1. Secretary of Defense Corporate Fellows 11 Final Outbrief Academic Year 2010-2011

2. Secretary of Defense Corporate Fellows 2 Agenda Program Overview Industry trends & recommendations for DoD Further discussion / Q&A Individual corporate experiences (appendix) 2

3. Secretary of Defense Corporate Fellows 3 Agenda 3 Program Overview Industry trends & recommendations for DoD Further discussion / Q&A Individual corporate experiences (appendix)

4. Secretary of Defense Corporate Fellows 4 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 4

5. Secretary of Defense Corporate Fellows 5 SDCFP Background DoD needs effective access to best executive level business practices applicable to operations & support – Strategic Planning – Organization – Change Management – Human Resources – Information Technology – Supply Chain – Outsourcing Infrastructure approximately 2/3 of Defense Budget – Reforms generate savings – Savings applicable to operational shortfalls 5

6. Secretary of Defense Corporate Fellows 6 SDCFP Organization Two or more officers from each Service – High flag/general officer potential – O-6 or O-5 – Senior Service College credit 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 Nine - Twelve Months at Sponsoring Company Permanent Staff – SDCFP Director, National Defense University (Ft. McNair) – Deputy Chief Management Officer for oversight – National Defense University for Admin support www.ndu.edu/sdcfp/sdcfhom.html 6

7. Secretary of Defense Corporate Fellows SDCFP Sponsors 10 - Prior 3M, ABB, Accenture, Agilent Technologies, American Management Systems, Amgen, Apple, Boeing, Booz Allen, CACI, Caterpillar, Cisco, CNN, Deutsche Bank, DirecTV, DuPont, EADS, Enron, FedEx, General Dynamics, Hewlett-Packard, Honeywell, Human Genome Sciences, IBM, Insitu Group, iRobot, Johnson & Johnson, Lockheed Martin, Loral, McKinsey & Co., McDonnell Douglas, Merck, Microsoft, Mobil, Netscape, Oracle, Northrop Grumman, Pfizer, Pratt & Whitney, PricewaterhouseCoopers, Raytheon, Sarnoff, Sears, Sikorsky, Southern Company, SRA International, Sun Microsystems, Symbol Technologies, Vertex Aerospace 10-11 Amgen, ExxonMobil, Google, IBM, Insitu, Lockheed Martin, McKinsey, Merck, Microsoft, Pratt & Whitney, SpaceX, SRA International 11-12 3M, Booz Allen, CACI, Cisco, FedEx, Honeywell, Johnson & Johnson, Northrop Grumman, Oracle, Raytheon, Shell, Southern Company, SRI, Union Pacific 7

8. Secretary of Defense Corporate Fellows 8 SDCFP Products 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 Report and Briefings directly – SecDef/DepSec, VCJCS, Service Secretaries & Chiefs, 30+ others – Business insights relevant to DoD culture/operations – Recommended process/organization changes 8

9. Secretary of Defense Corporate Fellows 9 SDCFP Results Program objectives fulfilled – Education DoD, individual officers, Sponsors – 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 9

10. Secretary of Defense Corporate Fellows 10 “And we must transform not only our own forces, but also the department that serves them by encouraging a culture of creativity and intelligent risk taking. We need to promote a more entrepreneurial approach to developing military capabilities, one that encourages people--all people--to be more proactive and not reactive, to behave somewhat less like bureaucrats and more like venture capitalists…” SecDef Remarks National Defense University 31 January 2002 10

11. Secretary of Defense Corporate Fellows 11 2010 – 11 Sponsors and Fellows Col Jim Gruny, USMC Lt Col Mark Valentine, ANG COL T.A. “Mac”McKernan, USACOL James Glackin, USACol Randy Kaufman, USAF Col Gina Humble, USAF LTC Carolyn Woosley, ARNG CDR Frank Schenk, USN Col Mike Guetlein, USAF CDR Arthur delaCruz, USN Col (S) AJ Manuel, USMCCol Kevin Fesler, USAF

12. Secretary of Defense Corporate Fellows 12 Agenda 12 Program Overview Industry trends & recommendations for DoD Further discussion / Q&A Individual corporate experiences (appendix)

13. Secretary of Defense Corporate Fellows Areas of Focus Federal Acquisition System Requires Change 1 1 Building Trust in Acquisition Relationships 2 2 Acquisition System Too Risk Averse 3 3 Innovation Recognized as a Competitive Advantage 4 4 Managing Talent / Employee Development 5 5 Prioritize “Configurable” vs. “Customized” Solutions 6 6 Cloud Computing 7 7 Shared Services and Enterprise Solutions 8 8

14. Secretary of Defense Corporate Fellows Concerns of Defense Contractor Executives – Spending enormous resources on non-value added reporting – Cumbersome reporting requirements – Massive investment of resources to chase potential RFP’s – Difficult to understand government requirements DoD customer/supplier relationship often contentious Observed lack of PM authority in decision making Barriers for DoD market entry by new players 14 Impact of Implementation Industry TrendsDoD PracticesRecommendations Federal Acquisition System Requires Change

15. Secretary of Defense Corporate Fellows Federal Acquisition System Requires Change Overwhelming and cost-inducing bureaucracy Micro-management stifles development contractors – Often forced into sub-optimal solutions – Need to empower them System does not tolerate failure Current practices discourage new market entrants – Eliminates competition – Eliminates innovation – Stagnates industrial base 15 Impact of Implementation Industry TrendsDoD PracticesRecommendations

