Secretary of Defense Corporate Fellows End of Year Briefing Academic Year

Secretary of Defense Corporate Fellows Agenda People Plans Cyber Security Government/Industry Relations Understanding Value vs Cost Program Overview InnovationInnovation Summary / Q&A

Secretary of Defense Corporate Fellows 3 SDCFP Background SECDEF concerns for future Service leaders ‒ Open to organizational and operational change ‒ Recognize opportunities made possible by info tech ‒ Appreciate resulting revolutionary changes underway Affecting society and business now Affecting culture and operations of DoD in future Businesses outside DoD successful in: ‒ Adapting to changing global environment ‒ Exploiting information revolution ‒ Structural reshaping/reorganizing ‒ Developing innovative processes DoDI ‒ Deputy Chief Management Officer (DCMO) for oversight & supervision

Secretary of Defense Corporate Fellows 4 SDCFP Background DoD needs effective access to best executive level business practices applicable to operations & supp ort ‒ Strategic Planning ‒ Organization ‒ Change Management ‒ Human Resources ‒ Information Technology ‒ Supply Chain ‒ Outsourcing Infrastructure majority of Defense Budget ‒ Reforms generate savings ‒ Savings applicable to operational shortfalls

Secretary of Defense Corporate Fellows 5 SDCFP Organization Two or more officers from each Service – Flag/general officer potential – O-6 or O-5 – Senior Service College credit only Initial Group Education – Current political/military issues; leading edge technologies – Meetings with senior DoD officials, business executives, Members of Congress, the press, former sponsors, alumni – Graduate business school executive education Eleven months at Sponsoring Company ‒ 2-3 days of group training with corporate execs at each sponsor Admin – DCMO for oversight ‒ WHS HRD for support ‒

Secretary of Defense Corporate Fellows Corporate Sponsors Prior Years 3M, ABB Group, Accenture, Agilent Technologies, American Management Systems, Amgen, Andersen Consulting, Apple, Boeing, Booz Allen, CACI, Caterpillar, Cisco, Citigroup, CNN, Deutsche Bank, DirecTV, DuPont, EADS, Enron, ExxonMobil, FedEx, General Dynamics, Georgia Power, Google, Hewlett-Packard, Honeywell, Human Genome Sciences, IBM, Insitu, iRobot, JPMorgan Chase, Johnson & Johnson, Lockheed Martin, Loral, McKinsey, McDonnell Douglas, Merck, Microsoft, Mobil, Morgan Stanley, Netscape, NCR, Norfolk Southern, Northrop Grumman, Oracle, Pfizer, Pratt & Whitney, PricewaterhouseCoopers, Raytheon, SRI/Sarnoff Labs, Sears, Shell Oil, Sikorsky, Southern Company, SpaceX, SRA International, Sun Microsystems, Symbol Technologies, Union Pacific, United Technologies, Vertex Aerospace Current AY ( ) Autodesk, Booz Allen, CACI, Cisco Systems, Dynamic Aviation, FedEx, General Dynamics, Georgia Power, JPMorgan Chase, Lockheed Martin, McAfee, Oracle, Hewlett-Packard, SAP, Sikorsky, Union Pacific Next AY ( ) Accenture, Alaska Air, Amazon, Boeing, Caterpillar, Deutsche Bank, EMC, Intel, Merck, Pratt & Whitney, Raytheon, Shell Oil, SpaceX, SRI 6

Secretary of Defense Corporate Fellows 7 SDCFP Results Program objectives fulfilled ‒ Education 3 DoD, individual officers, Spon sors ‒ More Sponsors than Fellows available ‒ Intra-group experience sharing Group visits with sponsor CEO’s and senior leadership Unique corporate experience ‒ Strong corporate support ‒ Executive/operational level duty mix ‒ Mergers/restructuring Unexpected challenges, valuable insights

Secretary of Defense Corporate Fellows 8 SDCFP Produc ts Build a cadre of future leaders who : ‒ Understand more than the profession of arms ‒ Understand adaptive and innovative business culture ‒ Recognize organizational and operational opportunities ‒ Understand skills required to implement change ‒ Will motivate innovative changes throughout career Briefings directly to 25+ Senior DoD civilian/military leade rs ‒ DEPSECDEF, VCJCS, Service Secretaries/Chiefs ‒ Deputies for Programs, Budgets, Acquisitions, T&E, Pers, IT, Mgmt ‒ Business insights relevant to DoD culture/operations ‒ Recommended process/organization changes Individual Written Reports

