Obama's Budget Watchdog: Nancy Killefer

Nancy Killefer, a veteran of McKinsey and the Clinton Administration, will be chief performance officer. Her brief: Clean up government waste

US President-elect Barack Obama(L) listens as Nancy Killefer speaks on Jan. 7, 2009 at the Presidential Transition office in Washington, DC. MANDEL NGAN/AFP/Getty Images

By Jena McGregor

George W. Bush may have been the first President with an MBA, but President-elect Barack Obama is filling the role of the country's first "chief performance officer" with a partner from one of the world's top management consulting firms.

Obama announced on Jan. 7 that Nancy Killefer, a senior partner at McKinsey will fill the newly created position, aimed at improving efficiency and stamping out government waste. Killefer has worked in Washington before, serving in the Clinton Administration as the assistant secretary for management, chief financial officer, and chief operating officer of the Treasury Dept. from 1997 to 2000. Before helping launch McKinsey's public sector practice, she consulted with a range of consumer goods and retail companies on strategy, marketing, and organizational effectiveness. She was the chairperson of the IRS Oversight Board in 2002-04.

Line-by-Line Budget ScrutinyThe task ahead of her is exceptional. Even as Killefer is charged with making government more efficient, her new boss has warned of trillion-dollar deficits for years to come. Killefer will oversee the "line-by-line" scrutiny of the vast federal budget Obama mentioned frequently during his campaign. And filling government jobs with talented, efficiency-minded individuals will be a major challenge as federal employees begin retiring en masse: The average age of federal employees is 46 and rising, according to a McKinsey paper Killefer co-wrote. The public sector also has a higher proportion of older workers than the rest of the workforce. "Employees of government have been viewed as costs rather than as valuable partners," says Max Stier, the president and CEO of the nonprofit Partnership for Public Service, on whose board Killefer sits.

How much Killefer will use the McKinsey consulting playbook in her job is an open question. While Killefer was instrumental in building up the public sector practice at McKinsey after she returned from her job at Treasury, the firm hasn't traditionally been a government consulting powerhouse in the U.S., say industry observers and firm alumni.

McKinsey InfluenceMcKinsey partners are often behind-the-scenes advisers to government officials, but large-scale government consulting engagements are less common, notes Tom Rodenhauser, vice-president of Kennedy Information, which publishes information on professional services firms. "The government can't afford McKinsey rates," Rodenhauser says. In addition, many government consulting contracts are for information technology gigs rather than the organizational and strategy work McKinsey and its peers specialize in. Outside the U.S., says Rodenhauser, the firm has traditionally done more government work, particularly on privatization efforts that involve the kind of mass reengineering efforts that play to McKinsey's strengths.

As a result, McKinsey alums don't populate the corner offices of Washington to the same degree they do corporate executive suites, making Killefer among the most high-profile McKinsey alums to turn to public service. That doesn't mean there aren't notable exceptions. Bobby Jindal, Louisiana's governor and a rising Republican star, is a McKinsey veteran. Roger Ferguson left McKinsey to join the Federal Reserve, later becoming its vice-chairman. Al McDonald, McKinsey's managing director in the early 1970s, went on to become White House deputy chief of staff under President Jimmy Carter. And McKinsey famously helped the Eisenhower Administration fill key jobs back in the 1950s.

Focus on Transparency What will Killefer's priorities be? If McKinsey white papers are any indication, she'll focus on improving transparency and reviving government productivity metrics. As Killefer and her colleague Lenny Mendonca wrote in a 2006 BusinessWeek column, the Bureau of Labor Statistics stopped measuring productivity in 1996. "We think a radical new approach to transparency of how government programs are performing is required," the pair wrote in "Unproductive Uncle Sam." "Only this will push Congress to exert performance pressure on government agencies." They go on to suggest a Morningstar-like body called "Gov-Star" that would provide "completely independent measurement of government program performance."

While Killefer's "chief performance officer" title may be new, Obama will not be the first President to try to reduce government waste. Elaine Kamarck, who created and managed the Clinton Administration's National Performance Review, also known as "the reinventing government project," says Killefer's role "sounds very similar" to the one she held in the mid-1990s. Still, Kamarck, who worked to bring the federal government into the Internet age and introduce business practice reengineering and performance management to the federal government, notes Killefer's task is extraordinary. "It's a particularly big job because the country is facing so many problems and we have such enormous federal deficits," says Kamarck, who is now a lecturer at Harvard's Kennedy School of Government.

One thing that's likely to change for Killefer: her weekends. On an online McKinsey careers Q&A, Killefer, an avid bicyclist and mother of two, said she has "always kept my weekends sacred. I am highly productive during the week, but I can count on one hand the weekends I've worked in more than 25 years with the firm." As a deep recession grips the economy and federal deficits balloon, the country's "chief performance officer" could find herself working a few more Saturdays and Sundays.

McGregor is BusinessWeek's management editor.