16. Secretary of Defense Corporate Fellows Federal Acquisition System Requires Change Continue implementing USD(AT&L) “Guidance Roadmap” More Acquisition Leadership; Less Acquisition Reform – Reduce oversight and reporting – Make quicker decisions and take some risks – Partner with industry and lead them to success Give Government PM authority to make decisions Streamline/minimize bureaucracy & report requirements 16 Impact of Implementation Industry TrendsDoD PracticesRecommendations

17. Secretary of Defense Corporate Fellows Increased capability, lower cost, faster delivery –Increased risk must allow some to fail Reduced bureaucracy –Redirects critical resources towards value-added tasks Reduced micro-management of development contractors – Allows them to better focus on building capability Focus critical resources on value added developments –Speeds up delivery 17 Impact of Implementation Industry TrendsDoD PracticesRecommendations Federal Acquisition System Requires Change

18. Secretary of Defense Corporate Fellows Building Trust in Acquisition Relationships Division of labor coupled with comparative advantage –Businesses forced to rely on one another Mutual benefits underpinned by contracts & relationships Relationships and contracts reinforce one another –Creates trust Private industry RFPs generally short, simple, effective 18 Impact of Implementation Industry TrendsDoD PracticesRecommendations

19. Secretary of Defense Corporate Fellows Building Trust in Acquisition Relationships DoD reluctantly relies on industry Affairs governed by contracts –Relationships limited by official ethics policies & unofficial fear Limited relationships create mistrust – Sole reliance on contracts RFPs from government long, detailed, confusing – Industry often forgoes opportunities due to cost & complexity – Increases DoD cost – Reduces DoD options 19 Impact of Implementation Industry TrendsDoD PracticesRecommendations

20. Secretary of Defense Corporate Fellows Building Trust in Acquisition Relationships Expand opportunities to build relationships, trust – SDCFP = good start Reciprocal Visiting Fellows Program for industry – Attend key portions of Defense Acquisition University – Observe JCIDS process from DoD perspective – Author recommendations and outbrief Defense Business Board Forum of industry CEOs, etc. to create ownership – Help craft National Security Strategy Streamline RFPs; max use of commercial practices 20 Impact of Implementation Industry TrendsDoD PracticesRecommendations

21. Secretary of Defense Corporate Fellows Building Trust in Acquisition Relationships Industry representatives gain better understanding – DoD acquisition system & associated limitations DoD personnel gain broader insight into industry –Understand concerns and how DoD policies affect the system Greater trust between parties, less reliance on contracts –Shorter, more effective, less complex RFPs More industry participation in solutions –More options, reduced costs 21 Impact of Implementation Industry TrendsDoD PracticesRecommendations

22. Secretary of Defense Corporate Fellows Acquisition System Too Risk Averse “Fail Early/Fail Often” mentality reduces risk –Buys risk down early –Encourages innovation Enormous $ spent chasing perfection on Govt Programs Commercial buying practices maximized 22 Impact of Implementation Industry TrendsDoD PracticesRecommendations

23. Secretary of Defense Corporate Fellows Acquisition System Too Risk Averse Government has become too risk adverse Failure not tolerated – Reduces innovation – Increases costs – Slows delivery – Reduces capability Failure addressed by adding more checks and balances Any failure results in a lengthy audit, delayed capability Independent cells (like RCO) to circumvent bureaucracy 23 Impact of Implementation Industry TrendsDoD PracticesRecommendations

24. Secretary of Defense Corporate Fellows Acquisition System Too Risk Averse Continue implementing USD(AT&L) “Guidance Roadmap” Reduce non-value added contractual requirements – Program reporting and contractor oversight Adopt policy of “fail early and fail often” Maximize use of commercial buying practices – Less oversight and insight 24 Impact of Implementation Industry TrendsDoD PracticesRecommendations

25. Secretary of Defense Corporate Fellows Acquisition System Too Risk Averse Increased capability to the warfighter –Increased innovation –Reduced costs –Faster development Less intrusive contractor oversight Pursue USD(AT&L) “Should Cost” approach – Value of the development vs. the actual cost – Less insight (reporting requirements) in order to ensure affordability – PMs must accept more risk 25 Impact of Implementation Industry TrendsDoD PracticesRecommendations

26. Secretary of Defense Corporate Fellows Innovation Recognized as a Competitive Advantage Search for innovators in the hiring process –Not just about formal metrics Do not just accept, but celebrate failure –“Without the willingness to fail the possibility of great success is eliminated.” Stretch goals Foster an open and collaborative environment Maintain flat and transparent organizations Require team, not individual success Data driven decisions 26 Impact of Implementation Industry TrendsDoD PracticesRecommendations

27. Secretary of Defense Corporate Fellows Innovation Recognized as a Competitive Advantage Military – Understands the need for innovators, but has difficulty identifying – Commander’s guidance provides freedom to execute tactical innovation – Progress made in eliminating zero defect mentality Civilian – Focus on detailed duty descriptions inhibits innovation Defense Business Board Culture of Savings Task Group – Culture promoting risk taking recommended NSPS a solid initiative w/ poor execution and commitment 27 Impact of Implementation Industry TrendsDoD PracticesRecommendations

28. Secretary of Defense Corporate Fellows Innovation Recognized as a Competitive Advantage Study common characteristics of innovators –Include in service qualification and promotion criteria 360 degree reviews for support forms and evaluations –Require quantifiable stretch goals –Meeting all goals seen as not challenging yourself –Emphasize team building beyond organizational structure –Rate raters on their ability to make the hard decisions LEADERSHIP –Must be an action verb –Requires significant communication 28 Impact of Implementation Industry TrendsDoD PracticesRecommendations