Secretary of Defense Corporate Fellows Fellows and Corporate Sponsors Information Technology Lt Col Mark Mitchum, ANG Oracle, Reston, VA Col (S) John Heck, USAFR SAP, Newtown Square, PA CDR T.J. Kneale, USNAutodesk Inc., San Francisco, CA LtCol Eric Young, USMC Intel Security, Plano, TX LtCol Ross Monta, USMCHewlett Packard, Herndon, VA CAPT (S) Brad Rosen, USNCisco Systems, San Jose, CA Logistics / Finance / Energy COL Ken Williams, USAFedEx, Memphis, TN Col Eric Obergfell, USAFUnion Pacific Railroad, Omaha, NE Col Jason Janaros, USAFJ.P. Morgan Chase, New York, NY COL Marvin Griffin, USAGeorgia Power, Atlanta, GA Defense / Consulting / Other CAPT (S) Shane Tallant, USN Lockheed Martin, Fort Worth, TX Col (S) Kevin Norton, USMCGeneral Dynamics C4 Systems, Phoenix, AZ LtCol Scott Trail, USMC Sikorsky Aircraft Corp, Shelton, CT Col (S) Kevin Massie, USAFBooz Allen Hamilton, Washington, DC COL Sharon Moore, USARNGCACI, Arlington, VA LtCol John Gutierrez, USMC Dynamic Aviation, Bridgewater, VA 9

Secretary of Defense Corporate Fellows Corporate Sponsor Locations 10

Secretary of Defense Corporate Fellows Agenda People Plans Cyber Security Government/Industry Relations Program Overview Understanding Value vs Cost InnovationInnovation Summary / Q&A

Secretary of Defense Corporate Fellows Understanding Value vs Cost Industry View – Value Focused – Categorize core business: 1) core functions, 2) core products and services – Reinforce areas that add value; divest in areas that do not – Emphasize value over cost; drives culture and strategy Reducing Cost – Focus on strategic goal, not simply cost – Understand value and cost of the people and processes – Mechanisms are automation, skill, and efficiency Response to Reduced Resources (e.g. Recession) – Get smaller; consolidated and restructured – Diversify markets; seeking opportunities outside DoD – Leverage technology to reduce workforce and increase productivity 12 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Understanding Value vs Cost DoD View – Cost Focused – “Stovepipe” core products and services across all Service branches and OSD – Emphasize cost over value; drives culture and strategy – Focused on cutting costs; incentivizes behaviors (i.e. contract strategies) Reducing Cost – Across the board cuts to personnel, budgets, or both - counterproductive – Not educated or incentivized to understand or promote a value culture – Mechanisms are inefficient (i.e., budgets, personnel, targeting profit) Response to Reduced Resources (e.g. Sequestration) – Staffs got larger: +15% since sequestration – Defense News June 2, 2013 – Incentivized to obligate entire budget prior to expiration – use or lose – Inefficient outcomes (i.e., increased reporting requirements, travel, etc.) 13 DoD Practices Industry Trends Recommendations Impact

Secretary of Defense Corporate Fellows Understanding Value vs Cost Emphasize a Culture of Value – Paradigm shift; will drive behaviors and long term outcomes – “You’re either adding value or you are playing house” – Understand the cost vs. value of overhead, people, and processes Stop Growing – Use existing structure to address challenges – Prioritize efforts based on impact to the core mission of the DoD – Reward delivery under budget; incentivize behavior Set a Strategic Goal for Restructuring – Focus on becoming more effective and efficient, not simply cutting costs – Measure and track pace of change – Marginalize or remove those that resist change 14 Industry TrendsDoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Understanding Value vs Cost DoD Culture which understands value vs. cost More efficient and effective organization and processes Reduce overhead and costs; revitalized industrial base 15 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Agenda People Plans Cyber Security Government/Industry Relations Program Overview InnovationInnovation Understanding Value vs Cost Summary / Q&A

Secretary of Defense Corporate FellowsInnovation Small teams dedicated to innovation – Self-directed – Cross-disciplinary – Collaborative – High risk tolerance – Tightly connected with senior leadership Innovation strategy based on creating the future – Not reacting to the competitors – Two types: Breakthrough (fast) and Incremental (long and strategic) Primacy of the pace of innovation Set the conditions for serendipity and allow it to occur 17 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate FellowsInnovation DoD’s Advanced Capabilities Development Program(s) – DARPA, 41 National Laboratories, Office of Naval Research, AF Research Lab but... Reactive, requirements based process seeking “faster horse” Slow, linear acquisition process; fiscal “Valley of Death” – Prevents innovations from reaching the warfighter before irrelevance Burdensome oversight – Encourages incremental vice breakthrough innovation 18 DoD Practices Industry Trends Recommendations Impact

