You Need a Map It All Begins with a Strategy Randy Krotowski Retired VP & CIO, Caterpillar and Chevron

Agenda How one company thinks about strategy 3 Stories What’s next

Thinking About Strategy as Decision Making

Our Vision: The right projects implemented well Selecting the right opportunities through improved decision making process. Improving overall outcomes by excelling in the execution of business driven decisions

The Greatest Opportunity for Value is When Making the Initial Decisions VALUE Phase 1 Opportunity Identified Phase 2 Generate & Select Alternatives Phase 4 Execute Phase 5 Operate Value IdentificationValue Realization Phase 3 Develop Preferred Alternative Poor Project Definition Good Project Definition Poor Project Execution Good Project Execution A B C D

Approach - Dialogue Decision Making Process 6 A process used to make the most complex decisions in the most uncertain environments Clear frame “what problem are we solving?” Wide range of alternatives Clear values and tradeoffs Commitment to action High Low High Analytical Complexity Organizational Complexity Common sense & rules of thumb Quantitative Analysis Collaboration Casual Conscious We Are Here!

Cheap on the Beach Heli-Skiing ……. Alternatives Decision Analysis Creates a Path to Success 7 Strategy Table Focus-on Decisions (one column for each) Relaxing Some fun at night Non-stop thrills ……. $10,000 A few $1000 A few $100 ……. How much excitement? What type of weather? How much to spend? …. Hot Moderate Cold ……. What vacation do I take to re-energize? Decision Hierarchy Focus-on Decisions How much excitement? What type of weather? How much to Spend?

Story 1 E-Business is the Business “Provide recommendations for the next generation of global IT infrastructure for Chevron including the strategy to net-enable the company”

Trends Internet E-Business Dot.com “New Species” Companies Transformed Industry Companies Industrial Age / Asset- Based Economy Digital Age / Technology- Based Economy Technology Companies The New Economy “connecting to the networked world and managing the molecules”

The Four Areas of Our New Economy intent Create the net-enabled company Accelerate “industry related” e-businesses Increase tech venture activity Pursue technology enabled business opportunities outside our traditional sectors 10

How Should We Respond? How to Net Enable? Accelerate e- Business? Increase Tech Venture? Outside Tech Business Buy it Global platform & global capabilities Spin out Silicon Valley tours Brand new business (e.g. retailer) Own itOutsource Opco to enable core business Invest with a fund Affiliated businesses (e.g. digital energy) Play with itWaitCreate a fund Digital oilfield services

Enabling Opco e-Business Transformation 12

Story 2 At the Core What is the system strategy that can enable the engineered value chain?

This project will use the DA framework to decide … 14 1.What processes must be common? 2.What data must be common? 3.What systems must be common? 4.What level of process, data and system integration is needed? … in order to achieve engineered value chain objectives

We agreed to evaluate six alternatives As-is = Common Broad Choices = Menu of Choices = Fully Common 1 ERP Common for External Facing Common for Supply Chain Balanced Option Menu of ERP Options Data Standards Only Note: The alternative pictures are not solution architectures

Comparison of Alternatives Legend 10 th percentile 90 th percentile Expected Value Data Standards only Menu of ERP Options Balanced Common for Supply Chain Common for External Facing Fully Common 1 ERP $0$$$$$$$$$$ Lower benefits Lowest cost due to menu of existing ERPs Highest risk- adjusted benefit Highest Execution and Economic risks Reduced benefits due to increased Execution and Economic risks for fully common systems

We combined Alternatives to create three Hybrids As-is = Common Broad Choices = Menu of Choices = Balanced Option Balanced Hybrid Common Supply Chain Hybrid Common External Hybrid Common for External Facing Common for Supply Chain Menu of Options

Balanced Hybrid has highest expected NPV Data Standards only Menu of ERP Options Balanced Common for Supply Chain Common for External Facing Fully Common 1 ERP Balanced Hybrid Common for SC Hybrid Common External Hybrid Highest Expected NPV; combines business unit flexibility with enterprise scale Legend 10 th percentile 90 th percentile Expected Value $0$$$$$$$$$$

Story 3 A Company Strategy Story

Story 3 The Internet of Things Becoming a top 10 software company

Issues Industrial company A new digital wave forming … IoT, big data, analytics and machine learning Stock flat over last decade Software and analytics companies getting higher valuations How to grow? Get into the software business!

How? 22 Givens Establish a software business Go faster than the competition Replace or exceed existing service contribution margin with software contribution margin over the near term (ok if revenue flat or lower if higher margins realized from software and services) Focus Items What to sell? Who engages the customer? Degree of software and analytics standardization? Degree to which Company serves non-Company equipment? How to grow software penetration (defacto standard)? Later Organization considerations?

Software & Analytics Strategy Table Strategy What should Company Sell? Who should engage the customer? Degree of standardization of software & analytics? Degree to which Company serves non-Company equipment? Become a software business SoftwareNew software sales organization/ capability Unique solutionsNone Exploit software to sell high margin equipment Software enhanced services Product businesses in coordination with Key Acc’t Managers Standard platformSoftware and analytics works with Company and non- Company equipment Exploit software to grow operations & maintenance services Software enhanced equipment Standard solutions across industries Operate and maintain Company and non- Company equipment Become a solutions provider, combining software, services, equipment Packages of equipment, software and services

What’s Next? The Platform Revolution Big data & analytics Machine learning IoEverything Platforms Ecosystems Digital business models

The future is not the result of choices among alternative paths offered by the present, but a place that is created first in mind, next in will, then in activity. The future is not some place we are going to, but one we are creating John Schaar 25