29. Secretary of Defense Corporate Fellows Innovation Recognized as a Competitive Advantage Identifies quantifiable characteristics of innovators –Ensures a deep bench Members challenged beyond their perceived capabilities Stretch Goals breed a new culture – Failure while trying is expected and perfection is not Fosters a culture of change and innovation – No such thing as “good enough” 29 Impact of Implementation Industry TrendsDoD PracticesRecommendations

30. Secretary of Defense Corporate Fellows Managing Talent / Employee Development Rising stars are identified – Accelerated opportunity for advancement and responsibility Expertise allowed – Individuals developed to serve in same capacity for longer terms Performance is a requirement for retention; tenure is not – ‘’Up or Out” – Cannot remain for benefits w/ mediocre performance “Manager” skills usually come first – Followed by development of “leadership” 30 Impact of Implementation Industry TrendsDoD PracticesRecommendations

31. Secretary of Defense Corporate Fellows Managing Talent / Employee Development Leadership inculcated from day one Military “specialization” career paths penalized – Learning new process vice leveraging past – “Jack of all trades, master of none” syndrome “Ideal” Flag career path imposed on everyone – Very few will ever become Flags “Up or out” – Incentive is to stay in until retirement in an all or nothing system – Challenging to cull the mediocre performers 31 Impact of Implementation Industry TrendsDoD PracticesRecommendations

32. Secretary of Defense Corporate Fellows Managing Talent / Employee Development Revise the current mandates – Allow for more accelerated promotion of select individuals Modify current retirement system – Enable earlier release with some level of benefits, 401k Formalize and implement “consultant” training – Aid in problem solving / consensus Enable military members to “specialize” without penalty – Comparable career milestones and promotion opportunities – Job changes every 2-3 yrs detrimental to expertise 32 Impact of Implementation Industry TrendsDoD PracticesRecommendations

33. Secretary of Defense Corporate Fellows Managing Talent / Employee Development More skilled and specialized workforce – Developed, retained, and rewarded for performance Accelerated promotion of top performers – Mediocre performers not allowed to remain DoD able to establish continuity in workforce – Especially valuable in long-term project management 33 Impact of Implementation Industry TrendsDoD PracticesRecommendations

34. Secretary of Defense Corporate Fellows Prioritize “Configurable” vs. “Customized” Solutions New problems attacked with existing organizations & resources When new tools are required – Assess current inventory – Reconfigure existing tools – Limit customized solutions to integrating existing tools if possible Field 80% solution quickly – Iterate based on configurable nature Exemplar: Microsoft Global Security Operations Center 34 Impact of Implementation Industry TrendsDoD PracticesRecommendations

35. Secretary of Defense Corporate Fellows Prioritize “Configurable” vs. “Customized” Solutions Stand up new offices for emerging problems Limited ability to assess current inventory (esp. in IT) – Limited knowledge of what DoD owns – Limited understanding of true capabilities Rely on vendor provided, customized solutions – Increases costs and fielding time – Limits flexibility and iterative improvement capability 35 Impact of Implementation Industry TrendsDoD PracticesRecommendations

36. Secretary of Defense Corporate Fellows Prioritize “Configurable” vs. “Customized” Solutions Identify products that DoD owns –Comprehend and fully utilize licensing agreement –Train users on existing capabilities Often part of license agreement Prioritize configurable solutions vs. customized Focus on user needs Maximize acquisition of services when possible –Allows for vendor to upgrade in a timely and efficient manner 36 Impact of Implementation Industry TrendsDoD PracticesRecommendations

37. Secretary of Defense Corporate Fellows More effective solutions at a reduced cost More rapid fielding of solutions Reduced training costs – Solutions are based on a familiar product Greater ability to improve solutions through iteration Prioritize “Configurable” vs. “Customized” Solutions 37 Impact of Implementation Industry TrendsDoD PracticesRecommendations

38. Secretary of Defense Corporate Fellows Cloud Computing Cloud Users – 80% of Fortune 1000 companies will use some form by 2012 – 85% of universities considering cloud solutions – 20-35% savings in IT costs – 67% savings with electric, real estate, and personnel costs included Leadership held accountable for transformation Cloud Providers – Competition driving down cost – Focus on reliability and security – 2010 Investment in R&D Microsoft $8.7B Google $3.8B 38 Impact of Implementation Industry TrendsDoD PracticesRecommendations DISA 2010 Budget $1.3B

39. Secretary of Defense Corporate Fellows Cloud Computing NSA IA Director - Cloud the “IT architecture of the future” Local servers maintained at installation level Paying premium prices for underutilized services Costly “patching” to minimize security risks Service level and installation level email accounts Some consolidation of Government data centers 39 Impact of Implementation Industry TrendsDoD PracticesRecommendations

40. Secretary of Defense Corporate Fellows Cloud Computing Pilot program –Move all Service Academies to the commercial cloud –Waive/modify existing requirements preventing/hindering adoption –Iterate services and tools to fine tune requirements and practices –Evaluate actually savings and impact on performance –Evaluate relative security risk –Data based expansion decisions Collaborate with industry on the security of the cloud Standardize across DoD Adopt single e-mail account per user policy –Eliminate installation level acct 40 Impact of Implementation Industry TrendsDoD PracticesRecommendations

41. Secretary of Defense Corporate Fellows Cloud Computing 20-35% savings with decreased downtime –7 min/mo vs. 3.8 hrs/mo –Financial penalties for downtime Equivalent or increased security of data – Loss of data incidents minimized Proof of concept for all services – Actual savings metrics used to drive scaling decisions Allows DISA to focus on solutions only they can provide – Partners with industry to leverage their innovation 41 Impact of Implementation Industry TrendsDoD PracticesRecommendations

