efficient operations while protecting the root processes that are required to fulfill the organization’s mission. The most innovative businesses excel at questioning whether the structures, incentives, and processes they have in place add value or create inefficiencies. Whether in private or public sector organizations, Box 2 is a fruitful place to conduct the difficult conversations between pioneers and guardians that must be navigated to unlock innovation.
  • Box 3 is the flashier side of innovation –envisioning and creating a future that leverages emerging technologies and fundamentally new approaches to delivering value. When employees hear “innovation”, many will jump to Box 3 as it most closely approaches invention and is being pursued widely across the public and private sector with research and development organizations, innovation labs, and open innovation challenges.  The most innovative businesses extend Box 3 thinking beyond dedicated innovation initiatives by challenging employees at multiple levels to sense and respond to emerging opportunities and to think beyond the daily fire drills of execution to envision a future with non-linear leaps in value delivery.

Building Targeted Innovation Skills at Depth

Innovation always sounds great in concept but is far more difficult to execute in practice.  Most employees in the public and private sector are trained and incentivized for execution, not innovation.  Successful businesses realize that execution is paramount – if you don’t take care of the health of the core business, innovation isn’t possible.  Not every employee in a business can or should be trained in a full suite of innovation skills.  However, the most innovative organizations identify key internal barriers to innovation and train employees with very specific innovation skills to extend their existing capabilities and overcome the challenges most relevant to their day-to-day jobs.  For example, businesses may train project managers who are primarily responsible for execution, delivery, and financial management to have conversations with clients that uncover opportunities for innovation that extend beyond the current engagement.  However, they may not be asked to then take that creative idea and to drive a process that ultimately delivers a finished solution.  Instead, they may be trained to tap into human-centered design experts in the organization to further develop the opportunity while they return to their core responsibility of execution.  By giving the employee a tangible and realistic pathway to contribute to innovation without requiring full training in a new skillset, the organization efficiently extends opportunity identification and innovation engagement to more employees without having to turn everyone into “innovators”.  There are many lessons from innovative businesses on how to do this well, but there are also an increasing number of successful adaptations from local, state and federal government programs that can be replicated or expanded. For example:

  • The Department of Veterans’ Affairs has a Center for Innovation with core staff fully trained in the process of innovation from concept creation to solution delivery. To build organizational capacity, they run boot camps that help creative employees understand how to get their innovative ideas developed and deployed broadly.  The boot camps help to build a deeper network of employees who can extend their existing management skills to help identify, promote, and progress promising innovations that can succeed in a complex and challenging environment.
  • Procurement and contracting are often cited as organizational barriers to innovation. The Office of Management and Budget (OMB) attempted to address this barrier by running a challenge to train acquisition specialists in how to take more innovative approaches to procuring digital services.  The Dynamic Learning Platform that was developed used a highly adaptive approach to extend the knowledge and skills of the acquisition professionals to overcome specific barriers to procuring more innovative digital services.  The OMB program identified a specific barrier to innovation and focused on the cohort of employees who could best overcome the challenge.  It then delivered targeted and agile learning content to build the incremental innovation skills those employees required to enable greater innovation.  By extension, when those acquisition specialists returned to their organizations, they were empowered with the knowledge and skills to further build and sustain innovation capacity.

If it follows the path of trying to make government operate like a business, this effort is likely to be an exercise in frustration and futility. However, if the Office of American Innovation focuses on just that – innovation – and enabling the hard and sustained work it takes to build targeted innovation capacity at depth across organizations, it may make a difference and that could be a very big deal.

 

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Deregulation – It’s Harder Than it Looks

Last month I wrote a post that explained why cutting the federal workforce is much harder than it might appear. That post prompted a discussion with one of my ICF colleagues (Gary Light) regarding President Trump’s Executive Order on deregulation. It should not come as a surprise that deregulation, much like cutting the workforce, is easy in theory and difficult in execution. I asked Gary to write a guest blog post so ChiefHRO readers can take a look into the complex world of federal regulations.  

