Organization Design

IRS Organizational Alignment

Project Description

In 1998, the US Internal Revenue Service (IRS) faced a situation that was widely publicized by a series of U.S. Senate Finance Committee hearings outlining inadequate service to customers; unclear mission; failed $3.2 billion technology modernization program; questionable credibility, an unwieldy bureaucracy, and uneven compliance patterns too heavily focused on enforcement.  The IRS was also hampered by a cumbersome “stove-piped” organization designed in the 1950s to deter potential corruption.

As a result, a new customer centric IRS business strategy was developed, emphasizing fairness and service to “each and all” customers.  Strategic goals were articulated focusing on customer service improvements and increased productivity.  Booz Allen was commissioned to become the IRS’ Partner for Change to design and implement this customer-centric business strategy. IRS Modernization represented the largest government transformation to be undertaken in the previous 20 years. 

Intended or Achieved Results

In the past, the IRS Human Resource function was not linked to the strategic goals of the organization.  HR systems were not tailored to the business needs of the organization and were inflexible and slow in addressing employee needs, and therefore in serving taxpayers.  Booz Allen created a Strategic Human Resources system that is flexible, responsive, and aligned with the IRS mission and vision.  For the first time in IRS history, human capital is linked to business results.  The IRS now has the most comprehensive HR strategy—and system—in the U.S. Federal Government. This change has been recognized by the Office of Personnel Management and the Comptroller General as a cutting-edge Human Capital system, and mentioned in several major publications including the Washington Post and Money magazine.

Identifying the required number of staff and management/leadership positions for each business unit was a crucial first step in standing up the new organization.  Next, selecting leaders for new positions by identifying required competencies for each leadership position increased the level of integrations and alignment to the new structure.  This process had to be carried out rapidly, to meet the standup dates, but carefully to respect the impact that a major realignment like this would have on executives.  To facilitate the transformation, we developed and implemented a realignment process for executives and managers.  Based on the input from key stakeholders and our analysis of best practices, Booz Allen developed recommendations for ensuring a content valid, fair and successful leadership realignment process.  This competitive, merit-based process was complemented by the use of various human resources tools, allowed by the Reform and Restructuring Act of 1998, including retention allowances, relocation bonuses, and buyouts. 

The resulting process was mutually beneficial to both IRS employees and the Service—it enabled senior leaders to move into career enhancing positions through a fair and merit-based process, and it benefited the IRS through the alignment of skills and talents with the jobs in the new organization.   About 250 executives and over 1000 managers were placed into positions based on their competence to lead the new organization.  This realignment helped to implement a culture change in the IRS by reinforcing the fact that new behaviors are expected of executives in the modernized IRS.  To be selected for a key position, an executive had to demonstrate that he/she had the ability to change and to lead the organization toward Commissioner's vision.  This process was groundbreaking—both for the IRS and for the Federal Government.  Never before had so many government executives and managers been realigned using a rigorous process in such a short period of time.

Booz Allen also created a workforce planning model to support the migration of employees to the new organization structure during the transition period and beyond. The model allows HR to predict the complex waterfall effect that occurs when positions are filled from within and outside of the organization.  Booz Allen worked with the Strategic Human Resource system (SHR) and the Operating Divisions to create the logic behind how positions are sourced internally and externally across divisions.   SHR can now plan hiring while taking several complex factors into account in a short amount of time.  SHR also can now more efficiently recruit and train individuals who migrate into new positions. Our workforce planning model creates a systematic baseline for tracking hiring decisions in the long term for use in future planning.  This tool can be used in the IRS operating divisions and with other clients who are conducting workforce planning.

The new structure and respective processes were designed, developed and implemented for the new organization within the Congressionally-mandated timeframe for organizational standup, keeping the Modernization on schedule.  A key result from these changes was the improvement in employee morale – employee satisfaction ratings improved 7 percent in the first two years.