42. Secretary of Defense Corporate Fellows Shared Services and Enterprise Solutions Conscious decision about where to reside on spectrum –Functional Services (2-3 yrs) –Cross Functional Services (3-4 yrs) –Enterprise Services (4-5 yrs) –Global Business Services (5-7 yrs) Path to success – CEO driven –Consistent strong proven leaders –Willing to fight for change –Constant communication –Consolidate, Integrate, Optimize –Must prove innovation will be impeded to be granted an exception –Constant focus on staying linked to the company –Data must show cost savings –Replicate / reinforce success 42 Impact of Implementation Industry TrendsDoD PracticesRecommendations

43. Secretary of Defense Corporate Fellows Shared Services and Enterprise Solutions Fiscal constraints drive the search for efficiencies We can read the books We know we can do better Often viewed as just another budget cut Adoption hindered by constant changes in leadership Search is always for the silver bullet Tendency to contract a customized service – Varying degrees of success 43 Impact of Implementation Industry TrendsDoD PracticesRecommendations

44. Secretary of Defense Corporate Fellows Shared Services and Enterprise Solutions Leadership must decide where to reside on the spectrum Appoint a proven leadership team – Let them see the task through to completion Adopt Consolidate, Integrate, Optimize Business model Accept risk and iterate on imperfect solutions Communicate, celebrate, build on, and imitate success 44 Impact of Implementation Industry TrendsDoD PracticesRecommendations

45. Secretary of Defense Corporate Fellows Shared Services and Enterprise Solutions Provides a clear destination –Enabling the creation of a clear path to get there Provides stable leadership – Eliminates the ability to “wait out” change 45 Impact of Implementation Industry TrendsDoD PracticesRecommendations

46. Secretary of Defense Corporate Fellows 46 Agenda 46 Program Overview Industry trends & recommendations for DoD Further discussion / Q&A Individual corporate experiences (appendix)

47. Secretary of Defense Corporate Fellows 47 Discussion and questions?

48. Secretary of Defense Corporate Fellows 48 Agenda 48 Program Overview Industry trends & recommendations for DoD Further discussion / Q&A Individual corporate experiences (appendix)

49. Secretary of Defense Corporate Fellows 49 World's Largest Biotech Pharmaceutical Company – Corporate HQ: Thousand Oaks, CA – Employees: 17K (Market presence in 52 countries) – Revenue: $15.1B in 2010 – R&D Investment: $2.9B in 2010 Discover, develop, manufacture, deliver protein-based medicines – Unleash body's own powerful therapeutic responses Corporate Goals – Deliver financially – Deliver the best pipeline – Aggressively pursue growth opportunities Assignment: Director, Business Performance – Projects Supply Chain Strategy Capital Investment Process Improvement Acquisition and Integration Readiness Leadership Development Amgen

50. Secretary of Defense Corporate Fellows 50 Strong Science-Based Culture – Values-based organization – patient focused – Facilitates recruiting, developing, and retaining the best and brightest – World leaders in biotech innovation, discovery, manufacturing Victim of their own success – Strategic, operational, cross-functional planning not well developed – Striking commercial success and abundant revenue have produced: “Execution-oriented” atmosphere Acceptance of immature business processes Maturing company in a maturing industry; recognized need to: – Control expenses – Wisely utilize cash assets – Take advantage of established international and emerging markets – Aggressively pursue non-organic growth Observations (Amgen)

51. Secretary of Defense Corporate Fellows 51 Make trust an institutional imperative; reduce burdensome oversight – Between Congress and DoD – Between OSD and the Services – Between DoD/Congress and Industry – Requires disciplined execution at the Service level Evolve wisely – Retain and nurture unique cultures – Proactively and openly explore core missions – Man, Train, Equip to core missions – Change before you have to Simplify and compress the resource allocation cycle – More responsive to rapidly changing environment – Reduced overhead – Capitalize on information revolution benefits – Will require significant Congressional engagement plan Recommendations to DoD

52. Secretary of Defense Corporate Fellows 52 America’s Largest Energy/International Oil Company (IOC) – Corporate HQ: Irving TX – 2010 Results: Revenue $383B; Profit $31B; 8% Profit Margin – Employees: 70K+ (market presence in 52 countries) Taking on the world’s toughest energy challenges – Investing >$125B over the next 5 years on capital projects – Developing technologies to speed the adoption of hybrid vehicles – Testing new carbon capture technologies to reduce emissions Corporate Goals – Flawless operations – safety, controls, reliability – Generate highest general interest value on every molecule – World class efficiency – eliminate supply chain waste – World class people, teams, work environment Assignment: Demurrage Analyst, Global Marine Transportation Optimization (GMTO), Refining & Supply (Downstream) – Demurrage (Ship Late Fees) Reduction from $300M to $200M – Middle East/Iraq Socio-Economic Analysis, Policy & Security Advisor – Maritime Security/Anti-Piracy ExxonMobil

