A determined leader and a few crazy years remake the money-maker.
If you don't read this, you'll miss out on how: A government agency remade itself in the image of private enterprise The U.S. Mint pulled its legacy systems into the 1990s Mint workers evolved from bureaucrats to customer-responsive employees It's difficult enough for the average CEO to satisfy a board of directors - even tougher for a corporate turnaround specialist, who's bound to make some unpopular decisions. But how would you like to transform an ailing company while reporting to 535 people? Worse yet, 535 people much inclined to internecine bickering? That's the challenge Philip N. Diehl took on when he became director of the U.S. Mint in 1994. He's spent the past five years on Capitol Hill, persuading his "bosses" in the House and the Senate to pass the legislation he needed to build a new organisation. And as the laws have changed, Diehl has turned the US $1 billion government bureaucracy into the closest approximation of a private sector company that the re-inventing-government crowd has yet to see. He's instigated a series of strategic, cultural and technical revolutions. He's reorganised the Mint from director to janitor, asked his employees to learn a completely new way of doing business and tossed a massively complicated computer system on top of all that change. At times, he says, it felt like a war being fought on multiple fronts, and he had a devil of a time keeping the chaos from overwhelming his troops. But the campaign has paid off: The Mint is one of the nine organisations originally chosen by President Clinton and Vice President Gore to pursue "performance-based organisation" status (government-speak for behaving like a private sector company). It also now ranks second only to the former Mercedes Benz Co. in customer service, according to a study by the University of Michigan.
Nancy Killefer, the assistant secretary for management and CFO at the Department of the Treasury, gives Diehl and his management team a lot of credit for the job they've done. "Phil brought about a number of important changes at the Mint," says Killefer, adding that Diehl and his team "have collectively provided leadership across the Mint and done a very fine job." Breaking the Mold A former chief of staff for ex-Treasury Secretary Lloyd Bentsen, Diehl says he's always been intrigued by the Mint because, unlike most government agencies, it actually produces and sells a product. That made it an obvious candidate for the federal improvement initiative known as the 1993 Government Performance and Results Act. "I saw it as a diamond in the rough," says the 47-year-old Texan. "Here's an agency that actually has real customers." But when Diehl was confirmed as director by the Senate in June 1994, the Mint also had real problems. It was so disorganised, according to an article in The Washington Post, that nobody knew how many coins were in inventory at one time, even though the Mint's chief responsibility was to produce an adequate volume of coins for circulation. The Mint's coin plant superintendents - in Denver, Philadelphia, San Francisco and West Point, N.Y. - ran their groups like "small, Balkanised fiefdoms," recalls Diehl. Moreover, the Mint's sideline business of producing, selling and marketing collectible and bullion coins (otherwise known as numismatics) was in dire financial straits - but since the Mint ran on government appropriations, it was difficult to instil a sense of fiscal urgency.
Likewise, an organisational focus on customer service was anathema to the Mint.
Coin collectors had long complained that it took months to receive orders, but, says Diehl, Mint workers just shrugged it off. "We were a monopoly, so why listen?" he says, describing their attitude. The familiar fatalism of a long-standing bureaucracy hung, foglike, in the D.C. headquarters.
Diehl decided to concentrate on customer service and the Mint's financial mess first. He brought in Treasury alumnus John Mitchell to deal with the numbers.
And he tossed down a gauntlet to the customer service folks by announcing publicly that the Mint would start shipping 95 percent of its orders within six weeks. L.L. Bean might scoff at such turnarounds, but it was unheard of at the Mint. "I did it to hold [customer service's] feet to the fire," he says. "I'm not very patient with that kind of complacency." (Mint employees responded and were shipping orders within four weeks.) Diehl next attacked the issue of the feudal superintendents. The trouble was that they, along with four other senior positions, were presidential appointments, and the appointees "didn't see the head of the Mint as their boss," says Diehl. He worked his contacts at the Treasury and started the governmental gears grinding. It took a year and a half, but he finally won congressional approval to switch 4 out of 10 appointed positions to civil service jobs and eliminate 5 positions altogether. (One appointee remains on staff, he admits sheepishly: himself.) Out went two of the incumbent superintendents, replaced by Diehl's hires recruited from the private sector.