Secretary of Defense Corporate FellowsInnovation Incentivize innovation within Industry – Use Lowest Price Technically Acceptable (LPTA) contracting very judiciously – Change Weighted Guidelines to reward past risk in terms of innovation – Normalize a DoD/Industry partnership empowered to accept risk Update Joint Capabilities Integration & Development System (JCIDS) – Change mentality Forward looking, shaping the next battlefield From : ‘How do we counter threat?’ To: ‘How do we redefine conflict?’ – Evolve requirements collaboratively Strategists, resource sponsors, acquisition community, warfighters, AND industry Counter the Fast Follower with Speed – Early and often prototypes to correct problems or fail fast – limit sunk cost – Develop scaling engine to quickly transfer and deploy successful technology – Quickly field the 80% solution and continuously improve with rapid refresh cycles 19 Industry TrendsDoD Practices Recommendations Impact

Secretary of Defense Corporate FellowsInnovation Future oriented JCIDS process which allows for serendipity – Eliminates the response of, “Good idea, but I don’t have a requirement.” – Changes response to, “Let’s take a look at how that can shape the future.” Rapid pace of innovation becomes strategic advantage – Moves faster than the fast follower can respond – Better value proposition than burdensome oversight and over-classification Better relationship with industry facilitates technology access and deployment – Provides initial capability to the warfighter quickly – Structured to allow for continuous, rapid, incremental upgrades 20 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Agenda People Plans InnovationInnovation Government/Industry Relations Program Overview Cyber Security Understanding Value vs Cost Summary / Q&A

Secretary of Defense Corporate Fellows Cyber Security High Profile Vulnerabilities – Target, Sony, Home Depot, many other hacks – Insider threat, state sponsors, spear phishing, infrastructure Cyber Security Approach – Look to national standards National Institute of Standards & Technology (NIST) cyber security framework – Red Teaming (Ethical Hacking of themselves) and Phishing – Balance security with sharing, productivity and (business) efficiency Threat Posture and Resources – Cyber security officers now in the “C” suite Full Authority and Control – Understanding of infrastructure enables algorithms to detect breaches. – Increased Resources applied to Critical Vulnerabilities Protect ability to continue business 22 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Cyber Security High Profile Vulnerabilities – NSA, CENTCOM Twitter account, 100 Service Members Targeted by ISIS – Network Proliferation (each organization has multiple) – Insider threat, state sponsors, non-state actors Cyber Security Approach – Adopting NIST standards as well as DoD unique standards – Independent Cyber Command – Focused on Mission, Command, IT systems Threat Posture and Resources – Defensive posture with blanket protections of all systems Security Technical Implementation Guides (STIG) compliance – Resources utilized for Full Protection No differentiation based on Criticality – Security First Figure out how to continue to operate with limitations…if needed 23 DoD Practices Industry Trends Recommendations Impact

Secretary of Defense Corporate Fellows Cyber Security High Profile Vulnerabilities – Expand focus to include infrastructure, as well as IT systems – Prioritize the vulnerabilities Approach to Cyber Security – Partner with industry and Government agencies to develop universal policy – Partner with industry Share information to neutralize and prosecute threats – Expand scope and increase frequency of training, including social media Threat Posture and Resources – Take Predictive and Offensive actions as well as defensive actions – Cyber security policy makers MUST have Authority – Consolidate physical and cyber security within operations 24 Industry TrendsDoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Cyber Security Universal standards & Best Practices shared – DoD and Industry Apply Limited Resources to Critical Vulnerabilities – Protect Operational or Core Business functions. Keep Security First, but – Balance with functionality to conduct IT operations. 25 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Agenda People Plans InnovationInnovation Cyber Security Program Overview Government/Industry Relations Understanding Value vs Cost Summary / Q&A

Secretary of Defense Corporate Fellows Government/Industry Relations Industry View – Sustainable profit required for industry diversity, longevity, and innovation – Shareholders expect 15% profit, defense industry averages 10% – DoD’s “war on profit” feels real to industry Industry Incentives and Cultures – Drives solution centered and value oriented culture – Honest estimates – plan for worst and prepare to capitalize on the best – Develops, empowers, and depends on people to make the right decisions Moving away from DoD – Industry does not need DoD as much as DoD needs industry – Non-defense commercial investments Lockheed fish farming and energy production – Defense Sector shedding to maintain profit margins Sikorsky spin off from United Technologies 27 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Government/Industry Relations Government View – DoD leadership appreciates role of profit - Better Buying Power 3.0 (BBP 3.0) – DoD execution level has not uniformly embraced leadership’s view – Profit is a cost, rather than an incentive to innovate and deliver Government Incentives and Cultures – Adversarial relationship between DoD and industry – Cost accounting does not always understand or measure value – No trust of industry or between DoD organizations Consequences of Current Government/Industry Relations – Fewer and lower quality bids – Limited incentive to invest in research and development – Barriers to leveraging commercial innovations and technology 28 DoD Practices Industry Trends Recommendations Impact