53. Secretary of Defense Corporate Fellows 53 Too Little Cooperation/Synchronization between DoD & Private Sector – USG/Military community unwilling to share information with US corporations – Failure to share Lessons Learned/TTPs will likely result in unnecessary incidents which further threaten security in places like Iraq – Security Cooperation = State/Defense/Commercial triad; military/USG leaders need to train and develop skills to make this happen Private Sector Leads in Energy Reduction Efforts – More R&D in private sector than governmental (worldwide) – DoD Energy Reduction Initiatives Destined to Fail Focus on percent reduction vice viable/achievable solutions Reluctance to implement COTS solutions (energy efficient buildings vice tents) Lowest unit price versus best performance = early wear-outs/higher maintenance Interaction with Industry key to professional development – Need to overcome the “Us versus Them” mentality Strong US Industry = Strong US Economy = Safe and Secure World – More Fellowships with Industry needed (i.e. 6 months) by senior MAJ/junior LTC levels to capitalize on experience vice end of career Fellowships – Serious lack of Iraqi experience throughout entire US Energy Sector = Opportunity for Transitioning Warriors Observations/Recommendations

54. Secretary of Defense Corporate Fellows Google Mission: Organize the world’s information and make it universally accessible and useful. – Employees: 23K (13K on Mountain View campus) – Revenue 2009: $23.7B ($6.5B net income) Core business: Search and Advertising – 97% of revenue from advertising Core value: “Don’t be evil” Assignments – GEO team: imagery acquisition – VetNet: increase Veteran employees, help service members and Vets – Google Ideas: weak and failed states – Education: tools and content for wiki-style textbook 54

55. Secretary of Defense Corporate Fellows Observations (Google) “Hire people smarter than me and get out of the way.” – Rigorous hiring process – Eliminate distractions – Fluid organizational structure (minimal staff) Innovation: continuous - not perfect – 20% of employee work hours for individual self-interest projects – Collaboration – Celebrate failures – Autonomous Units to keep the start-up atmosphere Transparency – Thank God It’s Friday – Objectives and Key Results - quarterly Making money is not everything 55

56. Secretary of Defense Corporate Fellows Army Knowledge Online (AKO) replacement – Industry has better solutions – Cloud computing is the future Acquisition process – Must move at the speed of technology – Increase use of Commercial Off The Shelf Technology (COTS) Create time for leaders to think – Promote continuous leader development Consolidate/coordinate cyber defense Assume our adversaries have imagery Recommendations to DoD 56

57. Secretary of Defense Corporate Fellows One of World’s Largest IT Companies – CapabilitiesHardware, Software, Services, Research, Financing – Employees400,000+ in 170 Countries – 2010 Revenue$99.9B ( 57% from Global Services) – 2010 Earnings/Share$11.52 ($10.01 in 2009) Value-based Enterprise of Individuals – Create and apply technology to make the world better – Dedication to every client’s success – Innovation that matters – Trust & personal responsibility in all relationships Assignment: Federal Sector, Global Business Services – Defense & Intelligence DoD account immersion Bid & proposal process – Corporate capabilities, value propositions IBM 57

58. Secretary of Defense Corporate Fellows Observations (IBM) Transformation Still Ongoing – Enabling growth, productivity & culture change – CEO sponsorship has been the key – Strategy development + execution – Commitment, sense of urgency evident throughout A Leader in Technology – Maintains world’s largest private-sector research arm ($6B Annually) – U.S. Patent leader for 18 consecutive years (5,896 in 2010) – Acquired 100+ companies in past seven years – Watson and the Jeopardy Challenge Highly Dispersed & Virtual Company – Large percentage of IBMers work from mobile locations – Employees issued laptops, various collaboration tools – IBM Mobility Centers with full service capability provide flexibility IBMers Dedicated to Helping their Clients Succeed – Build strong, long-lasting relationships – Focus on outcomes 58

59. Secretary of Defense Corporate Fellows Change/Reform DoD Acquisition Strategy – Streamline process to reduce acquisition cycle time – Increase collective will to unify, solve IT problems together – Clearly communicate requirements – Minimize change (e.g. requirements/deadlines) Adopt Commercial Practices to Reduce Cost/ Improve Performance – Consolidate, standardize IT infrastructure – Streamline supply chains – Move to shared services for mission-support activities – Consolidate field operations, increase self-service platforms Embrace Smarter Installations – Implement energy conservation & building management practices – Integrate system of sensors, meters, and instruments – Use advanced analytics for early detection/diagnosis Recommendations to DoD 59

60. Secretary of Defense Corporate Fellows 60 Medium Sized, High Tech Unmanned Aircraft Systems Company – Designs Disruptive Technologies for Tier II Small Tactical Unmanned Aircraft Systems (STUAS) – Growing Rapidly Across Global Markets (Military & Commercial) – Employees: 780 ( Just 130 in 2005) – Revenue: >$350M in 2010 ($28M in 2005) – Independent Subsidiary of Boeing (since 2008) – Allows Insitu To Remain An Agile, Innovative Company In Pursuit of New Customers – First Program of Record contract (2010) – Took 4+ Years & Very Costly Process – 400,000+ Combat Flight Hours (Scan Eagle Platform) Company Strategy – Maintain Agile, Innovative Culture And Strong Customer Relations – Leverage Boeing’s resources and expertise to gain access to larger market s – Boeing Gains Access To Emerging Markets And Technologies Fellowship Assignment: Executive Staff to CEO, Special Projects Insitu

61. Secretary of Defense Corporate Fellows 61 New CEO Mr. Steve Morrow (as of 27 April 2011) – Retired NFO US Navy Captain w/Program Management Experience – Replaces Dr. Steve Sliwa, PhD, AE and Entrepreneur Who Retired After 10 Years as President and CEO Operations Becoming More Complex – Growth In Global Market Size And Operational Reach – Migrating From “Engineers Working Out Of A Garage” To Full Rate Production and Sustainment – Growing Pacific Rim Operations Out of Australia (Insitu Pacific) – Program Of Record Increased Growth Challenges, Operating Expenses Full production, Inventory Sustainment, AS9100 compliance, Significant Increase in Overhead and Consultant Fees To Meet DoD Compliance Requirements A Market Leader in Small Tactical UAS Platforms – Strong USMC Flag level Advocacy For Scan Eagle And Services – Navy Expanding Opportunities For Surface Platforms & MEU Operations – Used as ISR asset for JTF Commanders – Army Seriously Considering Contract for Integrator (Next Gen) Platform Observations (Insitu)