Learning to Earn
Even the snappiest of corporate managers would quail at the Mint's Byzantine financial rules, which were written into federal law. "There were five different funds that interacted," says Diehl. "It was mind-boggling how complicated it was." So in 1995, Diehl trudged up to Congress again and cajoled and persuaded his way through the banking and treasury committees of both the House and the Senate.
The resultant legislative changes freed the Mint from funding by appropriations - about US $60 million annually. The Mint would finally be able to plan capital expenditures as it pleased and plan ahead more than one year. Rather than using money that came with congressional strings attached, the agency would generate a budget from its ability to manufacture and sell coins, a step that would help burn off that bureaucratic fog with the glare of an increased urgency for profits.
But ironically for a monopoly, the Mint faced hurdles in its quest for profitability. Coin usage was down, partly victim of the increased use of credit cards and other forms of electronic payment. The numismatics business, with a shrinking customer base of mostly older men, was also burdened with the albatross of an expensive congressional commemorative coin program that had much to do with political influence and little to do with customer demand. And while Diehl's customer service edict had helped cut product delivery time, he and Mitchell, who by now was deputy director, knew that the Mint's service still lagged. The two realised that profitability was inextricably linked to its customers' wants and needs and that the numismatics division must reflect that vision. Diehl brought in David Pickens as associate director for numismatics to effect the change. Says Pickens, "Phil [Diehl] laid out a vision of a more customer-oriented business that was intriguing to me," especially as the plan involved a government agency that Pickens, a former Mint employee, had good reason to know was not big on customer service.
Pickens and his marketing team commenced building a blueprint for the renovation of the numismatics marketing group. Meanwhile, Diehl brought in a customer service consultancy to benchmark Mint performance against mail-order greats such as L.L. Bean and Lands' End. "We were, frankly, embarrassed," Diehl says of the results. The consultancy used benchmarks in 21 categories to create a set of about 35 customer service metrics, such as how long it took to fill an order, issue a refund or answer customer questions. These measurements were tracked on an hourly, daily, weekly and monthly basis, and the customer service folks use them as a barometer of success in meeting their target goals. For example, if it took the Mint 34 days to send a refund and the industry average was 7, the system helped the service representatives measure how far they were from that goal of 7 days. The Mint upgraded the telecommunications system with a US $9 million investment in fibre-optic call management systems and videoconferencing technology. The result? Customers got their coins in two to three weeks.
As part of the numismatics reorganisation, Diehl returned to the now-familiar halls of Congress and began his assault on congressional commemorative coins program. This was a favourite serving of pork for congressional delegates because the coins carried a surcharge that went to lawmakers' pet charities.
Trouble was, every year Congress ordered as many as four or five of these coin programs, which often involved millions of coins. Some sold, but many languished in inventory, and the Mint had to eat the loss. (Pickens cites the huge Olympic Coin program as a major money-loser.) Working with Rep. Michael Castle, Diehl convinced Congress to cut down its commemorative coin addiction to two a year, reducing annual mintages by 90 percent.
Fuelled by their early success with customer service, Pickens and his team grew downright nosy about who their customers were and what they bought. The tantalising database of order information on the Mint's legacy mainframe system taunted them. If they could only get at that information, the Mint could target customers more effectively and better forecast market demand. For example, the Mint typically mailed 12 to 15 promotions a year. Some were for US $8 coins, others for US $1,500 rarities. "They're for very different markets, but we sent everything to everybody," sighs Diehl. Why? "We ran into a wall called information systems," he says. The mainframe was unable to slice the data in any meaningful fashion, and only a few IS staffers knew how to access the information. Marketing staff had to ask the IS group to query the mainframe with questions, and getting answers could take weeks or months. "Our customer list was one of the crown jewels of the Mint, yet we couldn't use it," says Diehl.