President Trump’s January 30, 2017 Executive Order, “Reducing Regulation and Controlling Regulatory Costs,” is intended to reduce the number of federal regulations by requiring agencies to identify two regulations to be repealed for each “new” regulation (the “2 for 1” rule) and offset costs from “new” regulations with cost savings (the “net zero” rule).  On February 2, 2017, the Acting Administrator for OMB’s Office of Information and Regulatory Affairs (OIRA) published additional guidance for implementing the Executive Order.  To implement both the “2 for 1” and the “net zero” rules, agencies will be required to navigate several major challenges, some resulting from the Order and related guidance itself, and others inherent to the laws and conventions of the federal regulatory system.

On the face of it, the “2 for 1” rule – repealing 2 regulations for each new regulation — is both clear and significant.  But how do we count “regulations”?  And how do we look at costs? To understand the challenge, let’s review how federal regulations are published and organized. Like many seemingly easy ideas, the transition from concept to execution can be a challenge.

When an agency wants to change a regulation or wants input from the public on a possible change, it must publish a notice of the change in the Federal Register (FR). Whether the change is to make the regulation more restrictive or less restrictive is irrelevant. FR notices typically include background information, such as history and legal authority, various options that were considered or are being considered, a summary of public comments and economic impacts, and the actual regulatory language.  Final regulatory text is officially recorded by the Government Publishing Office in the Federal Code of Federal Regulations (CFR).  Watchdog groups and scholars often cite the number of pages the FR takes up in a given year, but that metric has little to do with the magnitude of regulation because the FR also includes many other agency notices, studies, public filings, and public meeting announcements. The number of words in a regulation is also far less important than what the regulation does.

Within the existing framework, how would an agency start offsetting one (or two) regulations for another?  The January 30 Executive Order defines “regulation” to exempt rules related to national security and to include Agency policy, interpretation, and guidance documents.  The OMB Interim Guidance uses to the term “regulatory action” rather than “regulation” to make it more intuitive that it may include the rollback of guidance.  Additional clarification is sure to follow, but any such “2 for 1” approach without additional guidance is inherently prone to manipulation and mischief, and may distract from the president’s goal of identifying and repealing “outdated, ineffective, or unnecessary regulatory actions.”

The second provision of E.O. 13771 – the “net zero” regulatory burden requirement – is the more substantive provision intended to focus attention on eliminating “unnecessary regulations.”  The OMB Interim Guidance suggests that the Acting OIRA Administrator sees the overall regulatory burden as the core issue and metric.  While the current guidance addresses only pre-September 30, 2017 regulatory actions, the general provisions or something like them are likely to be extended.

The OMB Interim Guidance clarifies that the “2 for 1” and “net zero” provisions apply only to “significant” regulatory actions, which generally means regulatory actions that have an effect of $100 million or more on the annual U.S. economy.  In addition, the OMB Interim Guidance clarifies that the Order applies only to regulatory actions taken by executive departments, and not to independent regulatory agencies (e.g., FTC, NRC, and FCC).   According to the OIRA web site, there were 77 such actions between October 1, 2015 and September 30, 2016.  Given the emphasis on offsetting new significant rules, an agency may need roll back two, three, or more lesser regulatory actions to offset $100 million or more in cost impact of a new significant regulation.  This would likely be the case no matter how we count regulatory actions.  On the other hand, if an agency comes up with a single deregulatory action that would fully offset the impacts of a significant regulatory action, it is hard to imagine that OMB would not exercise its authority to grant a waiver to the “2 for 1” provision.

Another interesting and important aspect of the OMB Interim Guidance is the emphasis on and suggestions for conducting new cost analyses to account for savings from deregulation.  The guidance essentially disallows reliance on past Regulatory Impact Analyses (RIAs) (i.e., cost-benefit analyses) that would have been required at the time of the original rule (assuming that the original regulation was considered a significant regulatory action).  The guidance implies – and it is reasonable to assume – that the data in past RIAs may be outdated.  However, one might expect a reference in this area to the provisions of Executive Order 12866 or OMB Circular A-4, which are the documents that require and specify the details of how agencies must analyze the costs and benefits in an RIA for a proposed significant regulation. Both of these documents remain in force according to the guidance.   In the OMB Interim Guidance, instead of referring to previously conducted cost-benefit analyses, agencies are “strongly encouraged to use program evaluation and similar techniques to determine the actual costs and other effects of eliminating regulatory actions.” The potential implication of these provisions is that, although retrospective reviews and cost analysis methodology are relatively well established, new and different forms of analysis will be needed to support deregulation.