62. Secretary of Defense Corporate Fellows Location, Outdoor Culture A Big Draw For Recruitment/Retention – Columbia River Gorge (60 Miles East of Portland, OR) Top Wind/Kite Surfing Capital In CONUS Hood River Area Population Small, Laid Back, Outdoor Friendly Endless Outdoor Activities Opportunities Scenic Mountains, Orchards, Wineries, Breweries, Mild Climate Conditions Company Emphasize On Being Agile, Innovative, Laid Back, Yet Keenly Focused (Culture/Focus May Change A Bit w/New CEO) Core Competency - Engineering Designs & Customer Relations Challenges - Meeting Government, Export, Compliance Issues – Immediate Feedback From Warfighter Customer Motivates Employees – 88,000 Employee Applicant Backlog Revenue, Customer Base Continues To Grow – Military, Foreign Sales – Profitability Starting in CY 12 62 Observations (Insitu)

63. Secretary of Defense Corporate Fellows 63 Recommendation ACTD Conceptual Studies PrototypesSDD LRIP System of Record Demo Conventional Paths to System of Record Tech Dev 5 - 9 yrs 4 - 6 yrs DemosExercises Deployments System of Record Disruptive Technology Insertion to System of Record 3 - 5 yrs Leverage OIF/OEF demands to win warfighter advocacy Small Companies With Disruptive Technologies Cannot Survive Long Enough Financially On Their Own To Compete Under The Conventional Path to System of Record 63

64. Secretary of Defense Corporate Fellows 64 Worlds Largest Defense Contractor – Four diversified business segments Aeronautics – 27% ($12.2 billion) Electronic Systems – 27% ($12.2 billion) Information Systems & Global Services – 27% (&12.1 billion) Space Systems – 19% ($8.7 billion) – Employees: 136K worldwide – 2009 sales: $45.2 billion – Aeronautics Segment – Research, design, development, manufacture, integration, sustainment, support, upgrades of advanced military aircraft Combat Aircraft: F-16, F-22, F-35 (72%) Air Mobility: C-130, C-5 (15%) Other: Skunk Works, Long Range Strike, ISR (13%) – 28,509 employees Assignment: F-35 Sustainment Customer Alignment – Eight Partner Nations, 13 Services – Identify, communicate, align and deliver the “Best Value” JSF sustainment solution Lockheed Martin Aeronautics

65. Secretary of Defense Corporate Fellows 65 Warfighter focused – Heavily represented by prior military – Deliver “Best Value” combat capability at an “affordable” cost Very large organization – Multiple levels of hierarchy – Blurring of leadership and management Continuous education effort – Significant efforts spent “re-educating” DoD leadership – Hampered by DoD two year leadership cycle Dedicated to diversity – Well integrated diversity program unified throughout the company – Contributor to the Air Force Diversity Roadmap Observations (Lockheed Martin)

66. Secretary of Defense Corporate Fellows 66 “We never forget who we’re working for…” – Continue to demonstrate commitment to combat capability – Ensure all engagement opportunities “highlight” customer focus Turn “Managers” into “Leaders” – Identify and educate “leaders” early – Broaden experiences and expertise Better communicate “Best Value” to the Warfighter – Develop consistent engagement theme supported with “proven” data – Develop methodology to compare “apples” to “oranges” Continue to attract quality personnel – Focus on “First who… then what” Observations (Lockheed Martin)

67. Secretary of Defense Corporate Fellows 67 Strategic level management consulting firm – Consultants: ~8,000 in 50 countries Over 100 spoken languages, 120+ citizenships – Limited Liability Partnership; no public financials – Consistently a top desired employer by MBA graduates Experts provide ability to serve broad spectrum of clients – Functional practice Corporate finance, marketing, operations, organization, risk, strategy – Industry practices Advanced industries, consumer, financial, global energy & materials, healthcare, infrastructure, private equity, public sector, social sector, travel, transport & logistics, tech, media & telecom Assignment : Atlanta Practice – Client engagements – hypermarkets, rail transportation, industrial manufacturing, public and private sector leadership development McKinsey & Company

68. Secretary of Defense Corporate Fellows 68 Observations (McKinsey) “One Firm” – World-wide standardization of problem-solving and communication – World-wide access to resources Expertise – experience and skill based Access to individual experience and expertise throughout the Firm – Global evaluation and education process “People are the competitive advantage” – Diversity – heritage, academic background, experience – Early exposure to independent work streams – Responsibility to deliver impact – Team problem solving Non-hierarchical meritocracy Obligation to dissent Team composition – Small, nimble and flat – Global participation and assignment

69. Secretary of Defense Corporate Fellows 69 Recommendations to DoD Leverage consulting firm’s expertise and objectivity – outsourcing is a positive action – Expertise Ability to leverage past engagements and provide impact Constantly developing, refining and researching “best practices” across all industries – Objectivity Able to provide the “outside” opinion Not afraid to “kill” programs and ideas if they do not create value Foster a climate of “jointness” early – Standardized communications across DoD personnel Problem solving methodology Templates and expectations Increase opportunity for broadening – Fellowships / sabbaticals – Joint problem solving opportunities early in career Identify and foster talent earlier – provide accelerated opportunity