Recasting the Mint
Diehl, Pickens and the marketing staff started looking for a database marketing specialist to advise them. The company name that repeatedly came up was Dialogos Inc. in Boston, run by Vernon Tirey. Tirey ended up advising them on much more than database marketing. The Mint started out, says Diehl, wanting to ask simple questions of its database without waiting two months for a response.
It ended up with a complete reorganisation of its business units.
Tirey says that a new computer system would not have been enough to cure the Mint's marketing woes. "We could improve their marketing programs and give them ad hoc query technology, but they'd never fulfil their potential, because the Mint was not organised properly," he says.
Tirey's words acted as a catalyst for Diehl, who grew determined to make the very structure of the Mint reflect the needs of its customers. This is old news to many corporations, but Diehl says, "It was largely unheard of in government, even for a small agency [2,200 employees] like ours." Working with Tirey in late 1997, Diehl and his executive team - Deputy Director Mitchell, the heads of the four production facilities, the chief counsel, the head of security and the CFO - dug into some of the Mint's underlying problems.
For one thing, the Mint's functional departments had a bad habit of not collaborating across departments, leading to tremendous inefficiencies, says Diehl. If the Mint had a new collectible coin in the works, for example, the planning between marketing and manufacturing was chaotic at best. Marketing produced what it thought was the right amount of packaging, and manufacturing produced what it thought was the right amount of coins. If they had more coins than packaging, the excess was melted down, or if the reverse, packaging was thrown away, both wasteful and expensive.
"It took the bureaucratic equivalent of an independent counsel to find out what was wrong," says Diehl. "Everybody was so afraid of taking the blame, it was hard to diagnose the cause of failure." Diehl knew he wanted to radically reorganise the Mint, and that numismatics, the "sexiest" division, still needed major renovation. His management team agreed with him in principle. But moving from principle to reality is never simple. As Tirey points out, Diehl had a problem: He couldn't just issue orders to his executive team, he wanted them to figure it out for themselves. "If the team didn't learn how to work together, the organisation was never going to succeed," says Tirey.
Diehl decided to try incarceration as a teamwork tool. "We locked the leadership team in a room and said, 'Here's our strategic plan. We now need to reorganise the assets of our organisation to fit,'" recalls Diehl. He stayed away from the room "because it needed to be their plan. Otherwise, they would've kept deferring to me." Tirey, who facilitated the incarceration, built a computer model that simulated the business. One by one, team members fed their business proposals into the model, and one by one the proposals crashed. "It was interesting," says Tirey.
"Each had a piece of the puzzle, but none had the whole thing." As they realised this, the team members were able to put together a plan that reflected the bigger picture.
Diehl's team decided to divide the Mint into three strategic business units (SBUs) that reflected its different customers. (Before, it wasn't really organised at all. It was just one inchoate mass.) The first SBU was circulation, which made coins for its one and only customer, the Federal Reserve Bank. Then there was the collectible coins division. Finally, there was The Office of Protection, responsible for safeguarding all the money and bullion of the Mint, as well as federal gold reserves at Fort Knox, Ky. Each SBU now has its own sales, marketing, procurement and accounting departments, and the two coin SBUs split the manufacturing facilities. The reorganisation allows Mint workers to build a deeper expertise in one particular line of business rather than having to know a little about many disparate projects. For example, the numismatics marketers need channel and brand management skills, something not as necessary to circulation employees.
"What this new org chart says is, 'You are in charge of this product,'" says Diehl. "It increases accountability all way down the chain of command." Sparing No Change Diehl and his managers were ready to start implementing the changes by 1998, but the plan was more than just a redrawn org chart. Among other things, it required some people to reapply for their jobs and others to be hired for new positions, like new product development and channel management. It also completely overhauled the lines of reporting. That would be enough change in a year for many companies, but it was just a quarter of what the Mint braved in 1998.
