© 2002 Six Sigma Academy ADT Business Unit Results Paul Gillard

© 2002 Six Sigma Academy ADT US Highlights ~$264 M in observed improvement opportunities identified Business$ RevenueEBITMargin Field SSOs $2.86B$.84B 22 % Five Major Regions (144 Districts/250 SSOs) 16,200 employees Targeted FunctionsAssessment Location Sales (Charlotte) Admin/HR Data (Nashville) Installation (Atlanta) Service(Memphis) Call Monitoring (Jacksonville) National Sales Center (Indianapolis) Distribution (CDC)(Memphis) Dean Seavers Nancy Chisholm Mike O’Reilly Tim Wahl

© 2002 Six Sigma Academy Cost of Poor Quality Heuristic Non Competitive Industry Average World Class % of Sales >40% % % % <1% Dollars Left On Table Sigma Level Defect Free Defects Per Million % 93% 99.4% % % 308,537 66,807 6, Cost of Poor Quality Key Six Sigma Statistics Company Status ? Assumed Most Processes Were Running at Between 4-5 Sigma

© 2002 Six Sigma Academy Poor Quality Changes Behaviors Sigma Scale of Measure Restaurant Bills Doctor Prescription Writing Payroll Processing Order Writeup Wire Transfers Airline Baggage Handling IRS - Tax Advice (phone-in) (140,000 PPM) Best-in-Class Average Company Industry Six Sigma Levels

© 2002 Six Sigma Academy Potential Project List Six Sigma may be leveraged by Tyco recapture dollars left on the table!

© 2002 Six Sigma Academy Reduce Discontinuances (Discos) Problem Statement: 86% RIF retention rate results in severe erosion of ANSC ($323M net of resales). CTQ: (Critical To Quality): Service and product quality. Defect Definition: Undesirable discontinuances due controllable product or service related issues. Project Objective: 93% company wide retention rate. Current Goal: Reduce discos by 50% within residential, Small Business and Core Commercial lines of business. Cost Benefits: $98MM EBIT impact. Internal/External Client Benefits: Improve net income and cash flow Revenue growth. Dependencies: Clear end-to-end view of customer experience. Willingness to make reasonable customer concessions. Ability to drive necessary changes across the enterprise.

© 2002 Six Sigma Academy Margin National Core Commercial ANSC/ ADSC Sales/ Resales Install Service Satisfaction Strategic Goal Business Channels Revenue Drivers Residential Disco’s Project Clusters Billing Response Time Technical Support Drill Down Potential Clusters Training Expectation Management Small Business Residential Service Relocation Product Satisfaction Perceived Value Etc. Monitoring

© 2002 Six Sigma Academy 10 Numerous Potential Discos Drivers Exist Advanced multivariate statistical analyses will be used to quantify and model the direct and indirect effects of hypothesized drivers of customer dissatisfaction

© 2002 Six Sigma Academy Basic Discos Process Map Pending Disco report Voluntary Relocation Non-Pay Collection Effort Disco List Resale Effort Retention Resale Resolution Current Desired

© 2002 Six Sigma Academy Reduce Incoming Alarm Volume Problem Statement: CMC costs have grown in direct proportion to the number of customer accounts under management. Opportunity exists to leverage existing labor and technology to reduce ongoing operating costs. CTQ: (Critical To Quality): Rapid isolation and appropriate response to alarms. Defect Definition: Alarms received by CMC that do not require CMC “action.” Project Objective: Identify causes of and reduce costs (labor & technology) associated with alarms. Current Goal: Reduce incoming alarms and associated calls by 10%. Cost Benefits: $10.9M reduction in handling alarms Internal/External Client Benefits: Improved labor utilization. SSO allocated cost reduction Customer satisfaction Dependencies: Willingness to challenge “current thinking” using hard data. Upstream and downstream process improvements.

© 2002 Six Sigma Academy Margin National Core Commercial ANSC/ ADSC Sales/ Resales Install Customer Behavior Strategic Goal Business Channels Revenue Drivers Residential False Alarm CTQ Flowdown Customer Training Usage Patterns System Configuration Drill Down Potential Clusters TrainingEtc. Small Business Residential Service Equipment Associate Training Signal Processing Monitoring

© 2002 Six Sigma Academy End Process Call Monitoring Overview Diagnose Signal Call Home,Fire, Police etc. Incoming Signal (ADT & Dealer Installed Systems) Action Required? Need to identify the key drivers and make necessary, installation, service, monitoring and/or technology adjustments. Yes No

© 2002 Six Sigma Academy ADT Six Sigma Considerations Strengths –Commitment and readiness to implement six sigma –Willingness to challenge tradition and status quo Opportunities –Leverage improvements across all SSOs –Leverage call centers more effectively –Aggressive management of disconnects, resales and false alarms –Selection, testing and career development –Workforce management (turnover, compensation and resource allocation) Recommendations –Target the “big picture” opportunities consistent with business vision –Process standardization across the entire ADT enterprise –Inventory management –Address goal alignment issues to incent desired behaviors Obstacles –Ability to identify and engage high performers –Timing, ongoing priorities and competitive pressures –Existing goal alignment and incentives that do not reward across silo-thinking –Systems integration