70. Secretary of Defense Corporate Fellows 70 Merck World’s second-largest pharmaceutical company – Employees: 93k in 140+ countries – Revenue: $46B – R&D Investment: ~ $8.4B Corporate Strategy – Research-based and Customer Focused – Eight year roadmap: Launch, Accelerate, Breakthrough Launch phase (2009-2011)  Accelerate Phase in 2011 – Become one company – Maintain business momentum – Prepare for the future Products – Vaccines – Prescription products – Consumer products – Animal health Assignment: Global Security Group – Intelligence & Investigations

71. Secretary of Defense Corporate Fellows 71 Observations (Merck) Just completed first year of merger with Schering Plough – $3B in savings promised to The Street in the first three years Future growth focused through emerging markets – Primarily BRIC (Brazil, Russia, India, China) countries Merck Sigma well established across the company – Annual awards process recognizes best projects Delayering Concept & Simplification Global Data Center Consolidation Project underway – Global Center in U.S – Two smaller regional centers EMEA (Europe, Middle East, Africa) AP (Asia, Pacific)

72. Secretary of Defense Corporate Fellows DoD should look for more opportunities to realize savings and capture value of enterprise behavior by sharing services across the Services. We are one company (DoD) not independent subsidiaries – Significant savings will not be realized until the tough issues are tackled and top-down driven!! Embrace a culture of savings and simplification throughout DoD. Needs to be top-down driven throughout all levels of the organization. Additional workforce shaping tools required for both the military and civilian workforce. Working for DoD is not an Entitlement Program. Formalize mentoring program for rising stars across the DoD. Recommendations to DoD 72

73. Secretary of Defense Corporate Fellows 73 World’s largest software company ­ Divisions  Business, Server & Tools, Windows & Windows Live, MS Office  Interactive Entertainment, Mobile Communications, Online Svcs ­ Employees: 91K (186,000 including vendors & associated personnel) ­ Sales: $62B in 2010 ($19B profit) ­ Market capitalization: $210B ($36B in cash, short-term investments) Mission: Help people and businesses throughout the world realize their full potential Assignments ­ US Public Sector Sales & Marketing: Business Strategy ­ Corporate HR, Microsoft Bench: Leadership Development ­ US Federal Security Advisor: Cyber Microsoft

74. Secretary of Defense Corporate Fellows 74 Company on the brink of externally driven evolutionary change ­ Ubiquitous internet, mobile, "App Revolution", “The Cloud” ­ Tension between growing bureaucracy and innovation ­ Reduced strategic focus..."secessionist" pressures IT environment and competition prevent the comfort of certainty ­ Better to be first and fail than fail to be first ­ Requires tight OODA loop to minimize damage of failure Precision Development (not developing everyone to be CEO) ­ World-class in-house leadership develop programs (MS Bench) ­ Highly developed performance feedback (direct & 360) ­ Global diversity and inclusion fundamental to bottom line Process and personnel efficiency ­ Global Security Operations Center ­ Live Meeting, Lync Passionate Personnel ­ People believe in, and stand by their products ­ Incentives further drive excellent service delivery Observations (Microsoft)

75. Secretary of Defense Corporate Fellows 75 Move to Cloud Computing (Benefits outweigh costs) ­ Save ~35% of IT budget (not including elec, real estate & personnel) ­ Security counter-arguments are overstated (can actually be safer) ­ Partial moves = similar costs, reduced benefits Solutions: prioritize “configurable” over custom, focus on user ­ Must first determine what we own…then what it can do ­ Solutions built on integrated backbone offer: ­ Reduced costs ­ Faster fielding ­ Less training ­ Flexible improvement through iteration Practice more Precision Development ­ Not everyone can be, or wants to be the Chief of Staff ­ Current practice dilutes limited resources over entire population ­ Base development decisions on ability and commitment – include aspiration ­ Eliminate “up or out” system (or relax the strata) Recommendations to DoD

76. Secretary of Defense Corporate Fellows 76 Trust is the missing element in Acquisition ­ We don’t trust therefore we legislate through voluminous RFPs ­ Industry can’t understand them ­ When they do, we change the requirements (at significant costs) ­ Trust gained through interaction & understanding ­ SDCFP good start ­ Create reciprocal Visiting Fellows Program for industry Nurture calculated risk taking (Operational Risk Management) – Orchestrated development opportunities – Question lack of “failure” on resumes Use IT that we’ve already paid for ­ Desirable features remain unused - collaboration tools ­ Unused training resources - Office, Sharepoint, etc... ­ Off-the-shelf solutions to IT problems exist, available Marginal cost due to existing enterprise agreements not pursued Application virtualization Recommendations to DoD

77. Secretary of Defense Corporate Fellows World Leader in Design, Manufacture, and Service of aircraft engines, industrial gas turbines, and space propulsion PW Statistics – $12.94B in revenue with $1.99B in operating profit – 36,000 employees supporting 195 countries – Commercial and Military Engine Divisions Major Products – Commercial Engines: B747, 757, 767, 777, & A300, 310, 318, 330, 380 – Military Engines: F-15C/E, F-16, C-17, F-22, F-35 – Space Propulsion: Powers Space Shuttle, Atlas, Delta Rockets – Small & Medium Engines: Dassault and Mitsubishi commuter jets Fellowship Placement: F135 Program Management Office – Global Sustainment Strategy for JSF Propulsion System Pratt & Whitney 77