Secretary of Defense Corporate Fellows Government/Industry Relations Incentives – View profit as necessary and a potential motivator to create a win-win – Remove barriers to commercialization –End demand for (proprietary) cost information – Simplify competition rules – reduce protests Cultural – Regard industry as a partner, not an adversary – Focus on the solution, not the process – Eliminate culture driven by fear of contract protest or prosecution Performance Metrics for Acquisition Professionals – Tie and Enforce Procurement Action Lead Time to performance reviews – Incentivize acquisition leaders to take more “prudent” risks – Remove barriers and obstacles to implementing BBP Industry TrendsDoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Government/Industry Relations Trusting relationship between industry and DoD Commercial technology leveraged Faster delivery of effective systems to the warfighter 30 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows People Plans Agenda Government/Industry Relations InnovationInnovation Cyber Security Program Overview Understanding Value vs Cost Summary / Q&A

Secretary of Defense Corporate Fellows People Plans Hiring and Career Path – Seeing a diverse workforce demographically and critical, creative thinkers – Identifying potential leaders and invests in them early – Valuing diverse career paths in and out of the company or industry Leadership Development – Realizing that empowered individuals, making decisions are key to the future – Partnering with leading universities for training programs – Pay and promotion tied to performance and value added to the company Employee Engagement – Measuring commitment to organizational goals and motivation to contribute – Benchmarking externally and internally – Engaged leadership, meeting face to face with “all hands” 32 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows People Plans Hiring and Career Path – Demographic diversity, but not diversity of thought or background – Workforce homogenized around process – creativity discouraged – Highly defined career path “Everyone doesn’t need all checks in the box to be the next CJCS” Leadership Development – Process adherence valued over empowerment and judgment – Leadership development internal; viewed as checks in the box – Pay and promotion tied strongly to time in service Employee Engagement – Robust internal training system; available on-line and in resident – Climate Assessments to measure the culture – Internal benchmarking 33 DoD Practices Industry Trends Recommendations Impact

Secretary of Defense Corporate Fellows People Plans Hiring and Career Path – Seek diversity of thought and career path – Value diverse experiences outside the military – Optimize the enterprise structure Who adds value? Where are the shortfalls? Leadership Development – Provide diverse education opportunities both inside and outside DoD – Tie pay and promotion to performance rather than time in service – Instill a culture of problem solving rather than strict process adherence Employee Engagement – Use existing internal training to instill a culture of creative problem solving – Use industry standard tools for measurement to simplify benchmarking – Benchmark externally & internally 34 Industry TrendsDoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows People Plans Broader range of experience to produce diversity of thought Innovative solutions through cross-industry teams Workforce productivity, satisfaction, and pride improved 35 Industry Trends DoD Practices Recommendations Impact

Secretary of Defense Corporate Fellows Agenda Government/Industry Relations InnovationInnovation Cyber Security Program Overview Summary / Q&A Understanding Value vs Cost People Plans

Secretary of Defense Corporate Fellows Summary 37 Understanding Value vs Cost – Emphasize a culture of value – Stop growing and reward efficiency – Set a strategic goal or restructuring – don’t just focus on cost Innovation – Incentivize innovation within industry Normalize DoD/Industry partnership – Update JCIDS to be forward looking, shaping the next battlefield – Counter the fast follower with speed – pace becomes strategic advantage Cyber Security – Expand focus to include infrastructure and prioritize the vulnerabilities – Partner with industry, sharing information and developing universal policy – Be offensive and predictive as well as defensive

Secretary of Defense Corporate Fellows Summary 38 Government/Industry Relations – Use profit to motivate industry creating a win-win scenario – Regard industry as a partner, creating trust outside and inside DoD – Incentivize acquisition leaders to take more “prudent” risks People Plans – Optimize the enterprise structure based on value and shortfalls – Foster a range of experience, diversity of thought, and problem solving – Improve workforce productivity, satisfaction, and pride

Secretary of Defense Corporate Fellows Q&A