Giant project number two was a 10-year, US $40 million software installation, implemented in fast-forward speed. Diehl, along with several executives including CIO Jackie Fletcher, had - simultaneously with the reorganisation discussions - carried forward a plan to fix with the Mint's information systems to allow Mint employees to get at the data imprisoned in legacy mainframe systems and to ensure Y2K compliance. In late 1997 they decided that nothing short of a full-blown ERP installation would do the job. (ERP, or enterprise resource planning, is a monolithic type of software that is used by all departments, such as HR, finance and operations. Since the software is integrated, the departments can more easily share information. The Mint chose PeopleSoft Inc.'s ERP package.) But since the government-mandated deadline for Y2K compliance was October 1998, and the ERP project was, in large part, the Mint's compliance plan, the ERP group had 12 months to install its software. If it succeeded, it would hold a world speed record for ERP installation. The project, dubbed Coins (for consolidated information systems), would eventually eat up the time of nearly one-third of the staff at the Mint's D.C. headquarters.
Diehl admits that it was a stretch to launch those two projects simultaneously.
But on top of that, the Mint also shot off its two biggest product launches in decades. One was the 50-state quarter program, which will mint a coin in honour of each state. The Mint will release five quarters a year that feature reverses (tails) designed by each state.
The Mint was also in the heavy planning stages for the new dollar coin, slated to appear in January 2000. "The planning was a very tricky political process, and it's crucial to the success of the product," says Diehl, particularly since the coin replaces the Susan B. Anthony dollar, much maligned for its design.
"We laid those four projects on top of the everyday running of business," says Diehl. "By the end of the year, people had their tongues hanging out." Both product launches demanded that Diehl spend even more of his time on Capitol Hill, building consensus and making deals. Mitchell stepped forward.
"Wisely or not, I volunteered to head up Coins," says Mitchell, who, having implemented systems before, had an inkling of what lay before him. "It was a crazy process," he says. "I look back, and I'm still amazed by it." The ERP group, which comprised both technical and functional employees, moved to separate quarters down the street. Backed by Diehl, Mitchell chose the best and brightest from the Mint for Coins. They reported to the Coins project managers for the duration of the implementation. According to Michael Zuckerman, who was project leader for the functional group working on Coins, part of the complexity of the undertaking was that it really was four projects: ERP software modules for finance, manufacturing and distribution, with hooks to the new marketing system. Zuckerman, working with Fletcher, who led the technical part of Coins, set up "bull pens," or open spaces, for each of the module groups to gather in as a team and brainstorm ideas and solutions.
Replacing cube space with a large communal space helped get the work done, says Zuckerman. Since Coins project staff were working 70- to 80-hour weeks, they needed all the help they could get. Fletcher says that beyond giving her people the tools to do their jobs, and helping them to understand their role in the implementation, she functioned as a caterer. "I'd throw parties whenever stress levels got too high or when we'd met a deadline and were proud," she remembers.
"Pizza, ribs, whatever they wanted. I just bought it." Coins went live Oct. 1, 1998, hitting the original federal Y2K deadline. The three-business unit reorganisation is finished but for the mopping up, and the first five state quarters are in production. Zuckerman, along with many of his cohorts, finally had time for a vacation. He took two weeks around the holidays, but, he admits with a smile, "It took a whole week just to feel like a person again." It's been a wild five years at the Mint, and executives there are obviously proud of the job their employees have done, pointing out repeatedly that the credit for their minty fresh new organisation belongs to everybody. Diehl says he wishes he could take the credit for being a visionary, but that's just not the way it was. "In retrospect, it sounds like we had a grand scheme," he says.
"But nothing could be further from the truth. We just tackled one task, and it led to others. It was like pulling a thread on a brand-new tie; before long, you have it unravelled." Senior Editor Carol Hildebrand can be reached via e-mail at cjh@cio.com.
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