78. Secretary of Defense Corporate Fellows Observations (Pratt & Whitney) Process Oriented and Methodical in Practice Led by engineers with 25+ years at the company – Executives, Directors, Product Team Leads – Outside hiring is uncommon for senior management Employees replicate customer/DoD – High ethical standards/constantly mindful of customer – Employees take ownership of processes and failures – Accountable to produce results for customer “Reliable product delivered on time” Leadership versus Management – Leadership development started much later than military – Management substitutes for leadership at times 78

79. Secretary of Defense Corporate Fellows Utilization of Predictive Analytics within Propulsion Enterprise – Forecasting and Inventory Optimization Tools – Proactively engage maintenance trends to adjust forecast Increased fill rate & fleet availability, reduced inventory Manage Excess and Obsolete with significant reductions 2010 NDAA required SECDEF to submit inventory reduction plan to congress – DoD manages 4M inventory items valued at $91B – 11% designated as excess & 17% exceeds approved acquisition objective – Corporate America has developed infrastructure of systems to tackle this issue Leverage Industry Planning & Optimization Software in existence – Meets DoD plan to implement ERP systems – Metrics are in-place, with defined procedures and processes Recommendations to DoD 79

80. Secretary of Defense Corporate Fellows 80 SpaceX Emerging provider of affordable access to space – Highly reliable, low cost space transportation for cargo/payloads and crew – Employees: ~1,300 (almost 400 hired since August) – Projected revenue: $2.5B (40 manifested flights through 2017) Philosophy: simplicity, low-cost, & reliability go hand-in-hand Reducing overall product production costs – Reduce cost/increase reliability of space access by factor of ten – Reduce costs while speeding decision making and delivery – Eliminate traditional internal layers of management – Simple, proven designs with a primary focus on reliability – Maintain a tighter control of quality Ensure tight feedback loop between design & manufacturing – Minimize use of sub-contractors Maintain majority of in-house manufacturing Control over costs, schedule, and performance Assignment: Vice President of Government Business 80

81. Secretary of Defense Corporate Fellows 81 Observations (SpaceX) Orders of magnitude cheaper than existing providers – Combo of people, technology, and lower overhead Young workforce (average age 28) – Motivated to make a difference—long, but flexible, work schedules – Plugged in (laptops, iPhones, iPads, video meetings….) Short build-test-build-fly cycle – Rapid capability to incorporate design changes – Rapid resolution of launch anomalies National Security Space (NSS) hesitant to engage with SpaceX – Enormous wealth of untapped innovation Barriers to entry into government business are high – Government is highly risk adverse (sometimes for good reason) – Budgets are fairly rigid Corporate access to government senior leadership – Corporations have greater access than government counterparts Government speaks from many voices – Can frustrate industry or create opportunities to propagate their agenda 81

82. Secretary of Defense Corporate Fellows 82 Government needs to cultivate new market entrants – Strengthens industrial base and promotes competition – SpaceX alone could save upwards of a billion dollars a year in launch costs Where possible, look for lower tech solutions – Sometimes multiple simpler/cheaper solutions beats a single complex solution Acquisition system needs to better embrace commercial buying practices Government needs to readdress the cost versus risk tolerance equation – Used to throwing money at the problem to reduce risk 82 Recommendations to DoD

83. Secretary of Defense Corporate Fellows 83 SRA International Innovative technology, strategic consulting services, solutions – Government organizations and commercial clients National Security, Global Health and Civil Services, Intelligence, Space – Revenue: $1.667B in 2010 88% as prime contractor – Employees: 7,200+ worldwide and growing – Recently acquired by Providence Equity Partners Deeply embedded culture – Focused on creating value for customers – Builds business by gaining “trusted advisor” status with customers – Corporate trademark – “Honesty and Service” Assignments: – Special Assistant to the Vice President, HR Strategic Initiatives – Special Assistant to the Vice President, Enterprise Systems – Special Assistant to the Director, Touchstone Consulting

84. Secretary of Defense Corporate Fellows 84 SRA Observations Corporate and personal Integrity promoted and expected – Transparency encouraged – Bad news doesn’t get better with age – Encourages seeking help from leadership from day one in the company Flexible, virtual workplace Growing organically & through acquisition – Challenges to the corporate culture – Maturation of the federal IT market space Dedicated to employee development & retention – Fortune Magazine “100 Best Company to Work For” 2000-2009 – Values output of employee engagement surveys to guide management initiatives – Developing succession planning process – Utilizes HR matrix organization and “brass ring” to manage internal mobility Focus on adjustment to multi-generational workplace

85. Secretary of Defense Corporate Fellows 85 Optimize ‘Crowdsourcing’ – Problem solving, solution finding, innovation, collaboration, updating doctrine – Communities of Practice – Improve quantity of collaborative space available Take a systems approach to talent acquisition and management – Hiring: Develop and incorporate interview training for those in the DoD civilian hiring process and streamline DoD hiring process to capture best candidates – Mentorship: formalize responsibility and train it – Education: include financial aspect of DoD “business”; think like an investor online libraries (egg. Books 24X7) – Performance management- 360 degree, accountability to objectives Promote personal and organizational led workplace sustainability efforts – Secure container recycling, Duplex printing policy – Optimize alternative workplace strategies (“Hoteling”/Hot Desks) Develop “consulting skills” in field grade officers – Include effective engagement strategies to identify stakeholders and influence outcomes, consensus building, process mapping, value propositions, change management and governance Recommendations to DoD

86. Secretary of Defense Corporate Fellows USD(AT&L) Guidance Roadmap 86