But why focus on program evaluation and not mention cost-benefit analysis?  The guidance never mentions the societal benefits that might be accruing due to existing regulations (such as improved health associated with cleaner air or lives saved by safety standards).  Perhaps consideration of such benefits is implied within the framework of “program evaluation and similar techniques”, but it is difficult to see how the Administration intends for agencies to address potential benefits from past regulations that might be foregone to achieve regulatory cost savings.  Could the Administration consider only the cost savings and not the loss of benefits that would be associated with deregulation?

Probably not – at least without additional changes to the broader law, policies, and guidance that comprise the federal regulatory system.  Most significant federal regulations are adopted by agencies under the authority or direction of laws enacted by Congress directing agencies to engage in evidence-based rulemaking. This statutory authority provides the basis for any rulemaking, and it typically articulates the societal benefits that Congress hoped to achieve through regulation.  One way or another, this new “2 for 1” regulatory system is likely to require full consideration of costs and benefits for each regulatory action that is part of the package required to maintain the “net zero” cost impact.

Most federal regulatory actions are governed by the Administrative Procedure Act (5 U.S.C. §§ 551-559), which requires agencies to provide ample notice and opportunity for public comment on proposed regulations, and that regulatory decisions be well-reasoned rather than arbitrary and capricious.  Judicial review of regulatory actions generally requires that agencies build a case for regulatory actions, and once having done so courts review an agency decision as it is reflected in the administrative record, which consists of all the information the agency had before it when making the decision.  According to the Supreme Court, an agency must defend and provide a detailed justification for a policy change to the same extent as if the agency were promulgating a new rule.[1]   So while it may not be good enough to rely on past RIAs when Agencies consider “undoing” a regulatory action, federal courts may want to look beyond just the cost savings to consider a full cost-benefit analysis or Cost Effectiveness Analysis (if one was prepared) for the original action now being considered for repeal.

Another way that the well-established federal rulemaking process compels a comprehensive analysis of costs and benefits of each component of the overall “net zero” regulatory burden requirement is through the RIA that will be required of the new significant regulatory action that is to be offset by repealing 2 past regulatory actions.  OMB Circular A-4 directs Agencies to select an appropriate baseline against which to compare costs and benefits of regulatory actions.  Such a baseline needs to reflect how the world would likely look absent the regulatory action.  If the new regulatory action is bundled with deregulatory or streamlining actions in the same regulatory program, then the costs and benefits of the repealed or streamlined regulation would need to be considered either as part of the new regulatory action or as a change to the regulatory baseline for the new regulatory action.

The new Executive Order and related guidance, particularly the “net zero” cost impact provision, further complicate and add uncertainty to the regulatory process.   The administration has clearly raised the bar for getting new regulations through OMB.  However, because of the Administrative Procedure Act and the rules for justifying all regulatory actions (both regulatory and deregulatory), efforts to repeal regulations should consider both the costs and the benefits of past rules, despite the cost emphasis in the January 30 Executive Order and OMB Interim Guidance.  While many uncertainties remain about how this will play out, it is clear that agencies are being encouraged to think big and broadly about how to achieve regulatory objectives most efficiently, and to take a hard look at past regulations for opportunities to make them more efficient and effective.

Gary Light is Senior Vice President for ICF and an expert in developing and evaluating regulatory and policy options and programs. His expertise centers on integrating engineering, economic, and legal principles with information technology to solve complex public policy challenges. In addition to providing project, program management, and advisory services, Gary is a cocreator of CommentWorks®, ICF’s commercial Web-based application for managing public comments. 

 

[1] Motor Vehicles Manufacturers Association v. State Farm Mutual Automobile Insurance Co, 463 U.S. 29 (1983); Federal Communication Commission v. Fox Television Stations Inc., 556 U.S. 502 (2009).

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